The amended Enterprise Law 2014 has many new regulations, the most outstanding of which is the establishment of supervisory boards in joint stock companies.
FUNCTIONS AND DUTIES OF SUPERVISORY BOARDS OF JOINT STOCK COMPANIES
According to Article 110 of the Enterprise Law 2015, a joint-stock company is a enterprise of which charter capital is split into multiple units of equal value called shares. Shareholders may be organizations and individuals who own shares; the minimum quantity of shareholders is 03; and the maximum quantity is not restricted. Thus, shareholders are only liable for the enterprise’s debts and other liabilities up to the value of capital contributed to the enterprise.
Due to the complexity of corporate governance and shareholder relations, the supervisory board of a joint stock company is established to monitor the management and administration of the company; inspect the rationality, legality, truthfulness of business reports, financial statements and activities of reviewing and supervising business operations of the company.
Normally, the supervisory board of a joint stock company has from 3 to 5 members; the term of supervisors is not over 5 years; and supervisors can be re-elected for an unlimited number of terms. There are large companies with thousands of shareholders, so the management and administration of the company becomes more complex. Thus, simply speaking, the nature of the supervisory board of a joint stock company is to ensure the prudence and transparency of the company’s business activities. Depending on the size of the company, the number of shareholders varies.
SHOULD SUPERVISORY BOARDS OF JOINT STOCK COMPANIES BE ESTABLISHED?
Because of inspections and reviews, normal business activities of enterprises may be disrupted. Therefore, according to the Enterprise Law 2014, joint stock companies can choose whether to have supervisory boards within their company structure or not. Accordingly, unless otherwise stipulated by the law on securities, the supervisory board of a joint stock company is allowed not to be established when:
- The corporate governance model consists of a General Meeting of Shareholders, a Board of Directors, and a Director or General Director (in this case, the company must ensure that at least 20% of the board members are independent members and there must be an internal audit committee under the Board of Directors to perform the function of supervising the company’s activities).
- The company has less than 11 shareholders and institutional shareholders hold less than 50% of the total number of shares of the company.
This regulation allows joint stock companies to freely choose the management model for themselves. This is consistent with the diversity of businesses in Vietnam today. Moreover, this regulation is suitable for the practical operation of supervisory boards in joint stock companies. Though the existence of supervisory boards seems to bring many benefits, it is difficult for them to fulfill their functions and duties. Therefore, joint stock companies’ right to choose whether they want to set up supervisory boards or not is completely reasonable and consistent with the aspirations, wishes and needs of shareholders of joint stock companies.
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