“When entering into contracts, changing the legal representative of the company or participating in transactions and other activities, enterprises should ascertain the competence of Board of Director and General Meetings of Shareholder to guarantee correct compliance with current legal regulations”. However, the key to ensuring that these decisions align with the prevailing legal regulations lies in understanding the competence of the Board of Directors (BOD) and General Meetings of Shareholders (GMS).
1/ The competence of Board of Director (BOD) and General Meetings of Shareholders (GMS) depends on certain value and object of the contract
- BOD has the right to approve contracts of purchase, sale, loan, or any other contracts worth 50% or more of the total asset value recorded in the most recent financial statement of the company, or a smaller percentage if otherwise provided for in the Company Charter.
- However, in a case of contracts and transactions between the company and the following persons/entities:
- Shareholders or authorized representatives of shareholders owning more than 35% of total ordinary shares of the company and their related persons:
- Members of BOD, Director, or General Director.
- Members of BOD, members of Control Board, Director, General Director, or other managers of the company owning capital contribution or shares; or their related persons individually or jointly holding capital contribution or shares greater than 35% of the charter capital of another company.
GMS must base on the value of contracts and transactions to determine which case belongs to the competence of BOD, specifically:
If the value of contracts and transactions is less than 50% of the total asset value recorded in the most recent financial report of the company or a smaller percentage as regulated in the Company Charter, the competence to make decisions belongs to BOD. On the contrary, the decision-making authority will be of GMS in case of contracts and transactions other than those previously mentioned herein.
2/ New share offering
- The types and total quantity of shares of each type permitted to be offered will be proposed by BOD, on which GMS shall have the right to make decisions.
- BOD is responsible for determining the offering price.
- Furthermore, the annual dividend per share shall be proposed by BOD and decided by GMS.
In the event of any inconsistency between the provisions of the Company Charter and the abovementioned, the Charter shall prevail.
3/ Change of the legal representative of the company
- In case changing the legal representative of the company leads to the change in the contents of the Company Charter, the decision-making competence shall be of GMS.
- In contrast, if changing the company’s legal representative does not affect the contents of the Company Charter, BOD shall have the authority to make decisions.
One should also note that the following activities of a company must be approved by BOD:
- Establishing a branch, subsidiary, or representative office;
- Appointing, dismissing, and entering labour contract with a Director or General Director and other important managers stipulated in the Company Charter.