Globalizing Corporate Governance Principles

Modern corporate governance principles have been deployed to bring the new laws close to international norms. This would enhance economic efficiency of applying appropriate business model in Vietnam and create new generations of entrepreneurs equipped with worldwide standards.

a. Self-executing corporate seal

The new concept of using corporate seal has been applied by giving more freedom to a company and helping prevent disputes in corporate seal. Unlike the current laws, the new laws allow a company: (i) to freely determine form, number, and contents of corporate seal; (ii) to manage and maintain corporate in line with the company’s charter. Most importantly, the corporate seal is compulsorily used only when the law requires so or the contracting parties agree. This would facilitate corporate transactions and remove unnecessary administrative procedures in operating day-to-day business activities.

b. Multiple directorship

The current law does not allow a person to be director/general director in a limited liability company and shareholding company at the same time. This limitation has provoked difficulties in finding the director’s replacement because directors must be an important person managing and directing a company. It requires exceptional and excellent knowledge and management skills. Furthermore, this limitation also has causes registration process because the company is unable to verify where the chosen directors have been a director of another company. The new law is intended to remove this limitation, giving more freedom to a company in searching for the right person and directors in choosing the right place they wish to work for.

c. Removal of registration of shareholder holding more than 5% of total shares

It has been seen as unnecessary registration causing more administrative work to do in managing a company’s operation. The current law requires registration of shareholder as soon as there is a change in shares ownership of a shareholder resulting in holding more than 5% of total shares. In fact, this is a just notification directed at the licensing authorities for their information. No acceptance or response is required. The removal has been made in response to constant complaints of business community for years.

d. Quorum and voting threshold

This can be a historic breakthrough in an effort to adapt to international norm of corporate governance. Under the new law and in a multiple member limited liability, for the first time of convening a meeting of members’ councils, quorum is 65% of members which must be present, instead of 75% under the current law. Quorum is still 50% for the second time of convening a meeting. Under the new law and in a joint venture company, quorum is 51% of of members which must be present, instead of 65% under the current law. Quorum is reduced to 33% for the second time of convening a meeting, instead of 51% under the current law.

In addition, voting threshold in a shareholding company has been revised under the new law. Voting threshold of 65% applies to important matters, instead of 75% under the current law. Other matters will be passed upon satisfaction of voting threshold of 51%.

e. Independent member of board of management

Practical application of independent members in the board of management has been seen for years even though the current law does not cover. The new law gives effect to legal position of independent members in the board of management. For instance, the new law provides for terms, eligible conditions, rights and obligations, organization and coordination of independent members. This shows a positive and predictable sign of lawmakers’ philosophy in drafting and institutionalizing Vietnamese laws close to generally accepted principles of private international law.

f. Flexibility to re-negotiate pre-incorporation contracts

Prior to establishment of a company, the parties agree to pre-incorporation contracts (shareholders’ agreements) to set forth rights and obligations of incorporation. There have been disputes over inherence of rights and obligations of shareholders after the company is established. The current law requires the shareholders simply to inherent rights and obligations as agreed in the shareholder’s agreement after formation of the company. In this sense, the shareholders could not amend what has been agreed in the shareholders’ agreement. The new law provides the shareholder with more flexibility to change rights and obligations of the shareholders in the shareholders’ agreement if they wish to do so even after formation of the company.

Bui Tien Long (Rudy)