Tiếng ViệtIn the context of deep international integration and increasingly fierce global competition, many enterprises are undergoing organizational restructuring, tightening corporate governance, and enhancing operational efficiency. Structuring the Board of Directors (BOD) in accordance with legal regulations – ensuring both strategic competence and legal accountability – has become an urgent requirement, especially for joint stock companies seeking capital, preparing for IPOs, or operating with a dispersed shareholder base.
An unprofessional or non-transparent BOD poses significant legal risks and can lead to internal disputes or severe financial losses for the enterprise. Therefore, understanding the roles, powers, and legal obligations of the Board of Directors is not only a matter of legal compliance but also a foundation for effective corporate governance and building trust among investors and partners.
In this article, LexConsult & Partners provides businesses with a comprehensive, up-to-date, and practical guide to the Board of Directors under the 2020 Law on Enterprises.
1. What is the Board of Directors?
1.1. Legal definition
According to Clause 1, Article 153 of the Law on Enterprises 2020:
The Board of Directors is the managerial body of the company and has the right to make decisions on behalf of the company, perform rights and obligations of the company, except the rights and obligations of the GMS.
Accordingly, the Board of Directors (BOD) is the representative body of all shareholders and is responsible for overseeing and managing the activities of the executive board or general director. This structure highlights the fundamental distinction between the BOD and the executive management. The BOD is also the highest management body in a joint stock company and has the authority to make decisions on all matters not reserved for the general meeting of shareholders.
1.2. Composition of the Board of Directors
Members of the board of directors are elected through secret ballots or open voting. They are not required to be permanent residents in Vietnam. However, most company charters provide specific regulations on the proportion of members who must reside in Vietnam to ensure proper governance and compliance.
Under the Law on Enterprises 2020, members of the board of directors may include individuals holding management roles within the company. These include:
– Owner of a private enterprise;
– General partners in a partnership;
– Chairman of the Members’ Council;
– Members of the Members’ Council;
– Chairman of the company or Chairman of the Board of Directors;
– Members of the Board of Directors;
– Director or General Director;
– Other individuals holding managerial positions as stipulated by the company’s charter.
Furthermore, the law does not mandate that members of the board of directors must be shareholders or members of the company. The core function of the BOD is to provide strategic governance and oversight, rather than to exercise voting rights on behalf of shareholders.
In addition, an individual may serve as a member of the board of directors of multiple companies, provided that they meet the legal requirements and comply with the internal regulations of each respective company.
2. Organizational structure and qualifications of the Board of Directors
2.1. Structure and number of members
According to Article 154 of the Law on Enterprises 2020:
– A joint stock company’s Board of Directors (BOD) must consist of between 03 and 11 members, with the exact number determined by the company’s charter.
– The maximum number of board members is strictly limited to 11, as clearly stipulated by law. In the event of a merger between two companies, the leadership must ensure that the resulting Board of Directors complies with this numerical restriction.
– The term of office for a board member shall not exceed five (05) years and members may be re-elected for an unlimited number of terms.
– However, an individual may only serve as an independent member of the Board of Directors of a company for no more than two consecutive terms.
Note: In case all BOD members’ terms end simultaneously, they shall continue to perform their duties until new members are elected and take over, unless otherwise provided in the company’s charter. The charter must also clearly outline the number, powers, responsibilities, organization, and coordination mechanisms for independent board members.
2.2. Conditions for becoming a board member
As provided in Clause 1, Article 155 of the Law on Enterprises 2020, a person must meet the following conditions to become a member of the Board of Directors:
– Must have full civil act capacity and must not fall under the categories prohibited from managing enterprises as specified in Clause 2, Article 17 of the Law on Enterprises 2020;
– Must possess professional competence and practical experience in corporate governance or in relevant sectors or industries;
– For subsidiaries with over 50% state-owned capital, individuals who are relatives of the general director, other managerial personnel, or those with the authority to appoint managers in the parent company may not serve on the board of directors.
It is also prescribed that a board member must be an individual—not a legal entity. While enterprises may introduce internal requirements in their charters, these rules must not infringe upon the legal rights or interests of shareholders.
In cases where the provisions of the Law on Enterprises and the company charter differ regarding BOD member qualifications, the company charter shall prevail. However, where specific industries have legal requirements for board membership, those sector-specific standards must be strictly followed.
2.3. Chairman of the Board of Directors
According to Article 156 of the Law on Enterprises 2020:
– The Chairman of the Board is elected by the Board itself from among its members;
– The Chairman may or may not concurrently hold the position of Director or General Director, depending on the company’s charter.
However, for public companies and companies with state-owned capital, the Chairman shall not concurrently serve as the Director or General Director.
3. Powers of the board of directors under the law
The rights and obligations of the board of directors are set out in Clause 2, Article 153 of the Law on Enterprises 2020.
The Board of Directors serves as the strategic decision-making body for corporate matters related to business strategy, finance, personnel, and organizational management. The Enterprise Law 2020 grants the BOD broad powers to ensure the effective, transparent, and accountable governance of joint stock companies.
Nevertheless, the exercise of these powers must strictly comply with both the law and the company’s charter. If the BOD or its members make decisions in violation of the law or charter, they may be held jointly liable for civil damages and may also face criminal liability, pursuant to Clause 4, Article 153 of the Law on Enterprises 2020.
4. The role of the board of directors in corporate governance
The Board of Directors (BOD) is the highest management body in a joint stock company, playing a pivotal role in strategic orientation, supervision of executive operations, and protection of shareholder rights. Pursuant to Article 153 of the Enterprise Law 2020, the BOD has full authority, on behalf of the company, to exercise all rights and obligations not falling under the jurisdiction of the general meeting of shareholders (GMS). The Board’s functions encompass the following aspects:
4.1. Strategic direction and corporate development
The Board of Directors is responsible for proposing and deciding on medium and long-term development strategies and annual business plans. This is considered one of the most critical roles, as a sound strategic vision enables the company to expand market share, ensure sustainable growth, and enhance competitiveness.
For example, in large listed companies such as Vinamilk or FPT, the board of directors is the body that decides on market expansion strategies and business diversification.
4.2. Risk management and operational oversight
Another core function of the BOD is to supervise the activities of executive management (General director/Director) and operational departments. Although the BOD does not directly manage day-to-day operations, it is responsible for:
– Monitoring the performance of the management team;
– Approving or rejecting proposals from the General Director;
– Supervising financial, legal, and internal governance risks.
This oversight ensures transparency, prevents misconduct, and mitigates the risk of abuse of power.
4.3. Appointment and supervision of Executive Management
The Board of Directors is empowered to appoint, dismiss, sign labor contracts with, and supervise executives such as the General Director, Director, and Chief Accountant, as stipulated in Clause 2, Article 153 of the Enterprise Law 2020.
Selecting competent leaders directly influences business efficiency, corporate culture, and market competitiveness. In practice, many businesses have failed due to weak oversight by the BOD, allowing unchecked authority of executives, resulting in significant capital losses.
4.4. Protection of shareholder and investor interests
The BOD represents shareholders in decisions on critical corporate matters such as dividend distribution, share issuance, and mergers and acquisitions (M&A). Transparent and effective governance by the BOD:
– Protects minority shareholder interests;
– Increases investor confidence;
– Enhances the company’s market value.
Notably, board members must disclose any conflict of interest and must not engage in self-dealing, pursuant to Clause 1, Article 165 of the Enterprise Law 2020.
4.5. Organization of shareholder meetings and corporate restructuring
The Board of Directors is authorized to:
– Convene annual or extraordinary general meetings of shareholders;
– Propose restructuring plans including reorganization, division, merger, or dissolution (Clause 2, Article 153 of the Enterprise Law 2020);
– Decide on the establishment of subsidiaries, branches, or representative offices.
This reflects the Board’s role as a “corporate architect,” enabling flexible adaptation and timely restructuring when necessary.
5. Legal responsibilities of the board of directors
While endowed with significant authority, the board of directors is also subject to strict legal responsibilities in performing its duties. Under Article 165 of the Enterprise Law 2020, each board member must comply with a range of legal obligations to ensure transparent, honest, and lawful corporate governance.
5.1. Legal obligations of board members
According to Clause 1, Article 165 of the Enterprise Law 2020, board members are legally obligated to:
– Act with honesty, prudence, and loyalty in exercising their rights and duties, safeguarding the lawful interests of the company and its shareholders;
– Refrain from abusing their position or powers for personal gain or for the benefit of third parties;
– Fully disclose any relevant interests, particularly in transactions that may give rise to conflicts of interest with the company.
5.2. Legal consequences of violations
If a board member breaches their obligations, they may incur serious legal consequences, including:
– Civil liability: They must compensate the company or shareholders for any losses caused by violations that result in damage to assets, reputation, or lawful rights.
– Joint liability: If the BOD adopts a resolution that violates the law, the company charter, or causes damage, all members who voted in favor shall bear joint liability, unless a written objection is recorded (Clause 4, Article 153 of the Enterprise Law 2020).
– Criminal liability: In cases where the violations constitute criminal offenses- such as abuse of power, market manipulation, or falsification of financial documents – BOD members may be subject to prosecution under the 2015 Penal Code.
6. Practical considerations for structuring and operating the Board of Directors
To ensure that the Board of Directors (BOD) operates lawfully, transparently, and with minimized legal risk, enterprises should pay special attention to the following key considerations:
6.1. Separation of roles: Chairperson and General Director
– Pursuant to Clause 2, Article 156 of the Enterprise Law 2020, public companies and state-invested companies are not allowed to appoint the same person as both Chairperson of the Board and General Director.
– Separating these roles helps to avoid conflicts of interest, strengthen internal checks and balances, and ensure clear delegation of authority- particularly with respect to critical financial and human resource decisions.
6.2. Meeting minutes and resolutions must follow legal procedures
Minutes must fully record meeting content, date, time, location, individual opinions of board members, and include valid signatures.
Remote or electronic voting (e.g. via email) must be properly archived and in accordance with Article 157 of the Enterprise Law 2020.
In practice, many board resolutions have been invalidated due to missing signatures or improper meeting documentation.
6.3. Establish Clear Charter and Internal Governance regulations
The company charter should clearly specify:
– Procedures for convening meetings and voting within the Board;
– Supervision mechanisms for executive management;
– Handling of conflicts of interest.
These internal governance documents serve as the “legal framework” enabling the Board to operate with transparency and legal certainty in its decision-making.
6.4. Engage an in-house legal counsel to support the board
The Board of Directors should consider engaging a corporate lawyer to regularly advise on legal matters, attend key meetings, and review draft resolutions or major contracts.
Legal counsel plays a critical role in legal risk management and ensures that board decisions comply with applicable laws, particularly in the following areas:
– Mergers and Acquisitions (M&A);
– Share issuance and capital raising;
– Related party transactions;
– Corporate restructuring.
In practice, an effective BOD requires not only legal compliance and structural completeness, but also strategic flexibility and adaptability to changing market conditions. While the Board serves as the core decision-making body, a purely formal or weakly controlled operation may lead to poor investments, governance failures, and internal disputes.
To foster sustainable growth, companies should treat the Board as the “strategic brain” of the organization – investing in capable leadership, transparent governance processes, and a strong alignment between the BOD and executive team. Building and professionalizing board operations should begin early, especially during transitional phases such as capital raising or restructuring.
For legally sound and practically effective board operations and to prevent future disputes enterprises are strongly encouraged to work with experienced corporate lawyers on a continuous basis. Legal counsel will not only help mitigate legal risks but also enable the Board to make well-informed strategic decisions, thereby advancing the company’s sustainable development and governance excellence.
Facing challenges in structuring your Board of Directors or reviewing your company charter and internal governance rules? Contact the legal team at Lexconsult & Partners Law Firm for timely, in-depth, and strategic legal support.
We accompany your business from strategy to execution!
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