Question: My company is a joint stock company established for two years. Currently, we have not established a Supervisory Board. What potential risks might our company face?
Answer:
According to Article 137 of the Law on Enterprises, a joint stock company may choose one of the following two models for its management and operation structure:
-The General Meeting of Shareholders, the Board of Directors, the Supervisory Board, and the Director or General Director. If the company has fewer than 11 shareholders and the shareholders that are organizations collectively hold less than 50% of the total shares of the company, it is not mandatory to have a Supervisory Board.
- The General Meeting of Shareholders, the Board of Directors, and the Director or General Director. In this case, at least 20% of the members of the Board of Directors must be independent members, and an Audit Committee must be established under the Board of Directors. The organizational structure, functions, and duties of the Audit Committee shall be stipulated in the company’s Charter or in the operational regulations of the Audit Committee issued by the Board of Directors.
If a company is not exempt from establishing a Supervisory Board under Article 137 of the Law on Enterprises but fails to comply with either of the two models above, it may be subject to administrative penalties under Article 53 of Decree No. 122/2021/NĐ-CP, specifically:
“1. A fine ranging from VND 20,000,000 to VND 30,000,000 shall be imposed for organizing a Supervisory Board that is improperly structured or incomplete in composition as prescribed.
2. A fine ranging from VND 30,000,000 to VND 50,000,000 shall be imposed for any of the following acts:
a) Failure to establish a Supervisory Board in cases where it is required by law;
b) Appointment of a person who does not meet the qualifications and conditions to serve as the Head of the Supervisory Board or as a Supervisor.
3.Remedial measures:
a) The company shall be required to reorganize the Supervisory Board in compliance with the law for violations under Clause 1 of this Article;
b) The company shall be required to establish a Supervisory Board in accordance with the law for violations under Point a, Clause 2 of this Article;
c) The company shall be required to dismiss the Head of the Supervisory Board or Supervisors who do not meet the prescribed qualifications and conditions for violations under Point b, Clause 2 of this Article.”
Conclusion:
If your company currently follows Model 1, the establishment of a Supervisory Board is mandatory under the law, and its members must meet the statutory qualifications and competence requirements.
If your company wishes to adopt Model 2 (without a Supervisory Board), it must: Ensure that at least 20% of the Board of Directors are independent members; and Establish an Audit Committee under the Board of Directors, with its structure, functions, and duties clearly defined in the company’s Charter or in the operational regulations issued by the Board of Directors.
Consultation reference: Company services
