Is a Joint Stock Company Required to Have a Board of Supervisors?

Question

I am planning to establish a joint stock company. Under the current regulations, is a joint stock company required to establish a Board of Supervisors? If the company does not establish a Board of Supervisors, will this constitute a violation of law and be subject to penalties?

Answer

Under Article 137 of the Law on Enterprises 2020, a joint stock company is not required to establish a Board of Supervisors in all cases. The law allows a joint stock company to choose between two organizational and management models.

Specifically, a joint stock company may choose one of the following models:

• First model: General Meeting of Shareholders, Board of Directors, Board of Supervisors, and Director or General Director. Under this model, the company is required to establish a Board of Supervisors. However, where the company has fewer than 11 shareholders and its organizational shareholders own less than 50% of the company’s total shares, the company is not required to have a Board of Supervisors.
• Second model: General Meeting of Shareholders, Board of Directors, and Director or General Director. Under this model, the company does not establish a Board of Supervisors, but must ensure that at least 20% of the members of the Board of Directors are independent members and establish an Audit Committee under the Board of Directors. The organizational structure, functions and duties of the Audit Committee are prescribed in the company’s Charter or in the operating regulations of the Audit Committee issued by the Board of Directors.

Accordingly, the fact that a joint stock company does not have a Board of Supervisors does not automatically constitute a violation of law. The company may choose a management model without a Board of Supervisors provided that it fully satisfies the requirements applicable to such model.

Conversely, if the company chooses the model requiring a Board of Supervisors but fails to establish one, or if the company does not fall within an exemption from the requirement to establish a Board of Supervisors and also fails to adopt the model with an Audit Committee as prescribed by law, the company may face the risk of administrative penalties.

Under Article 53 of Decree No. 122/2021/ND-CP, failure to establish a Board of Supervisors where establishment is mandatory may be subject to a fine ranging from VND 30,000,000 to VND 50,000,000. In addition, the company may be required to establish a Board of Supervisors in accordance with the law.

Therefore, in determining whether a company is required to have a Board of Supervisors, it is necessary to consider the management and organizational model selected by the company, the number of shareholders, the ownership ratio of organizational shareholders, and whether the company satisfies the conditions for adopting the model with an Audit Committee.

Conclusion

A joint stock company is not required to have a Board of Supervisors in all cases. The company may choose either a management model with a Board of Supervisors or a model without a Board of Supervisors but with independent members of the Board of Directors and an Audit Committee under the Board of Directors.

Where the company chooses the model requiring a Board of Supervisors or falls within a case where establishment of a Board of Supervisors is mandatory but fails to do so, the company may be subject to a fine ranging from VND 30,000,000 to VND 50,000,000 and required to establish a Board of Supervisors in accordance with the law.

If your company requires legal advice on selecting a corporate governance model for a joint stock company, the structure of the Board of Directors, Board of Supervisors or Audit Committee, please contact SB Law for appropriate support from our team of lawyers and legal experts based on your company’s actual circumstances.