Establish transactions with related parties in joint-stock companies

In joint-stock companies, transactions with related parties always carry significant risks of conflicts of interest for the company and its shareholders due to lack of transparency or failure to follow proper legal procedures. Enterprise law has established strict regulations to control this type of transaction. However, the application of these regulations remains limited and inconsistent. This article focuses on clarifying some important legal aspects to consider when a joint-stock company establishes transactions with related parties.

1.Who can be considered related parties

Related parties is defined as entities that have a direct or indirect relationship with the company, thereby having the potential to influence the company’s management decisions and business operations.

Identifying related parties is crucial to apply transaction control mechanisms. The entities considered related parties are listed in Clause 23, Article 4 of the Law on Enterprise 2020, as amended in 2025 (“Law on Enterprise”). Accordingly, related parties can be divided into two groups:

• Entities with a direct relationship to the company: This group includes organizations and individuals capable of influencing the company’s operations, specifically including the cases stipulated in points a, b, c, d, e, and g of Clause 23, Article 4.
• Entities with an indirect relationship to the company: This group includes individuals who have a relationship with the company through the group of individuals with a direct relationship as stipulated in point đ of Clause 23, Article 4.

2.Approval of Related Party Transactions

Due to the inherent potential for conflicts of interest in related party transactions, enterprise law establishes a mandatory approval mechanism to ensure that related party transactions are reviewed transparently and objectively, thereby better protecting the interests of the company and its shareholders.

Specifically, transactions between a joint-stock company and its related parties must be approved by the General Meeting of Shareholders and the Board of Directors of the joint-stock company, as stipulated in Article 167 of the Law on Enterprise.

• The Board of Directors must approve transactions with a value less than 35% of the total value of the company’s assets as recorded in the most recent financial statement, or a smaller percentage or value as stipulated in the company’s charter.
• The General Meeting of Shareholders must approve transactions outside the scope of the Board of Directors, i.e., transactions with a value exceeding the level within the Board of Directors’ approval authority (over 35% or another level as stipulated in the charter). In addition, loan, lending, and asset sale transactions with a value exceeding 10% of the total value of the company’s assets between the company and shareholders owning 51% or more of the total voting shares or related parties of those shareholders also require approval from the General Meeting of Shareholders.

In both cases, members of the Board of Directors and shareholders with a related interest in the transactions are not entitled to vote. This regulation aims to eliminate the influence from entities with a direct interest in the transactions, ensuring that the decisions of the Board of Directors and the General Meeting of Shareholders are objective and for the best interests of the company.

3.Consequences of Violating Regulations In Transactions with Related Parties in a Joint Stock Company

The law clearly stipulates legal consequences to deter and prevent violations. These consequences not only affect the validity of the transaction but also entail the responsibility of the individuals involved.

• Invalid Transaction: Transactions with related parties that violate the regulations on transaction approval under Article 167 of the Law on Enterprise may be invalid. Declaring the transaction invalid will restore the original state and prevent negative consequences for the company.
• Joint and Several Liability for Damages: The contract signatory, shareholders, members of the Board of Directors, Directors, and General Directors involved must jointly and severally compensate for the damages and return any profits earned to the company.
• Criminal Liability: Parties involved in transactions with related parties may be held criminally liable for offenses such as embezzlement, fraud, etc., when the elements of the crime are fully met.

Transactions with related parties require joint-stock companies to act cautiously and strictly adhere to legal regulations. Identifying the related party, the appropriate approval authority and procedures are key factors in preventing conflicts of interest and legal risks and effectively protect the interests of the joint-stock company and its shareholders, while also enhancing transparency in management.

The above is the article “Establish transactions with related parties in joint-stock companies”. We hope this article is useful for those interested in this issue.

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