Tag: joint stock company

Establish transactions with related parties in joint-stock companies

Written by TNTP LAW on 9 March, 2026. Posted in Legal newsletter.

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.

Best regards,

Distinctive features of a joint stock company

Written by TNTP LAW on 7 March, 2025. Posted in Legal newsletter.

A joint stock company is one of the most common types of enterprises today, especially suitable for large-scale businesses that require capital from multiple investors. This type of company possesses distinct legal characteristics that set it apart from other types of business enterprise. In this article, TNTP presents key characteristics of a joint stock company.

1. General overview of a joint stock company

A joint stock company has full legal personality as prescribed by law. This means the company have its own assets, is independently liable for its obligations with its assets, and has the right to engage in legal relationships separately from its shareholders. Shareholders are only responsible for the company’s debts and liabilities within the amount of capital they have contributed.

The charter capital of a joint stock company is the total par value of all issued shares. A shareholder can own one or multiple shares, and their rights and obligations are determined based on the number of shares they hold. A joint stock company may issue ordinary shares and preferred shares.

2. Distinctive features of a joint stock company

a. Multi-ownership structure

• According to regulations, a joint stock company can have multiple shareholders, including both organizations and individuals. The minimum number of shareholders is three, with no upper limit. Therefore, to establish a joint stock company, the minimum shareholder requirement must be met as stipulated by law.

• With no limit on the number of shareholders, a joint stock company has the ability to raise capital from various sources. This allows joint stock company to access to large financial resources from investors through bond issuance, public stock offerings, and other types of securities.

This characteristic is a key advantage of a joint stock company compared to other types of enterprise.

b. Transferability of shares

• One of the most important features of a joint stock company is the high liquidity of its shares, reflected in the shareholders’ relatively free right to transfer shares.

• However, for founding shareholders, the law imposes restrictions on the transfer of their ordinary shares within three years from the date the company is granted Enterprise Registration Certificate. During this time limit, founding shareholders are only free to transfer shares among themselves. If they wish to transfer shares to non-founding shareholders, they must obtain approval from the General Meeting of Shareholders and have no voting rights regarding this transfer.

Thanks to this flexible transfer mechanism, a joint stock company can easily attract investors and raise capital on the market, while also enabling shareholders to actively manage their investment portfolios.

c. Corporate governance structure of a joint stock company

According to the Law on Enterprises 2020, a joint stock company has a well-structured governance system comprising the following key management bodies:

• General Meeting of Shareholders: The highest decision-making body of the company, responsible for approving major decisions such as profit distribution, amendments to the company’s charter, and election of the Board of Directors.

• Board of Directors (BOD): The governing body that makes strategic decisions, oversees the company’s operations, and appoints the General Director or Director. The term of the Board of Directors is stipulated in the company’s Charter, but cannot exceed five years. Board members may be re-elected for an unlimited number of terms.

• Board of Controllers: The body responsible for supervising the company’s operations, particularly ensuring compliance with laws and the company charter in management and administration. The Board of Controllers is tasked with verifying the accuracy of financial reports and overseeing the Board of Directors and Executive Board to protect shareholders’ interests.

In certain cases, a joint stock company is not required to have a Board of Controllers if it has fewer than 11 shareholders and if institutional shareholders own less than 50% of total shares. Alternatively, for companies without a Board of Controllers, at least 20% of the Board of Directors must be independent members, and the company must establish an Audit Committee under the Board of Directors to perform supervisory functions as stipulated in the company charter or the operating regulations issued by the Board of Directors.

• General Director or Director: The individual responsible for day-to-day business operations within the scope of authority defined by law, the company’s Charter, and the employment contract signed with the company. The General Director/Director is accountable to the Board of Directors for implementing resolutions and decisions issued by the Board.

This governance structure ensures a professional operation, with clear divisions of authority between management and executive functions.

A joint stock company is a type of enterprise that offers significant advantages, particularly in its ability to raise large amounts of capital and its flexibility in management. However, establishing and operating a joint stock company requires strict compliance with legal regulations and transparency in its activities. This type of company is well-suited for large-scale businesses or startups with plans for expansion and attracting additional investment capital.

The above article, “Distinctive features of a joint stock company” is provided by TNTP to our valued readers. We hope this article is helpful to you.

Best regards,

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