Transactions are subject to approval by the Board of Members of a multi-member LLC in Viet Nam

In a multi-member LLC, there are contracts and transactions that need to be approved by the Board of Members. Viet Nam Law has regulations on contracts and transactions subject to approval by the Board of Members. Let’s find out this issue with Lawyer X through the following case: “Dear Lawyer! I want to know what contracts and transactions are subject to approval by the Board of Members in a multi-member LLC? And relevant regulations on this issue? Thanks for your answer! “

Legal grounds

Viet Nam law on Enterprises

What is a multiple-member limited liability company?

The definition of an enterprise is specified in Clause 10, Article 4 of Law on Enterprise 2020, whereby: “Enterprise means an organization that has a proper name, assets, premises, is established or registered in accordance with law for business purposes.”

According to the Enterprise Law 2020, inheriting the previous legal regulations, currently enterprises include the following four types: private enterprises, partnerships, limited liability companies, joint-stock companies. Thus we can answer the question if  enterprise and company are the same? Enterprise has broader connotations than company. Company refers to types of enterprises  that are: Partnerships, Limited Liability Companies, Joint-Stock Companies. All types of companies are considered as enterprises. But not every type of enterprises is considered as a corporation, in particular private enterprise is not considered a company.

Limited liablity company comprises 2 types which are single-member limited liability company and Multiple-member limited liability company.

A multiple-member limited liability company is an enterprise which has characteristics as follows:

– A multiple-member limited liability company means an enterprise that has 02 – 50 members that are organizations or individuals. A member’s liability for the enterprise’s debts and other liabilities shall be equal to the amount of capital that member contributed to the enterprise, except for the cases specified in Clause 4 Article 47 of Law on Enterprises. The member’s contributed capital (contributed capital) may only be transferred in accordance with Articles 51, 52 and 53 of Law on Enterprises.

– A multiple-member limited liability company has the status of a juridical person from the day on which the Enterprise Registration Certificate is issued.

– Multiple-member limited liability companies must not issue shares except for equitization.

– Multiple-member limited liability companies may issue bonds in accordance with Law on Enterprises and relevant laws; private placement of bonds shall comply with Article 128 and Article 129 of Law on Enterprises.

To understand better about increasing, decreasing charter capital of a multi-member LLC, there are some terms we should notice, which are:

– “Business” or “business operation” means continuous execution of one, some or all stages including investment, manufacturing, sale or provision of services on the market for profit.

 – “Charter capital” means the total value of assets that have been contributed or promised by the members/partners/owners when the limited liability company or partnership is established; or the total of nominal values of the sold or subscribed shares when a joint stock company is established.

What is the Board of Members of a multiple-limited liability company?

The Board of Members is the supreme governing body of the company, consists of all members that are individuals and authorized representatives of members that are organizations. The company’s charter shall specify the frequency of meetings of the Board of Members but at least one meeting shall be held per year.

The Board of Members has the following rights and obligations:

– Decide the company’s annual business plan and development strategy;

– Decide increase or decrease in charter capital, time and method for raising more capital; issuance of bonds;

– Decide investments in the company’s development projects; solutions for market development, marketing and technology transfer;

– Approve contracts for borrowing, lending, sale of assets and other contracts prescribed by the company’s charter  whose value are at least 50% of the total assets written in the latest financial statement (or a smaller ratio or value specified in the company’s charter);

– Elect, dismiss the President of the Board of Members; designate, dismiss, sign and terminate contracts with the Director/General Director, chief accountant, controllers and other executives specified in the company’s charter;

– Decide the salaries, remunerations, bonuses and other benefits of the President of the Board of Members, Director/General Director, chief accountant, controllers and other executives specified in the company’s charter;

– Ratify annual financial statements, plans for use and distribution of profits or settlement of losses;

– Decide the company’s organizational structure;

– Decide establishment of subsidiary companies, branches and representative offices;

– Revise the company’s charter;

– Decide reorganization of the company;

– Decide dissolution or file bankruptcy of the company;

– Other rights and obligations prescribed by Law and the company’s charter.

Contracts and transactions subject to approval by the Board of Members

Contracts and transactions between the company and the following entities are subject to approval by the Board of Members:

– Members and their authorized representatives, the Director/General Director, the company’s legal representative;

– Related persons of the persons mentioned in Point a of Clause 1 of Article 67 of Law on Enterprises

– Executives of the parent company and the person having the power to designate them;

– Related persons of the persons mentioned in Point c of Article 67 of Law on Enterprises

The person who concludes a contract or carries on a transaction on behalf of the company shall send a notification to members of the Board of Members and the Controllers of the related entities and interests of such contract or transaction together with the draft contract or description of the transaction. Unless otherwise prescribed by company’s charter, the Board of Members shall decide whether to approve or disapprove the contract or transaction within 15 days from the day on which the notification is received and follow the instructions in Clause 3 Article 59 of Law on Enterprises. Members of the Board of Members who are related to the parties to the contract or transaction must not vote.

A contract or transaction shall be invalidated under a court decision and handled as prescribed by law when it is concluded or carried out against regulations of Clause 1 and Clause 2 of Article 67 of Law on Enterprises. The person who concludes the contract or carries out the transaction, related members and their related persons shall pay compensation for any damage caused and return the benefits generated by such contract or transaction to the company.

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Frequently asked questions

Conclusion: So the above is Transactions are subject to approval by the Board of Members of a multi-member LLC in Viet Nam. Hopefully with this article can help you in life, please always follow and read our good articles on the website: lsxlawfirm.com