The position of CEO in a joint stock company not only requires management capabilities but also strict compliance with legal regulations. NPLaw provides an overview and detailed explanation of these provisions in the article “Current legal provisions on the CEO of a joint stock company.”
I. Understanding on the CEO of a joint stock company
The CEO plays a vital role in organizing and implementing the strategic decisions of the Board of Directors, coordinating human resources and finances, and performing business operations to achieve the company’s development objectives. Alongside powers, the CEO must comply with the law and the company’s charter and takes personal liability if violations occur during the course of management.
II. Legal provisions regarding the CEO of a joint stock company
1. Who is the CEO of a joint stock company?
The CEO (Chief Executive Officer) is the highest-ranking executive in a joint stock company. The CEO is responsible for operating and managing the company’s overall activities, ensuring that business objectives are effectively implemented in effect with the defined strategy.
Within the organizational structure of a joint stock company, the CEO is usually appointed by the Board of Directors and is accountable to the Board for implementing strategic decisions. The CEO plays a critical role in leading the workforce, building corporate culture, and ensuring the sustainable development of the company.
In short, the CEO is the top executive responsible for managing the joint stock company and plays a pivotal role in directing and advancing the business.
2. Standards and conditions to become the CEO of a joint stock company
To become the CEO (Director or General Director) of a joint stock company in Vietnam, an individual must meet the following standards and conditions under Article 64 of the Law on Enterprise 2020:
2.1. Not falling under categories prohibited from managing enterprises
The individual must not belong to the groups specified in Clause 2, Article 17 of the Law on Enterprise 2020, including:
- Minors, or persons with restricted or lost civil act capacity;
- Persons who are being prosecuted for criminal liability or have been convicted but still had their criminal record;
- Public officials, civil servants, officers, non-commissioned officers, professional soldiers, and defense workers in agencies or units under the Vietnam People’s Army and the Vietnam People’s Public Security, except those appointed to represent the State’s capital contribution in enterprises.
2.2. Having appropriate professional qualifications and experience
The individual must have professional qualifications and experience in business administration or in the business sector or industry of the company.
2.3. Obtaining additional requirements for enterprises with controlling State capital
For joint stock companies in which the State holds more than 50% of charter capital or voting shares, the individual appointed as CEO must not be:
- A person with family relations (spouse, parents, children, siblings) to the head or deputy head of the owner’s representative agency; members of the Members’ Council, Chairman of the company; Deputy General Director, Deputy Director, Chief Accountant of the company; or the company’s Controllers.
Thus, to be appointed as CEO of a joint stock company, an individual must fully meet the conditions regarding civil act capacity, must not fall under the categories prohibited by law, must have suitable professional qualifications and experience, and must comply with specific provisions if the company has controlling state capital.
3. Responsibilities of the CEO of a joint stock company
The responsibilities of the CEO (Director or General Director) in a joint stock company are provided under Article 165 of the Law on Enterprise 2020:
3.1. Performing assigned rights and obligations under regulations
The CEO must perform the rights and obligations assigned under the Law on Enterprise, relevant laws, the company’s Charter, and resolutions of the General Meeting of Shareholders.
3.2. Performing rights and obligations honestly and prudently
The CEO is responsible for performing assigned rights and obligations honestly and prudently to ensure the maximum lawful interests of the company.
3.3. Loyalty to the interests of the company and shareholders
The CEO must remain loyal to the interests of the company and shareholders; must not abuse their position and use information, secrets, business opportunities, or other assets of the company for personal gain or for the benefit of other organizations or individuals.
3.4. Timely, complete, and accurate disclosure of related interests
The CEO has the duty to promptly, fully, and accurately notify the company of their own interests and related persons’ ones as prescribed in Clause 2, Article 164 of the Law on Enterprise 2020.
3.5. Taking personal or joint liability
If the CEO violates the above responsibilities, they must take personal or joint liability to compensate the company and third parties for any damages in accordance with the law.
Therefore, the CEO of a joint stock company not only has the right to manage operations but must also strictly adhere to legal and professional ethics obligations to protect the interests of the company and shareholders.
III. Questions about the CEO of a joint stock company
1. Is it mandatory for the CEO of a joint stock company to be the legal representative?
The CEO (Director or General Director) of a joint stock company is not required to be the legal representative. Under Clause 2, Article 12 of the Law on Enterprise 2020, a joint stock company may have one or more legal representatives, with the specific number, management titles, rights, and obligations of the legal representatives prescribed by the company’s charter.
Specifically, if the company has only one legal representative, such a person may be the Chairman of the Board of Directors, the Director, or the General Director. If the company’s charter does not clearly specify the legal representative, the Chairman of the Board of Directors will be the company’s legal representative.
Thus, whether the CEO is the legal representative depends on the provisions of the company’s charter. If the charter stipulates that the CEO is the legal representative, the CEO will hold this role; otherwise, the CEO is not required to be the legal representative.
2. Can a joint stock company hire an external individual as CEO?
Under Clause 1, Article 162 of the Law on Enterprise 2020, the Board of Directors has the right to appoint a member of the Board or hire another individual as the Director or General Director. It means a joint stock company may choose to hire an individual who is not a shareholder or not on the Board of Directors to serve as CEO.
In summary, a joint stock company can fully hire an external individual as CEO, provided that such individual meets all legal and charter conditions.
3. Can an individual simultaneously serve as CEO of multiple joint stock companies?
The Law on Enterprise 2020 does not prohibit an individual from concurrently serving as CEO of multiple joint stock companies. Specifically, Clause 2, Article 162 regulates the Director or General Director of a joint stock company but does not limit the number of companies in which one person may hold this position.
However, under Clause 5, Article 101 of the Law on Enterprise 2020, the Director or General Director of a wholly State-owned enterprise (where the State holds 100% of charter capital) is not allowed to concurrently serve as Director or General Director of another enterprise.
Therefore, the law permits an individual to simultaneously serve as CEO of multiple joint stock companies, provided they do not fall under prohibited cases and comply with the charter provisions of each company.
4. Must the CEO of a joint stock company be a member of the Board of Directors?
Under Clause 1, Article 162 of the Law on Enterprise 2020, the Board of Directors may appoint a member of the Board or hire an external person as the Director or General Director. This means the company may appoint a member of the Board of Directors or hire an external individual who is not a board member to serve as CEO.
Although the law does not require the CEO to be a member of the Board of Directors, the company’s charter may provide otherwise. If the charter requires the CEO to be a Board’s member, the company must comply.
In conclusion, the CEO of a joint stock company is not required to be a member of the Board of Directors unless specifically provided in the company’s charter.
5. Does the CEO have the authority to decide on major financial matters such as loans or investments?
Under Clause 3, Article 162 of the Law on Enterprise 2020, the CEO has the right to:
- Decide on day-to-day business matters of the company not falling under the authority of the Board of Directors;
- Organize the implementation of resolutions and decisions of the Board of Directors;
- Organize the implementation of the company’s business plans and investment projects.
It means the CEO may only decide on financial matters within the scope of daily operations and not beyond the delegated authority.
Therefore, the CEO does not have the right to unilaterally decide on major financial matters such as loans or investments without the approval of the Board of Directors or the General Meeting of Shareholders, depending on the transaction’s value and nature.
6. What legal liabilities does the CEO face if the company violates the law?
The CEO (Director or General Director) of a joint stock company may face legal liability if the company violates the law, especially where such violations relate directly to the CEO’s decisions or actions. This liability includes:
6.1. Civil liability
The CEO may be required to compensate the company or third parties for damages caused by their violations. For example, if the CEO signs an unlawful contract or acts beyond their authority causing damage to the company, they may be held liable to compensate.
6.2. Administrative liability
In cases of administrative violations, the CEO may be subject to administrative fines. For example, if the company violates tax, environmental, or labor safety regulations due to the CEO’s decisions, they may be fined under the law.
6.3. Criminal liability
If the CEO’s acts constitute a crime, they may be prosecuted for criminal liability under the Penal Code. For instance, if the CEO engages in financial fraud, embezzlement, or intentionally violates the law, they may be criminally charged and tried.
6.4. Disciplinary liability
In addition, the CEO may be subject to internal disciplinary action under the company’s charter, such as warnings, dismissal, or termination of employment, depending on the severity of the violation.
Thus, the CEO may take multiple forms of liability if their conducts lead to the company’s violation of the law. The determination of specific liability depends on the nature and severity of the violation and current legal provisions.
IV. Legal advisory services on the CEO of a joint stock company
The above outlines the legal matters related to the CEO of a joint stock company provided by NPLaw. Should you have any further questions or require additional clarification, please do not hesitate to contact NPLaw at:
