Legal provisions on the appointment of the chairman of the board of directors

The appointment of the Chairman of the Board of Directors is a crucial process in corporate governance, ensuring both strategic orientation and compliance with the law. Such appointments are generally based on the company’s charter and the Law on Enterprise with requirements of transparency and procedural compliance.

The appointment of the Chairman of the Board of Directors is a crucial process in corporate governance, ensuring both strategic orientation and compliance with the law. Such appointments are generally based on the company’s charter and the Law on Enterprise with requirements of transparency and procedural compliance.

I. Current situation of the appointment of the chairman of the Board of Directors

The current practice of appointing the Chairman of the Board of Directors in Vietnamese enterprises still reveals several shortcomings.

Although the Law on Enterprise 2020 and corporate charters provide fairly clear guidance, in practice, many enterprises conduct appointments in a perfunctory manner, lacking transparency and failing to fully comply with legal procedures. In some cases, internal disputes arise due to insufficiently detailed provisions or violations of shareholders’ voting rights. Such shortcomings directly affect the legality, stability, and efficiency of corporate governance.

II. What is the appointment of the chairman of the Board of Directors?

Pursuant to Clause 1, Article 156 of the Law on Enterprise 2020, the appointment of the Chairman of the Board of Directors is the process by which the Board of Directors elects one of its members to serve as a Chairman, may be dismissed or removed when necessary. Accordingly, the Chairman of the Board of Directors is the head, and has authority to set the agenda, convene and preside over meetings, supervise the implementation of resolutions, and represent the governance orientation of the company. Such a process is essential to ensuring lawful and transparent corporate governance.

1. Example of the appointment of a company’s chairman of the Board of Directors

In a joint-stock company, after the General Meeting of Shareholders elects five members to the Board of Directors, the Board of Directors convenes its first meeting to elect a Chairman. Based on Article 156 of the Law on Enterprise 2020, members deliberate and vote, with the candidate receiving the majority of votes elected as the Chairman.

Subsequently, the company issues a resolution on the appointment, updates the internal records, and notifies the Business Registration Authority to ensure legality and transparency.

2. Distinction between the appointment of the chairman and other executive positions in the company

The fundamental difference between the appointment of the Chairman of the Board of Directors and other leadership positions depends on the decision-making entity and legal role:

Chairman of the Board of Directors: The Chairman is elected, dismissed, or removed by the Board of Directors itself, according to Article 156 of the Law on Enterprise 2020. It is the leading position of the Board of Directors, responsible for strategic orientation, organizing activities, and supervising the implementation of resolutions.
Other executives (such as General Director/Director, Chief Accountant, etc.): They are appointed or hired by the Board of Directors or General Meeting of Shareholders, primarily responsible for day-to-day management or professional duties.

Thus, the appointment of the Chairman of the Board of Directors focuses on governance and strategic orientation, while other executive roles are oriented toward management and operations.

3. Why is the appointment of the chairman of the Board of Directors important?

The appointment of the Chairman of the Board of Directors is significant because it serves as the central figure in corporate governance. According to Article 156 of the Law on Enterprise 2020, the Chairman is responsible for developing the development plan, presiding over Board of Directors and General Meeting sessions, and supervising the implementation of resolutions. Therefore, appointing the professional Chairman in compliance with legal requirements enhances legality, transparency, governance efficiency, and long-term strategic stability.

III. Legal provisions on the appointment of the chairman of the Board of Directors

1. Circumstances requiring the appointment of the chairman of the Board of Directors

Under the Law on Enterprise 2020, appointments must be made in the following cases:

Commencement of a new term: Following the election of a new Board of Directors by the General Meeting of Shareholders, the first Board of Directors meeting must be held within seven (07) working days to elect a Chairman (Clause 1, Article 157).
Absence or incapacity of the incumbent Chairman: When the Chairman cannot fulfill duties, the Board of Directors must elect another member as an interim Chairman by majority vote (Clause 4, Article 156).
In addition, as soon as the joint stock company is granted an Enterprise Registration Certificate, the first Board of Directors elected by the founding Shareholders' Meeting will have to appoint the first Chairman of the Board of Directors. It is the first step for the company to have a representative to manage its management activities in accordance with the provisions of Article 156 of the Law on Enterprise 2020.

Accordingly, there are three instances requiring the appointment: Upon establishment of the company, at the beginning of a new term, and when the incumbent Chairman cannot continue duties.

2. Sanctions for non-compliance with appointment provisions

According to Point b, Clause 1, Article 15 of Decree 156/2020/ND-CP, a public company that fails to appoint a corporate governance officer may be fined between 5,000,000 VND and 10,000,000 VND. Such an administrative sanction ensures compliance; enterprises must promptly remedy violations by conducting the appointment and disclosure as required.

3. Main considerations to safeguard rights during appointment

To ensure a lawful, transparent appointment that protects both corporate and shareholder rights, the following must be observed:

Compliance with legal provisions and internal regulations.
Preparation of Board of Directors meeting minutes and issuance of resolutions as legal evidence of appointment.
Disclosure of information, particularly in public companies, to protect shareholder rights and maintain investor confidence.
Verification of candidate qualifications to ensure eligibility and legal compliance.
Guarantee of transparency and consensus during voting to avoid disputes.

4. Conditions for appointment of the chairman of the Board of Directors

Pursuant to the Law on Enterprise 2020, a candidate as a Chairman must satisfy the following legal conditions:

Not falling under the prohibitions in Clause 2, Article 17 (e.g., lacking legal capacity, under criminal prosecution).
Possessing appropriate professional qualifications and management experience, unless otherwise required by the company charter.
Being elected at the first Board of Directors meeting held within seven (07) working days from the Board of Directors election. Such a meeting must be convened by the member with the highest number of votes; If two or more members have an equal number of votes, the Board of Directors will vote by majority rule to select the convener (According to Clause 1, Article 157 of the Law on Enterprise 2020).

IV. Questions on the appointment of the chairman of the Board of Directors

1. When is the appointment of the chairman of the Board of Directors required?

As stipulated in the Law on Enterprise 2020, enterprises need to appoint the Chairman of the Board of Directors in the following cases:

Newly established company: Appointment of the first Chairman of the Board of Directors.
Commencement of a new term of the Board of Directors: Within seven (07) working days after the election of the Board of Directors, a meeting must be convened to elect the Chairman of the Board of Directors in accordance with Article 157.
When the incumbent Chairman is unable to continue performing duties: Due to resignation, dismissal, removal from office, loss of legal capacity, restriction of management rights, or death in accordance with Article 156.

Accordingly, the appointment must be conducted immediately upon the establishment of the company, upon the transition to a new term, or upon the occurrence of a special personnel change, in order to ensure that corporate governance remains continuous and lawful.

2. Who has the authority to appoint the chairman of the Board of Directors?

Clause 1, Article 156 states that only the Board of Directors has authority to elect, dismiss, or remove the Chairman from among its members.

3. Are legal procedures required for the appointment?

The appointment must follow formal procedures:

The first meeting of the Board of Directors: Within seven (07) working days after the election of the new term of the Board of Directors, a meeting must be convened to elect the Chairman of the Board of Directors in accordance with Article 157 of the Law on Enterprise 2020.
Election procedures and voting: The election of the Chairman shall be conducted through a resolution of the Board of Directors. If two or more members have an equal number of votes, the Board of Directors will vote by majority rule to select.
Minutes of meeting and resolution: The minutes of the Board of Directors’ meeting and the resolution on the election of the Chairman serve as mandatory legal documents, confirming the election results and constituting essential records for the company to conduct notification and disclosure procedures, if required.

Accordingly, the above steps and procedures are indispensable legal requirements to ensure that the appointment of the Chairman of the Board of Directors is lawful, transparent, and legally effective.

4. What is the maximum timeframe for an appointment?

Under Clause 1, Article 157, the maximum period is seven (07) working days from the conclusion of the Board of Directors election.

5. If an individual disagrees with the appointment decision, what can they do?

Within the Board of Directors: If the resolution on appointment violates the provisions of law, such resolution may still be rendered invalid if there is evidence proving procedural violations or breaches of the Company’s Charter. Any member may expressly record their opinion in the minutes of the meeting in order to be exempted from liability should a dispute subsequently arise regarding the validity of the decision.
Litigation before the Court: If it is deemed that the appointment process has infringed upon lawful rights and interests (such as violating voting rights or election procedures), a shareholder or a group of shareholders holding at least 1% of the ordinary shares may initiate proceedings against the Board of Directors before the Economic Court of the province/city where the company is located, requesting a review of the resolution.

V. Should enterprises consult lawyers for effective advice on appointing the chairman of the Board of Directors?

Engaging a lawyer is advisable to ensure compliance with legal provisions, avoid disputes, and receive professional support in analyzing, drafting, and guiding the appointment process. For tailored legal assistance, you may contact NPLaw directly for timely and reliable advice.