Legal regulations related to investor’s representative members of the board of directors

Within the corporate governance structure of a joint-stock company, investor’s representative members of the Board of Directors not only serve as a connection between investors and the enterprise but also play an essential role in supervision, strategic orientation, and participation in major corporate decisions.

I. Current situation regarding investor’s representative members of the Board of Directors

In the context of economic integration and the strong development of the capital market, the corporate governance model in Vietnam increasingly recognizes the prominent role of investor’s representative members of the Board of Directors. These individuals contribute significantly to protecting shareholders’ interests, particularly those of major investors or strategic investors.

• Firstly, regarding the level of common in business practice, in joint-stock companies involving institutional investors, investment funds, or foreign investors, the appointment of Board members representing contributed capital is quite common. Shareholders’ agreements (SHA) often specifically stipulate the right to nominate Board members corresponding to the percentage of share ownership. It reflects investors’ demand for control and direct participation in corporate governance activities.
• Secondly, regarding the legal basis and the level of legal regulation, Vietnamese law, particularly the current Law on Enterprise, does not directly define the concept of an “investor’s representative member of the Board of Directors”, but mainly regulates such a matter through general provisions on Board members, shareholders’ rights, and groups of shareholders. Therefore, the establishment of the status of an “investors’ representative” largely depends on the company charter and separate agreements among the parties.
• Thirdly, regarding issues arising in practice, conflicts of interest may occur between the duties of a Board member toward the company and the duty to represent the investor who nominated them. In addition, the abuse of voting rights or veto rights to serve the private interests of investors is also a notable issue. Furthermore, transparency and accountability of these members are sometimes not fully ensured.

This reality demonstrates the need for control mechanisms and legal improvements to balance corporate interests and investors’ interests.

II. Concept of investor-representative members of the Board of Directors

1. What is an investor’s representative member of the Board of Directors?

First of all, it should be emphasized that Vietnamese law has not provided an official definition of an “investor’s representative member of the Board of Directors”.However, from a practical perspective, it may be understood as an individual nominated, elected, or designated by one or a group of investors to participate in the Board of Directors in order to represent their interests within the company.

From a legal perspective, although nominated by investors, once elected to the Board of Directors, such person must execute rights and obligations in accordance with general legal provisions and the company charter as a legally independent Board member, rather than merely acting as an “authorized representative”.

2. The role of investor’s representative members of the Board of Directors in corporate governance structure

Within the corporate governance structure, investor’s representative Board members perform several important roles.

• Firstly, the role of protecting investors’ interests. Through voting rights and participation in deciding important corporate matters, they help ensure that corporate decisions do not go against the interests of the investors who contributed capital.
• Secondly, the role of supervising management and executive activities. These members are often strongly motivated to supervise the executive management to ensure efficient use of capital, minimize risks, and prevent misconduct.
• Thirdly, the role of connecting information and strategic orientation. They serve as a connection between investors and the company, helping convey strategic direction, management experience, and investor resources to the enterprise. However, such a role also comes with the risk of conflicts of interest if not properly controlled.

Investor’s representative Board members play a crucial role in corporate governance, both protecting shareholders’ interests and improving governance efficiency, but they must be placed within an appropriate control mechanism.

3. Can an investor-representative Board Member represent multiple investors at the same time?

In principle, enterprise law does not prohibit one individual from being nominated or authorized by multiple investors to represent their capital contributions on the Board of Directors. It is particularly common where small investors or investors within the same interest group join together to strengthen their voice within the company.

However, one member representing multiple investors may increase the risk of conflicts of interest, especially where the interests of those investors are not entirely aligned. In addition, such a person must still comply with duties of loyalty toward the company and may not prioritize the interests of any particular investor in a manner detrimental to the company.

Therefore, in practice, representation for multiple investors is often clearly regulated in the company charter or shareholders’ agreement to minimize disputes.

III. Legal regulations related to investor-representative members of the Board of Directors

1. Conditions for becoming a member of the Board of Directors

Pursuant to Article 155 of the Law on Enterprise 2020, members of the Board of Directors must satisfy certain standards and conditions.

• Firstly, regarding legal capacity, Board members must be individuals with full civil act capacity and must not fall under cases prohibited from managing enterprises under Clause 2, Article 17 of the Law on Enterprise 2020 (for example, persons being prosecuted for criminal liability or prohibited from practicing certain professions). It ensures the legal capacity and accountability of corporate managers.
• Secondly, regarding qualifications, experience, and professional standards, the law requires Board members to have qualifications and experience in business management or in the company’s field of operation. However, specific criteria are usually further detailed in the company charter, allowing flexibility for enterprises.
• Thirdly, regarding special conditions (if any), for public companies or large-scale enterprises, additional standards regarding independence and absence of related interests may apply (for independent members). However, investor’s representative members are generally not independent members.

The conditions for becoming an investor's representative Board member are basically the same as those for ordinary members, but compliance with legal standards is the prerequisite for legality and effective governance.

2. Rights and obligations of investor’s representative members of the Board of Directors

Pursuant to Articles 153 and 165 of the Law on Enterprise 2020, Board members have general rights and obligations applicable to all members, including investor representatives.

• Firstly, regarding rights, Board members have the right to participate in discussions and vote on matters within the authority of the Board of Directors; the right to request information and documents; and the right to propose matters for inclusion in meeting agendas. These rights form the basis for investor representatives to protect investors’ interests.
• Secondly, regarding obligations, Board members must fulfill duties of loyalty, prudence, and act in the best interests of the company and shareholders; they must not abuse their position or authority for personal gain or for the benefit of other organizations or individuals (Article 165). It is particularly important for investor representatives to minimize conflicts of interest.
• Thirdly, regarding legal liability, if they breach their obligations, Board members may take personal or joint liability for compensation of damages to the company in accordance with the law.

Although representing investors, Board members must still prioritize the interests of the company, and this is the core principle balancing representative rights and legal obligations.

3. What procedures apply to the election, removal, or dismissal of investor representatives?

Pursuant to Article 160 of the Law on Enterprise 2020, the election, removal, and dismissal of Board members are carried out by the General Meeting of Shareholders.

• Firstly, regarding election, Board members are elected through cumulative voting, unless otherwise provided by the company charter. Such a method enables shareholders or groups of shareholders (including investors) to concentrate votes to appoint their representatives to the Board.
• Secondly, regarding removal and dismissal, Board members may be removed or dismissed in cases such as no longer meeting eligibility conditions, submitting resignation, or by decision of the General Meeting of Shareholders. Investors cannot unilaterally “withdraw” a member’s status without going through the company’s mechanism, unless otherwise provided by a lawful separate agreement.
• Thirdly, regarding the role of the company charter and shareholders’ agreement, in practice, these documents often provide detailed provisions on nomination rights and replacement of investor representatives to protect investors’ interests.

The procedures for election, removal, and dismissal of investor representatives must comply with the general corporate governance mechanism of joint-stock companies, ensuring democracy and transparency.

4. How are the term and number of investor’s representative Board Members regulated?

Pursuant to Article 154 of the Law on Enterprise 2020, the term and number of Board members are regulated as follows:

• Firstly, regarding term of office, the term of a Board member shall not exceed 05 years and may be re-elected for an unlimited number of terms. It allows investors to maintain continuity in their representation on the Board.
• Secondly, regarding the number of members, the Board of Directors shall consist of from 03 to 11 members, depending on the company’s scale and charter. The law does not specifically regulate the number of investor-representative members; it depends on shareholding ratios and agreements among shareholders.
• Thirdly, regarding practical influencing factors, in practice, the number of investor representatives often corresponds to the investor’s ownership percentage or negotiation power, particularly in companies with multiple major shareholder groups.

The law only provides the general framework for the term and number of Board members, while determining the number of investor representatives mainly depends on ownership ratios and agreements among the parties.

IV. Questions regarding investor’s representative members of the Board of Directors

1. Must an investor’s representative Board Member be a shareholder of the company?

According to Clause 1, Article 155 of the Law on Enterprise 2020, a Board member is not required to be a shareholder of the company, unless otherwise provided by the company charter.

It means that investors may nominate an individual who does not own shares (for example, an expert or professional manager) to serve as a Board member representing them. This provides flexibility for investors in choosing qualified persons rather than being restricted by share ownership.

However, in practice, many companies still stipulate in their charters that Board members must be shareholders to strengthen alignment of interests.

2. If an investor transfers all shares, is their representative automatically removed?

Current enterprise law does not provide that a Board member is automatically removed when the investor who nominated them transfers all shares.

Under Article 160 of the Law on Enterprise 2020, the removal or dismissal of Board members falls under the authority of the General Meeting of Shareholders and must follow specific procedures. Therefore, in principle, changes in shareholding structure do not automatically terminate Board membership.

However, in practice, the company charter or shareholders’ agreement often stipulates that when the investor no longer owns shares, they must request the removal or replacement of their representative.

3. Can an investor representative simultaneously hold the position of General Director or Director?

Under Clause 2, Article 156 of the Law on Enterprise 2020, the Chairman of the Board of Directors may concurrently serve as the Director or General Director, except for public companies or where otherwise provided by the company charter. For other Board members, the law does not prohibit concurrent executive positions.

Therefore, an investor’s representative Board member may simultaneously serve as Director or General Director if they satisfy legal conditions and are not restricted by the company charter or specialized laws.

However, such dual roles may increase the risk of conflicts of interest and reduce independence in supervising executive activities.

4. Does an investor representative have the right to request a Board Meeting?

According to Article 157 of the Law on Enterprise 2020, the Chairman of the Board of Directors is responsible for convening Board meetings; however, Board members have the right to request meetings where necessary.

Specifically, when a Board member requests discussion of a matter within the Board’s authority, the Chairman must convene the meeting. If the Chairman fails to do so, the requesting member may convene the meeting themselves in accordance with the law.

Such a right allows investor representatives to proactively raise important matters to protect investors’ interests.

5. Does replacing an investor representative require approval from the General Meeting of Shareholders?

Under the general principle in Article 160 of the Law on Enterprise 2020, the election, removal, and dismissal of Board members fall under the authority of the General Meeting of Shareholders.

Therefore, even if the member was nominated by an investor, replacement must still be approved by the General Meeting of Shareholders, except in special cases such as temporary appointment by the Board of Directors (if permitted by the charter), which must be ratified at the nearest General Meeting of Shareholders.

In practice, investors often secure nomination and replacement rights through shareholders’ agreements, but such rights must still be formally legitimized through resolutions of the General Meeting of Shareholders.

V. Why you should seek legal advice from NPLaw regarding investor’s representative members of the Board of Directors

Given that legal provisions regarding investor’s representative Board members remain framework-based and largely depend on company charters and shareholders’ agreements, obtaining professional legal support is essential. NPLaw, with a team of lawyers specializing in corporate law, can assist in legal consultation, charter review, development of appropriate governance mechanisms, and effective dispute resolution, thereby helping investors protect their rights and minimize legal risks during participation in corporate governance.

The above information is for reference purposes only. Should you require detailed advice regarding your specific case, please contact NPLaw Firm for immediate consultation.