In the context of increasingly complex corporate governance, board members’ roles and legal responsibility are under more scrutiny than ever before. This article will provide a detailed analysis of the legal framework governing the responsibilities of board members according to the latest regulations in 2025.
I. Introduction
Overview of the Role of the Board of Directors
The Board of Directors (BOD) is the highest management body of a company, responsible for setting strategic directions, overseeing operations, and protecting shareholder interests. Board members are entrusted by shareholders with the responsibility of managing, operating, and developing the company. The BOD develops growth strategies, supervises the executive board, and makes key decisions such as appointing leaders, approving investments, and financial policies, and ensuring the company complies with the law. With a central role in corporate governance, the BOD helps the company grow sustainably and optimize benefits for shareholders.
The Importance of Legal Responsibility
The legal responsibility of board members plays a crucial role in corporate governance. This is not only a duty to the company and shareholders but also a mandatory requirement under the law. Violating legal responsibilities can lead to serious consequences. Board members may face civil, administrative, or criminal liability, depending on the level of violation.
In addition to legal consequences, violations also affect personal reputations and the sustainable development of the company. Therefore, legal compliance is essential to ensure the company’s operations are transparent and effective.
II. Legal Framework on the Responsibility of Board Members
Enterprise Law 2020
The Enterprise Law 2020 is an important legal document that defines the rights, obligations, and responsibilities of board members. These regulations aim to ensure that corporate governance is conducted transparently, effectively, and following shareholders’ interests.
Related Legal Documents
In addition to the Enterprise Law, the responsibilities of board members are also governed by many other legal regulations, especially the Securities Law, decrees, and circulars (Decree 01/2021/ND-CP, Decree 155/2020, Decree 156/2020, Decree 128/2021, etc.). These regulations focus on public company governance, information disclosure obligations, and conflict of interest controls to enhance transparency and protect shareholder rights.
III. Types of Legal Responsibility
Civil Responsibility
Board members are liable for compensating damages caused by their violation of duties. The authorities determine the amount of compensation based on the actual damage and its causal relationship with the violation. If a shareholder believes the violation infringes on their legitimate rights, they can file a lawsuit against the Board of Directors (BOD) under Article 166 of the Enterprise Law.
Article 584, Clause 1 of the Civil Code 2015 stipulates the liability for damages that arise when the following factors are present:
- There is an act that infringes upon the life, health, honor, dignity, reputation, property, or other legitimate rights and interests of others;
- Damage occurs, which is material damage or mental harm;
In general, cases where the BOD’s actions affect shareholders often involve damage caused by the infringement of property. In such cases, the damage is determined to include: (Article 589 of the Civil Code)
- Property that is lost, destroyed, or damaged;
- Interests related to the use or exploitation of the lost or diminished property;
- Reasonable costs to prevent, limit, and remedy the damage;
- Other damages as provided by law.
Administrative Responsibility
Some administrative violations include:
Violating the obligation to disclose information (Article 42 of Decree 156/2020)
- Not disclosing or disclosing incomplete or inaccurate information as required (financial reports, changes in senior personnel, transactions with related parties, etc.).
- Misleading information that affects the interests of shareholders and investors.
Non-compliance with corporate governance regulations (Article 15 of Decree 156/2020, amending and supplementing Clauses 13 and 14 of Article 1 of Decree 128/2021)
- Not organizing the Annual General Meeting as required.
- Making decisions on matters beyond their authority or without shareholders’ approval when necessary.
- Failing to comply with the process of electing or dismissing BOD members as per the law.
Violating securities listing and registration regulations (Article 18 of Decree 156/2020)
- Not updating securities listings or trading registrations on time.
- Not modifying or supplementing securities listing or trading documents when there is false or missing information.
When violating the above regulations, board members or the entire board may be subject to administrative fines, warnings, or remedial measures as prescribed by law.
Criminal Responsibility
The BOD commits actions that severely violate shareholders’ interests, causing harm to shareholders or the company, and may be criminally liable if the act results in serious consequences as prescribed by law. Some actions subject to criminal liability include:
- Providing false or fraudulent information in financial reports: Providing false or fraudulent information in financial reports to inflate stock prices or conceal the company’s poor financial situation may lead to prosecution under Article 212 for falsifying documents in offering or listing securities or under Article 341 for falsifying seals or documents of agencies or organizations, or using forged seals or documents of agencies or organizations.
- Manipulating stock prices: Actions of stock price manipulation or insider trading to unlawfully increase or decrease stock prices, causing damage to shareholders and investors, may be subject to criminal liability under Article 211 of the Penal Code for the crime of market manipulation.
- Tax evasion: The BOD or members who intentionally falsify financial reports to evade taxes, causing financial loss to the state, may be criminally liable under Article 200 of the Penal Code for tax evasion.
For more information about shareholders’ rights when the BOD violates the law, please refer to the article: Protecting Shareholder Rights in Cases of Board of Directors Violations
IV. Legal Consequences and Violation Handling
Applicable Sanctions
- Fines as per administrative penalties: The Board of Directors (BOD) may be fined if they violate laws related to the company’s activities, such as violations of information disclosure, corporate governance, securities listing, etc.
The fine amount may vary depending on the severity of the violation and the specific legal provisions.
- Obligation to remedy the consequences: The BOD will be responsible for remedying the consequences caused by their violations.
For example, suppose the violation is related to the failure to disclose information on time. In that case, the company must correct the inaccurate information and implement measures to ensure future accuracy and timeliness. Remedial measures may also include compensating shareholders and other stakeholders for the damages caused.
- Criminal liability in serious cases: If the BOD’s violation causes serious consequences, leading to fraud, corruption, or significant harm to the company or shareholders, criminal prosecution is necessary. Actions such as financial report fraud, and embezzlement of company or shareholder assets may be subject to criminal penalties under the Penal Code.
- Annulment of illegal decisions or actions: The BOD’s decisions may be annulled if they violate the law, particularly when they negatively impact the interests of shareholders or the company. This helps restore the company’s legal status.
- A prohibition from holding management positions: A strict sanction is a prohibition of violating BOD members from holding management positions or participating in other companies for a certain period. This helps prevent unsuitable individuals from continuing to engage in corporate management activities.
Preventive Measures
- Establishing a strict internal governance process: Developing clear internal management processes and systems helps the BOD easily monitor and control activities, minimizing violations. These processes should include specific steps for financial management, decision-making, and overseeing the executive board’s activities, ensuring transparency and accountability.
- Participating in corporate governance training: BOD members need to be equipped with knowledge of corporate governance, related laws, decision-making skills, and conflict resolution. Training programs help BOD members understand their legal obligations and how to protect shareholders’ interests.
- Hiring professional legal advisors: To avoid legal violations, the BOD should hire legal experts to assist in complying with the legal regulations related to the company’s operations. Professional legal advice helps identify and resolve legal issues promptly, minimizing the risk of violations.
- Purchasing liability insurance for BOD members: To protect BOD members from financial risks related to legal responsibilities, the company can purchase liability insurance for the BOD. This helps protect the members’ interests when facing claims or lawsuits, while also minimizing the negative impact on the company and shareholders.
Conclusion
The legal responsibility of BOD members is a complex issue and is becoming increasingly stringent. Understanding and complying with legal provisions not only helps protect the interests of the company and shareholders but also safeguards the BOD members themselves from potential legal risks.
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