I. Introduction
In the context of increasingly complex corporate governance, protecting the rights of shareholders, particularly minority shareholders, when the Board of Directors (BOD) violates the law has become an urgent issue. This article provides a comprehensive guide on measures to protect shareholder rights in such cases.
II. Legal Framework on Shareholder Rights
Legal Regulations on Shareholder Rights
According to the 2020 Enterprise Law, shareholders are protected by several fundamental rights (Article 115 of the Enterprise Law).
- General rights of common shareholders:
- Participate, speak, and vote at the General Meeting of Shareholders.
- Receive dividends as decided by the General Meeting of Shareholders.
- Have the priority to buy new shares in proportion to their ownership.
- Freely transfer shares, except in some cases where restrictions are provided by law.
- Inspect, review, and extract information related to the shareholder register, and amend personal information if necessary.
- Inspect, review, and photocopy documents such as the company’s charter, meeting minutes, and resolutions of the General Meeting of Shareholders.
- Receive the remaining assets corresponding to their shareholding when the company dissolves or goes bankrupt.
- Specific rights of shareholders/shareholder groups owning 5% or more of common shares (or a lower percentage as per the company’s charter):
- Inspect, review, and extract documents such as the minutes and resolutions of the Board of Directors, financial reports, reports from the Supervisory Board, contracts, and transactions requiring the approval of the Board of Directors (excluding documents related to business secrets).
- Request the convening of the General Meeting of Shareholders when necessary.
- Request the Supervisory Board to inspect specific issues related to the company’s management and operations in writing.
- Other rights as provided by law and the company’s charter.
Legal Responsibilities of the Board of Directors
The Board of Directors has significant legal responsibilities (Article 153 of the Enterprise Law):
- Strategy and development plans: Decide on the company’s strategy, medium-term development plans, and annual business plans.
- Shares and capital raising:
- Propose the type of shares and the number of shares to be offered.
- Decide on the sale of unissued shares and raise capital through other means.
- Decide on the price of shares and bonds.
- Decide on the buyback of shares.
- Investments and market:
- Decide on investment plans and projects within their authority.
- Decide on market development, marketing, and technology strategies.
- Management of contracts and major transactions: Approve major contracts, including purchases, loans, and other large transactions (from 35% of total assets).
- Personnel management:
- Elect or dismiss the Chairman of the Board and appoint or dismiss the CEO, General Director, and other key managers.
- Decide on salaries, remuneration, bonuses, and benefits for managers.
- Supervision and direction of operations: Supervise and direct the CEO or General Director and other managers in daily business operations.
- Organization and internal management: Decide on the organizational structure, internal management regulations, and the establishment of subsidiaries, branches, or representative offices.
- Documents and reports:
- Approve documents for the General Meeting of Shareholders.
- Present annual financial reports to the General Meeting of Shareholders.
- Dividends and corporate restructuring:
- Propose dividend rates, schedules, and procedures for dividend payment.
- Propose corporate restructuring, dissolution, or bankruptcy.
- Other rights and obligations: Fulfill rights and obligations according to the law and the company’s charter.
III. Common Violations by the Board of Directors
Some common violations include:
Misuse of company assets for personal gain:
- Board members use company assets for personal benefit, resulting in asset loss, decreased company value, and harm to shareholder rights.
- Example: Using company funds to cover unreasonable expenses or projects not aligned with the company’s business goals.
Failure to disclose information as required:
- The Board fails to disclose essential information as required by law and the stock market, reducing transparency and harming shareholder rights, especially minority shareholders.
- Example: Not disclosing financial reports, business strategies, or major transactions of the company.
Making decisions beyond their authority:
- The Board makes decisions beyond the authority defined by the company’s charter or the law, leading to a loss of control over key decisions and causing damage to the company and shareholders.
- Example: Deciding to sell a major company asset without approval from the General Meeting of Shareholders.
Collusion causing harm to minority shareholders:
- Board members collude to make decisions that benefit major shareholders but harm minority shareholders. This results in a lack of protection for minority shareholders’ rights and an unfair decision-making process in the company.
- Example: Preferential transactions benefiting major shareholders, which are unfair to minority shareholders.
IV. Measures to Protect Shareholder Rights
1. Shareholder’s Right to Sue (Clause 1, Article 166 of the Enterprise Law)
Conditions for shareholders/shareholder groups:
- Owning at least 1% of the total common shares
- Filing a lawsuit personally or on behalf of the company for personal liability, joint liability against members of the Board of Directors, CEO, or General Director
- To request the return of benefits or compensation for damages to the company or others
Shareholders have the right to sue in cases where:
- Violation of the responsibilities of company managers as regulated in Article 165 of this Law;
- Failure to perform, incomplete performance, delayed performance, or performance contrary to the law, the company’s charter, or the resolutions and decisions of the Board of Directors regarding assigned rights and obligations;
- Abuse of position and using information, trade secrets, business opportunities, or other company assets for personal gain or to serve the interests of other organizations or individuals;
- Other cases as regulated by law and the company’s charter.
2. Lawsuit Process Against the Board of Directors (Clause 2, Article 166 of the Enterprise Law)
- Preparation Phase:
- Gather evidence of violations
- Collect relevant evidence:
- Board meeting minutes
- Financial reports
- Related transaction documents
- Publicly disclosed information on the stock market
- Admission Phase:
- Submit a lawsuit and litigation fees (Articles 189, 190 of the Civil Procedure Code): Shareholders or shareholder groups submit the lawsuit along with supporting documents proving the legality of the lawsuit and pay the litigation fees.
- The court reviews conditions for acceptance (Articles 191-194 of the Civil Procedure Code): The court checks whether the lawsuit meets the legal conditions such as jurisdiction, statute of limitations, and accompanying evidence.
- Notification of lawsuit acceptance (Articles 195, 196 of the Civil Procedure Code): If the lawsuit is valid, the court will notify all parties involved about the acceptance of the case and officially initiate the resolution process.
- Preparation for Trial Phase:
- Gather additional evidence (Articles 208, 210, 212 of the Civil Procedure Code): Parties provide additional documents or request the court to gather evidence to clarify the content of the dispute.
- Mediation between parties (Article 205 of the Civil Procedure Code): The court organizes mediation to allow parties to settle the dispute amicably without going to trial.
- Court’s decision to proceed with the trial (Article 220 of the Civil Procedure Code): If mediation fails, the court decides to proceed with the trial.
- Court’s judgment (Articles 266, 267 of the Civil Procedure Code): After the trial, the court renders a final decision based on the evidence and legal arguments. This decision determines the rights and obligations of the parties involved in the dispute.
- Execution of the judgment (Articles 482 of the Civil Procedure Code and the Enforcement Law): Once the decision becomes effective, the parties involved must comply with the obligations determined by the court. If a party refuses to comply, the enforcement agency will intervene.
3. Other Protective Measures
In addition to filing a lawsuit, shareholders can:
- Request an extraordinary General Meeting of Shareholders
- Request to convene an extraordinary General Meeting of Shareholders if there are important issues that need to be resolved. This allows shareholders to control important decisions made by the Board of Directors or Management, ensuring that decisions are made legally and reasonably.
- Shareholders can directly participate, discuss, and vote on important issues such as amending the company’s charter, changing the shareholder structure, or major financial issues like dividend distribution or large investments.
- Request the Supervisory Board to inspect specific issues
- Request the Supervisory Board to inspect issues related to the management and operation of the company if there are concerns about the transparency or effectiveness of the Board of Directors or Management’s activities.
- This helps detect violations or unreasonable decisions by managers, protecting the interests of shareholders, especially minority shareholders, and preventing detrimental or wrong decisions for the company.
- Exercise the right to request the disclosure of information
- Request the company to disclose important information related to its business operations (financial information, important decisions by the Board of Directors, development plans…) and matters that significantly affect shareholders’ rights.
- This ensures shareholders have sufficient basis to make informed decisions when monitoring and participating in company meetings, protecting shareholder rights by ensuring transparency and fairness in the company’s management.
V. Important Considerations
When exercising protection rights, shareholders should:
- Comply with the statute of limitations for filing a lawsuit
- Each shareholder protection right has a specific statute of limitations for legal action. Filing a lawsuit too late may prevent shareholders from requesting the protection of their legitimate rights.
- Shareholders need to pay attention to avoid missing the time frame for filing lawsuits or taking legal protective actions to prevent their rights from being violated without the possibility of re-litigating.
- Ensure the required shareholding ratio
- Shareholders or shareholder groups requesting the protection of their rights, such as requesting the convening of a General Meeting of Shareholders, requesting inspection by the Supervisory Board, or requesting the disclosure of information, generally need to own a certain percentage of shares as stipulated in the company’s charter.
- For example, Clause 1, Article 166 of the Enterprise Law requires owning at least 1% of the total common shares to file a lawsuit.
- Retain sufficient evidence
- Retain all documents and evidence related to disputes or violations of rights (meeting minutes, financial reports, resolutions of the General Meeting of Shareholders, documents related to share transactions or decisions by the Board of Directors).
- Legal and clear evidence will be crucial in helping shareholders protect their rights if needed, especially in lawsuits or disputes with the company.
- Consult legal experts
- Consult legal experts or lawyers to ensure that the protective actions taken are following the law.
- Legal professionals can help shareholders better understand their rights and obligations, procedural processes, and applicable legal regulations.
- Legal advice also helps shareholders better prepare for lawsuits or claims to protect their rights and avoid unnecessary legal risks.
VI. Conclusion
Protecting shareholder rights when the Board of Directors violates the law is a complex issue but can be effectively carried out with a solid understanding of legal regulations and proper procedure. Shareholders need to be proactive in monitoring the activities of the Board of Directors and be ready to take protective actions when necessary.
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