Transactions must be approved by the board of members

Transactions must be approved by the board of members with the purpose of protecting the interests of the members of the board as well as protecting the general interests of the business. Transactions carried out without approval can lead to serious legal consequences. This article below will advise on transactions that require approval from the board of members and the necessary approval process.

What is the Board of Members in a limited company?

Based on the content of Article 55 of the Law on Enterprises 2020, the Board of Members is the highest decision-making body of the limited company. This agency has the right to decide on all issues related to the organization, operations and management of the company.

The Board of Members includes all members of the company who are individuals and authorized representatives of members of the company who are organizations. The Board of Members’ structure and composition are specifically prescribed in the Law on Enterprises 2020.

Rights and obligations of the Board of Members

Based on the content of Article 55 of the Law on Enterprises 2020, the Board of members of a limited liability company with two or more members has the following rights and obligations:

• Decide on the company’s development strategy and annual business plan;
• Decide to increase or decrease charter capital, decide when and how to mobilize additional capital; decision to issue bonds;
• Decide on investment and development projects of the company; solutions for market development, marketing and technology transfer;
• Approve loan contracts, lending contracts, asset sales and other contracts prescribed by the company charter with a value of 50% or more of the total asset value recorded in the financial report at the time of the most recent announcement. of the company or a ratio or other value smaller than that specified in the company’s charter;
• Elect, dismiss, and dismiss the Chairman of the Board of Members; decide to appoint, dismiss, dismiss, sign and terminate contracts with the Director or General Director, Chief Accountant, Controller and other managers specified in the company’s Charter;
• Decide on salaries, remunerations, bonuses and other benefits for the Chairman of the Board of Members, Director or General Director, Chief Accountant and other managers specified in the company’s Charter;
• Approve the company’s annual financial report, plan for using and distributing profits or dealing with losses;
• Decide on the company’s organizational and management structure;
• Decision to establish subsidiaries, branches, representative offices;
• Amending and supplementing the company charter;
• Decide to reorganize the company;
• Decision to dissolve or request bankruptcy of the company;
• Other rights and obligations according to the provisions of this Law and the company’s Charter.

Mandatory transactions must be approved by the Board of Members

Article 67 of the  Law on Enterprises 2020 stipulates that transactions require the approval of the Board of Members. Accordingly, contracts and transactions between the company and the following entities must be approved by the Board of Members:

• Members, authorized representatives of members, Director or General Director, legal representative of the company;
• Related person of the member, authorized representative of the member, Director or General Director, legal representative of the company;
• The parent company manager, the person with authority to appoint the parent company manager;
• Related person of the parent company manager, person with authority to appoint the parent company manager.

These are transactions with participants who can directly participate in the company management process. According to Clause 23, Article 4 of the Law on Enterprises 2020, related persons are individuals and organizations that have a direct or indirect relationship with the enterprise in the following cases:

• The parent company, the manager and legal representative of the parent company and the person with authority to appoint managers of the parent company;
• Subsidiaries, managers and legal representatives of subsidiaries;
• An individual, organization or group of individuals or organizations has the ability to dominate the operations of that enterprise through ownership, acquisition of shares, capital contribution or through decision-making of the company;
• Business managers, legal representatives, Controllers;
• Wife, husband, biological father, biological mother, adoptive father, adoptive mother, father-in-law, mother-in-law, father-in-law, mother-in-law, biological child, adopted child, son-in-law, daughter-in-law, biological brother, biological sister, younger brother, brother son-in-law, brother-in-law, sister-in-law, sister-in-law of the company manager, legal representative, Controller, members and shareholders who own capital contributions or controlling shares;
• An individual who is an authorized representative of a company or organization specified in Points a, b and c, Clause 23, Article 4 of the Law on Enterprises 2020;
• Enterprises in which individuals, companies and organizations specified in Points a, b, c, d, dd and e, Clause 23, Article 4 of the Law on Enterprises 2020 have ownership to the extent of controlling the company’s decision making .

Regulations on transactions and contracts with the above subjects must require the approval of the Board of Members to avoid profiteering and maximize the benefits of the group of people with the right to manage the company, causing losses. harmful to the company and its members.

Procedures for approval of the Board of members

The process for obtaining approval from the Board of Members is carried out in accordance with the provisions of Article 59, Clause 2, Article 67 of the Law on  Enterprises 2020, specifically as follows:

Step 1: The person signing the contract or transaction on behalf of the company prepares documents that need to be prepared including:

• Draft contract
• Main content of the transaction intended to be conducted;

Step 2: Announce the signing of transactions and contracts that require the approval of the Board of Members

• The person who signs a contract or transaction on behalf of the company must notify the members of the Board of Members and Controllers about the relevant subjects and related benefits of that contract or transaction.

Step 3: The Board of members holds a meeting to decide whether to approve or disapprove the contract or transaction

Step 5: The Board of members approves the signing of contracts and transactions by voting at the meeting, soliciting written opinions or other forms prescribed by the company’s Charter.

Step 5: Decision on contract and transaction approval:

• If the Company Charter does not stipulate otherwise, the Board of Members must decide to approve or disapprove the contract or transaction within 15 days from the date of receipt of the notice and comply with the provisions of Clause 3. Article 59 Law on Enterprises 2020
• Members of the Board of Directors who are related to the parties in the contract or transaction are not counted in voting.

Thus, the process of obtaining approval from the Board of Members includes the following steps: Prepare documents, send notices, organize meetings, vote, and make decisions. The person signing the contract or transaction is responsible for properly following the above process. If violations of the law are discovered, they may be handled according to regulations.

Legal consequences when transactions are not approved by the Board of Members

Failure to obtain Board approval for required transactions may result in serious legal consequences. According to Clause 3, Article 67 of the Law on Enterprises 2020, contracts and transactions between the company and the above subjects will be invalidated according to the Court’s decision and handled according to the provisions of law if signed without the consent of the Court. approval of the Board of members.

The person signing the contract or transaction, the relevant member and the member’s related person must jointly compensate for any damages incurred and return to the company the profits gained from the performance of the contract or transaction. translate that.

To avoid these legal consequences, the company needs to clearly understand the transactions that require the approval of the board of members. At the same time, it is necessary to strictly comply with the Board of Members’ approval process for mandatory transactions. At the same time, companies should develop clear internal processes for obtaining approval and implementing these transactions to ensure legal compliance and protect the company’s interests.

Consulting services on transactions must be approved by the Board of Members

At Long Phan, we provide consulting services on transactions must be approved by the Board of Members, helping businesses comply with legal regulations and avoid legal risks related to mandatory transactions. The scope of services includes the following tasks:

• Review and identify transactions that require approval from the board of members
• Instructions on the process of applying for approval from the Board of Members
• Draft and review relevant documents
• Consulting on how to organize meetings of the Board of Members,
• Advise on legal risks that may occur if regulations are not followed and propose risk prevention measures.

The approval of the Board of Members for important transactions is a mandatory requirement. Compliance with this process protects company and member interests. Enterprises need to clearly understand transactions that require approval from the board of members and the approval process to avoid possible risks. If you need support, please contact Long Phan via hotline: 090.673.5386 for detailed advice on transactions requiring approval from the Board of Members.