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WHY COMPANY CHARTER PLAYS A CRUCIAL ROLE?

The internal disputes among company owners are now becoming more and more popular and continuously increased, however, the company charter is still often overlooked. Typically:

(i) The standard charter template given in the Enterprise Law is still used without any adjustments or modifications to suit the specific conditions. This leads to many obstacles and irregularities in the organization's management and future business operations.

(ii) Company Owners (members/founding shareholders), especially minority members/shareholders, may not even know what the company charter regulates, where it is stored, until conflicts arise, such as disputes over management, profit distribution... prompting them to scramble to find the Charter.

In this series of articles, LawLink Vietnam mentions the issues that are not new but essential with regard to the role and significance of the Company charter, along with recommendations leant from experience in drafting company charters for businesses, as well as participating in the process of resolving internal disputes within companies in Vietnam over the past several years.


Part 1. Fundamental Summaries about Company Charter

1.     What is Company Charter?

Definition of Company Charter is not regulated in the Enterprise Law, however, this term based on the legal aspects, content, and nature of the company charter, can be understood as follows:

“Company Charter is a WRITTEN AGREEMENT among the company owners/founders and between founders with capital contributors, acknowledging and binding the Parties to implement agreements, commitments, general provisions in terms of the establishment of the company, capital and contribution of capital, organizational structure, management, operations,... of the company, and is recognized by law." – LLVN

According to Clause 1, Article 24 of the Enterprise Law No. 59/2020/QH14, the Company charter consists of:

  • The charter upon enterprise registration;

  • The charter that is revised in the process of operation.

2. Main Contents of Company Charter regulated in the Clause 2, Article 24 of the Enterprise Law:

Under Clause 2, Article 24 of Law on Enterprise, the Company Charter shall consist of the following main contents:

  • Name and head office address of the company; name(s) and address(es) of branch(es) and representative office(s), if any;

  • Business line(s);

  • Charter capital; total number of shares, types of shares and par value of shares of each type, for a joint stock company;

  • Full names, contact addresses and citizenship of general partners, for a partnership; of the company owner and members, for a limited liability company; or of founding shareholders, for a joint stock company; contributed capital amount of each member and its value, for a limited liability company or partnership; number of shares, types of shares, and par value of shares of each type of founding shareholders, for a joint stock company;

  • Rights and obligations of members, for a limited liability company or partnership; or of shareholders, for a joint stock company;

  • Management organization structure;

  • Number and title of managers and rights and obligations of the at-law representative of the company; division of rights and obligations of at-law representatives, in case the company has more than one at-law representative;

  • Procedures for adoption of the company’s decisions; principles for resolution of internal disputes;

  • Bases and methods of determining wages, remuneration and bonuses for managers and supervisors;

  • Circumstances in which a member or shareholder is entitled to request the company to redeem its/his/her contributed capital amount, for a limited liability company, or redeem its/his/her shares, for a joint stock company;

  • Principles of distribution of after-tax profits and handling of losses in business operations;

  • Cases of dissolution, procedures for dissolution and procedures for liquidation of the company’s assets;

  • Procedures for revision of the company charter.

3. Principles to comply with upon drafting Company Charter

3.1 Not to violate any legal regulations/ Not to infringe upon the interests of third parties;

3.2 Voluntary and agreed upon within the framework of legal regulations.

3.3 Ensure full compliance with the essential contents as regulated by law.

3.4 Must have the consent of all founding members.

4. Why is the Company Charter is crucial document for the Company Owner and Company itself?”

4.1 Company – The Constitution of Enterprise

Company Charter is one of the most important document in company management. It could be said that Company Charter is the Constitution of enterprise. It is an essential legal framework for the establishment and operation of the Company in compliance with principles, regulations and in order. 

Accordingly, the company charter regulates the most important issues of the Company, from the type of company, founding shareholders, capital contribution, organizational structure, management, and operation of the company, forms of decision-making, resolutions of the company, principles of profit distribution, to the mechanism of internal dispute resolution...

4.2 The company charter establishes the governance mechanism of the enterprise

One mandatory content in the Company Charter is regulations with regard to the organizational structure and management of the company. These provisions serve as the legal basis for the company to establish a management organizational system with clear delegation of authority, helping company have smooth and efficient operation.

The company owners and the management apparatus commit to and are responsible for complying with the provisions of the company charter.

4.3 Company Charter serves as basic for resolving internal disputes within the company

Company Charter is draft based on the consent of the company co-owners, acknowledged by the Law, therefore, it holds high applicability and is pervasive in all company activities.

When internal disputes arise such as disputes between company owners (disputes between shareholders/founding members; disputes between company owners and management, business executives...), the company charter is the first and crucial legal document used as the basis for resolving these disputes.

Part 2. Common Internal Disputes and lessons from experiences (to be continued).

Article: Prepared by LLVN

Image: Internet.

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Lawlink Vietnam (LLVN) is a business law firm providing world-class legal solutions to businesses, entrepreneurs on investment, corporate & business, Mergers & Acquisitions; Litigations and Dispute Resolution. We offer a complete range of consulting services from type of company/investment, operating models, licensing, contracts, capital structure and arrangement, accounting & tax and representation sevice. We are experts in  Real Estate & Construction, Infrastructure, Waste & Environment, Medicine & Pharmacy, Education, Fintech, Agriculture, Media & Publishing, and E-Commerce.

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