Common Corporate Governance Mistakes in Vietnam

Foreign-invested companies operating in Vietnam often focus heavily on market entry, licensing, and commercial growth during the early stages of investment. However, governance failures frequently emerge after incorporation, particularly when businesses expand, management structures become more complex, or shareholder relationships deteriorate.

In practice, many corporate disputes in Vietnam are not caused by a single major violation. Instead, they develop gradually through weak internal controls, unclear authority structures, incomplete documentation, and inconsistent compliance management.

For foreign companies, governance mistakes can lead to:

• shareholder disputes;
• director liability exposure;
• licensing complications;
• internal fraud risks;
• tax and labor investigations;
• disruption of business operations;
• litigation and arbitration.

These risks are particularly common in companies with multiple investors, nominee arrangements, cross-border management structures, or rapidly growing operations.

Understanding the most common corporate governance mistakes in Vietnam can help businesses reduce operational risks and strengthen long-term legal stability.

Weak Shareholder Agreements

One of the most common governance problems in Vietnam involves poorly drafted shareholder agreements. Many companies rely solely on the Enterprise Registration Certificate, company charter, or basic incorporation documents without developing a detailed governance framework between investors.

This often becomes problematic once disagreements arise.

Unclear Voting Rights

Foreign investors sometimes assume that ownership percentages alone determine control rights. In practice, voting mechanisms, veto rights, quorum requirements, and approval thresholds must be clearly structured.

Without detailed provisions, disputes may occur regarding:

• appointment or removal of directors;
• approval of budgets;
• capital increases;
• dividend distribution;
• business expansion decisions.

Minority shareholders may also challenge decisions if governance procedures are not properly documented.

Missing Deadlock Resolution Mechanisms

Deadlock situations commonly arise in joint ventures and multi-shareholder companies. Common examples include:

• disagreement over strategic direction;
• refusal to approve financial plans;
• conflicts regarding management appointments;
• disputes during capital calls.

Without predefined resolution procedures, operational paralysis can occur.

Practical governance structures often include:

• escalation procedures;
• mediation requirements;
• buy-sell arrangements;
• forced transfer mechanisms;
• defined exit rights.

Weak Transfer Restrictions

Companies frequently fail to regulate share transfers adequately. This creates risks when:

• a shareholder exits unexpectedly;
• shares are transferred to competitors;
• disputes arise regarding valuation;
• ownership changes occur without internal approval.

Well-drafted shareholder agreements should clearly regulate transfer procedures and approval requirements.

Inadequate Dispute Resolution Clauses

Dispute resolution provisions are often overlooked during incorporation. However, jurisdiction and enforcement issues become critical once shareholder conflicts escalate.

Foreign investors should evaluate:

• court versus arbitration mechanisms;
• governing law considerations;
• language requirements;
• enforceability of awards;
• interim relief options.

Poor dispute resolution drafting can significantly increase litigation complexity and costs.

Nominee Structures Without Legal Risk Controls

Nominee arrangements remain a sensitive governance issue in Vietnam, particularly in sectors involving foreign ownership restrictions or operational convenience structures.

Many businesses implement nominee structures informally without understanding the associated legal risks.

Hidden Ownership Risks

In nominee arrangements, the legal shareholder recorded in company documents may differ from the actual beneficial owner. Problems arise when trust relationships deteriorate or documentation is incomplete.

Potential risks include:

• denial of beneficial ownership rights;
• unauthorized transfer of shares;
• loss of management control;
• inability to enforce side agreements.

Vietnamese courts may not always recognize hidden ownership structures in the way investors expect.

Licensing Exposure

Nominee arrangements can also create regulatory concerns if authorities determine that the structure circumvents investment or licensing restrictions.

This may result in:

• licensing scrutiny;
• administrative penalties;
• restructuring requirements;
• complications during due diligence exercises.

Regulatory exposure increases significantly during mergers, acquisitions, financing transactions, or internal investigations.

Shareholder Conflict Risks

Informal nominee arrangements often rely heavily on personal trust rather than enforceable governance controls.

When disputes arise, companies may face:

• competing ownership claims;
• director appointment disputes;
• banking authority conflicts;
• operational disruption.

Businesses using nominee structures should conduct careful legal reviews and implement appropriate risk management documentation.

Directors Exceeding Corporate Authority

Director authority disputes are another major governance issue for companies operating in Vietnam.

In many businesses, directors or senior executives make commercial decisions without fully complying with internal approval procedures or charter limitations.

Unauthorized Commitments

A director may sign contracts exceeding delegated authority or commit the company to obligations without required approvals.

This frequently occurs in:

• procurement contracts;
• financing arrangements;
• real estate transactions;
• employment decisions;
• related-party dealings.

Even commercially beneficial transactions can later become problematic if governance procedures were bypassed.

Failure to Follow Internal Approvals

Foreign parent companies often assume that internal group approvals automatically satisfy Vietnamese corporate governance requirements.

However, Vietnamese entities must still comply with:

• company charter procedures;
• member council approvals;
• board resolutions;
• statutory governance requirements.

Failure to maintain proper approvals may create enforceability disputes and internal liability exposure.

Charter Conflicts

Company charters frequently contain authority restrictions that management teams fail to monitor consistently.

For example:

• certain transactions may require shareholder approval;
• borrowing thresholds may apply;
• asset disposal limitations may exist;
• director appointment procedures may be mandatory.

If management actions conflict with the charter, disputes may arise regarding transaction validity and liability.

Director Liability Exposure

Directors in Vietnam may face liability for breaches of fiduciary duties, governance failures, or actions exceeding authorized authority.

Potential exposure includes:

• shareholder claims;
• internal disciplinary actions;
• compensation disputes;
• regulatory investigations.

Clear governance structures and legal review procedures help reduce these risks.

Failure to Maintain Internal Compliance Procedures

Many governance failures are operational rather than strategic. Companies often neglect routine compliance management while focusing on commercial expansion.

This creates cumulative legal risks over time.

Labor Compliance Failures

Employment compliance problems remain common among foreign-invested businesses in Vietnam.

Typical issues include:

• missing labor documentation;
• non-compliant employment contracts;
• improper disciplinary procedures;
• social insurance violations;
• unlawful termination practices.

Labor disputes frequently emerge during restructuring or management transitions.

Tax and Accounting Coordination Problems

Governance risks also arise when legal, finance, and accounting functions operate independently without proper coordination.

Common problems include:

• inconsistent tax reporting;
• undocumented intercompany transactions;
• weak invoice controls;
• transfer pricing risks;
• unsupported expense approvals.

Tax investigations often reveal broader governance weaknesses within the organization.

Licensing Compliance Gaps

Companies expanding operations sometimes overlook ongoing licensing obligations.

Examples include:

• expired permits;
• unregistered business activities;
• failure to update enterprise information;
• non-compliance with sector-specific regulations.

Licensing problems may disrupt operations or complicate future investment activities.

Weak Internal Reporting Systems

Management teams may fail to establish effective internal reporting channels for governance concerns.

As a result:

• misconduct remains undetected;
• compliance breaches escalate;
• financial irregularities continue unchecked;
• management loses visibility over operational risks.

Effective governance requires structured reporting and escalation systems.

Poor Documentation of Corporate Decisions

In Vietnam, poor corporate recordkeeping creates major evidentiary risks during disputes, audits, and investigations.

Many companies operate informally despite having complex ownership or management structures.

Missing Resolutions

Businesses sometimes implement major decisions without formal resolutions.

This may involve:

• director appointments;
• capital contributions;
• intercompany transactions;
• profit distributions;
• restructuring activities.

Without proper resolutions, companies may struggle to prove valid authorization.

Unsigned Meeting Minutes

Unsigned or incomplete meeting minutes are common in shareholder and board disputes.

Problems arise when:

• attendance records are unclear;
• voting outcomes are disputed;
• translations differ;
• approvals cannot be verified.

These weaknesses become particularly damaging during litigation or regulatory review.

Weak Approval Records

Companies often rely on informal email approvals or verbal instructions instead of structured governance procedures.

This creates uncertainty regarding:

• who approved transactions;
• whether approvals were valid;
• whether conflicts of interest existed;
• whether internal procedures were followed.

Evidentiary Risks During Disputes

Poor documentation significantly weakens a company’s position during:

• shareholder litigation;
• tax disputes;
• employment disputes;
• internal investigations;
• due diligence exercises.

Strong corporate documentation is one of the most effective governance protections available to businesses operating in Vietnam.

Mismanagement of Related Party Transactions

Related party transactions are highly sensitive governance issues, particularly in family-owned businesses, group structures, and joint ventures.

Conflicts of Interest

Conflicts frequently arise when directors or shareholders benefit personally from company transactions.

Examples include:

• procurement from affiliated companies;
• management service arrangements;
• shareholder loans;
• preferential commercial terms.

Without transparency controls, disputes may escalate rapidly.

Minority Shareholder Disputes

Minority investors often challenge related party transactions when they believe decisions unfairly favor controlling shareholders.

Potential claims may involve:

• misuse of company assets;
• unfair pricing arrangements;
• improper approvals;
• concealment of conflicts.

These disputes commonly damage long-term business relationships.

Transparency Failures

Many companies lack structured disclosure procedures for related party dealings.

This creates risks involving:

• accounting irregularities;
• regulatory scrutiny;
• audit complications;
• reputational concerns.

Effective governance requires transparent approval and disclosure systems for related party transactions.

Ignoring Internal Dispute Warning Signs

Governance disputes rarely appear without warning. In many cases, early signs are ignored until the conflict becomes difficult to control.

Shareholder Tension

Indicators may include:

• communication breakdowns;
• repeated voting disputes;
• delayed approvals;
• refusal to provide information.

Unresolved tensions often escalate into formal disputes or operational paralysis.

Executive Conflicts

Conflicts between directors or management teams may involve:

• competing authority claims;
• inconsistent reporting;
• unauthorized transactions;
• employee loyalty disputes.

These issues can destabilize company operations if not addressed promptly.

Financial Irregularities

Unexpected accounting discrepancies, unusual payment patterns, or weak financial controls may indicate broader governance failures.

Companies should respond proactively to signs of:

• fraud risks;
• unauthorized expenditures;
• document manipulation;
• asset diversion.

Internal Investigations

Delaying internal investigations often increases legal exposure.

Early legal review can help companies:

• preserve evidence;
• assess liability exposure;
• contain operational risks;
• prevent escalation.

Timely intervention is critical in governance-related disputes.

Lack of Legal Review During Business Expansion

Many governance problems emerge during periods of rapid business growth.

Branch Expansion Risks

Companies opening branches or expanding into new provinces may overlook local compliance requirements and internal approval procedures.

This can create:

• licensing inconsistencies;
• tax registration issues;
• operational compliance gaps.

New Business Lines

Expanding into new sectors without legal review may expose businesses to:

• conditional licensing requirements;
• foreign ownership restrictions;
• regulatory penalties.

Operational expansion should always include legal compliance assessment.

Restructuring Risks

Internal restructuring often affects:

• management authority;
• labor obligations;
• tax positions;
• shareholder rights.

Poorly managed restructuring can trigger disputes and regulatory scrutiny.

M&A Governance Exposure

Acquisitions and investment transactions frequently reveal hidden governance weaknesses.

Due diligence reviews commonly identify:

• undocumented liabilities;
• governance inconsistencies;
• authority defects;
• unresolved shareholder conflicts.

Legal review during expansion activities helps reduce long-term exposure.

How Companies Can Reduce Governance Risks in Vietnam

Effective governance requires continuous risk management rather than one-time compliance exercises.

Practical measures may include:

Governance Audits

Periodic governance reviews help identify weaknesses involving:

• authority structures;
• shareholder arrangements;
• internal approvals;
• documentation systems.

Legal Review Procedures

Companies should establish internal legal review protocols for:

• major contracts;
• restructuring activities;
• management decisions;
• related party transactions.

Internal Reporting Systems

Structured reporting channels improve early detection of:

• compliance violations;
• financial irregularities;
• internal conflicts;
• operational risks.

Compliance Management Systems

Businesses should maintain coordinated compliance oversight involving:

• legal;
• finance;
• HR;
• operations;
• management teams.

Integrated compliance systems reduce fragmented governance practices.

Periodic Legal Advisory Support

Ongoing legal advisory support can help companies respond proactively to evolving regulatory and operational risks in Vietnam.

Preventive legal review is often significantly less costly than resolving governance disputes after they escalate.

Conclusion

Corporate governance failures in Vietnam often develop gradually through weak controls, unclear authority structures, poor documentation, and unmanaged shareholder conflicts. For foreign-invested companies, these risks can affect operations, regulatory compliance, investor relationships, and long-term business stability.

Strong governance is not limited to formal legal compliance. It requires practical internal systems, clear accountability, effective documentation, and proactive legal oversight throughout the company’s operations and expansion activities.

Businesses operating in Vietnam should regularly review governance structures, shareholder arrangements, management authority, and compliance procedures to reduce operational and dispute risks before they become more serious legal problems.

Apolo Lawyers advises foreign investors, directors, shareholders, and enterprises on corporate governance risk management, compliance review, dispute prevention, and internal legal advisory support in Vietnam.