Transactions With Related Parties And Conditions For Validity

Related party transactions refer to transactions or contracts entered into between an enterprise and individuals or organizations that have a direct or indirect relationship as defined under the Law on Enterprises 2020. To ensure these transactions are legally valid, avoid the risk of being declared null and void, and prevent penalties, enterprises must strictly comply with the following conditions:

Proper Identification of Related Parties: Related parties include parent companies, subsidiaries, enterprise managers, Controllers (Supervisors/Inspectors), and “relevant persons” (spouses, parents, children, siblings, etc.) of these individuals.
Obligation to Disclose Interests: Managers and major shareholders must promptly and fully disclose any enterprises in which they or their related parties hold ownership or a controlling interest.
Approval Authority: Limited Liability Companies (LLC): Must be approved by the Members’ Council or the Company Chairperson. Joint Stock Companies (JSC): Depending on the transaction value (typically at a threshold of 35% of total assets), authority rests with either the Board of Directors or the General Meeting of Shareholders.
Principles of Execution: Transactions must be executed in writing, ensuring equality, voluntariness, and transparency, and the prevention of any loss of company assets.
Specific Regulations for Public Companies: According to the latest update (Decree No. 245/2025/NĐ-CP), loans or guarantees provided to managers, individual shareholders, and their related parties are strictly controlled; most must be approved by the General Meeting of Shareholders to ensure transparency.

Table of contents:

1. Related Parties in Transactions under Enterprise and Securities Laws

According to Clause 23, Article 4 of the Law on Enterprises 2020, a “Related Party” refers to an individual or organization that has a direct or indirect relationship with an enterprise in the following cases:

The parent company, managers, and legal representatives of the parent company, and those with the authority to appoint managers of the parent company;
Subsidiaries, managers, and legal representatives of subsidiaries;
Individuals, organizations, or groups of individuals or organizations capable of controlling the enterprise’s operations through ownership, acquisition of shares, stakes, or through the company’s decision-making process;
Enterprise managers, legal representatives, and Supervisors (Inspectors);
Spouses, biological parents, adoptive parents, parents-in-law, biological children, adopted children, sons-in-law, daughters-in-law, biological siblings, brothers-in-law, and sisters-in-law of: managers, legal representatives, Supervisors, and members or shareholders holding controlling stakes/shares;
Individuals acting as authorized representatives of the company or organizations within the parent-subsidiary group, or individuals/organizations within the controlling group;
Enterprises in which the individuals, companies, or organizations listed above hold ownership to the extent of controlling the company’s decision-making.

Identifying related parties in a business with an independent structure—one that does not belong to a parent-subsidiary model, member companies, or institutional ownership—is relatively straightforward. However, in parent-subsidiary models, associates, or companies with institutional shareholding and cross-ownership, identifying related parties is often prone to omissions. This leads to the execution of contracts and transactions that fail to comply with the legal and statutory procedures required for related-party transactions. Such non-compliance creates significant disadvantages for the parties involved should a dispute arise regarding the conducted transaction. Consequently, the risk of the transaction being declared null and void due to violations in the approval process is significant. Therefore, a detailed list of related parties must be established, continuously updated, and maintained within the enterprise’s management system for consultation before proceeding with any related-party transaction.

Depending on the transaction value, type of transaction, and the company’s operational model, such transaction shall be subject to approval by the General Meeting of Shareholders, the Members’ Council, the Board of Directors, or the Chairperson of the Members’ Council, etc.

2. Authority to approve transactions with related parties

The Law on Enterprises prescribes the approval procedures for related-party transactions to ensure transparency and protect the interests of shareholders, particularly minority shareholders. For public companies, securities law requires that any transaction with a related party must be executed through a written contract based on the principles of equality and voluntariness. Furthermore, public companies must implement necessary measures to prevent shareholders and their related parties from engaging in transactions that result in the loss of the company’s capital, assets, or other resources.

For Limited Liability Companies with two or more members, the approval of related-party transactions must be approved by the Members’ Council. Accordingly, transactions between the company and the following parties require such approval: (i) Members, authorized representatives of members, the Director or General Director, and the legal representative of the company; (ii) Managers of the parent company and those with the authority to appoint such managers; (iii) Related persons of the aforementioned individuals.

The Chairman of the Members’ Council, the Director or General Director, other managers, the legal representative, and the Controllers of the company are responsible for providing timely, complete, and accurate notice to the company regarding enterprises in which they hold ownership or shares or contributed capital, as well as enterprises in which their related persons hold sole or joint ownership of controlling shares or contributed capital.

For joint-stock companies, the General Meeting of Shareholders or the Board of Directors shall approve contracts and transactions between the company and the following parties:

Shareholders and Related Persons: Shareholders or authorized representatives of shareholders that are organizations owning more than 10% of the company’s total ordinary shares, and their related persons.
Managers and Related Persons: Members of the Board of Directors, the Director or General Director, and their related persons.
Related Enterprises: Enterprises that members of the Board of Directors, Inspectors, the Director or General Director, and other managers of the company must disclose in accordance with Clause 2, Article 164 of the Law on Enterprises.

Accordingly, the Board of Directors shall approve contracts and transactions with a value of less than 35% of the total enterprise asset value (as recorded in the most recent financial statements) or a different percentage/value smaller than that prescribed in the Charter. The company representative signing the contract must notify the members of the Board of Directors and the Controllers about the related parties and enclose the draft contract or the transaction details. The Board of Directors shall decide whether to grant approval within 15 days from the date of receipt of the notification (unless otherwise prescribed in the Charter). Board members with interests related to the parties in the transaction shall not have the right to vote.

The General Meeting of Shareholders (GMS) shall approve contracts and transactions that fall outside the approval authority of the Board of Directors (BOD). This includes contracts or transactions involving loans, borrowings, or asset sales with a value exceeding 10% of the total asset value between the Company and any shareholder holding 51% or more of the total voting shares, or their related parties.

The Company’s representative shall notify the BOD and the Supervisor(s) regarding the related parties involved. The BOD shall then submit the draft contract or explain the transaction details at the GMS or via written opinion solicitation. Shareholders with interests related to the parties in the transaction shall not have the right to vote.

Legal liability for non-compliance with regulations on related-party transactions:

(i) Any contracts or transactions entered into in violation of these regulations may be declared null and void by a competent authority.

(ii) The signatory, shareholders, members of the BOD, or the Director/General Director involved must jointly indemnify the Company for any arising damages and return any profits derived from the execution of such transactions to the Company.

For public companies, the following transactions must be approved by the General Meeting of Shareholders:

Providing loans or guarantees to members of the Board of Directors, members of the Supervisory Board, the Director (General Director), other managers who are not shareholders, and their related individuals and organizations. In cases of providing loans or guarantees to related organizations of members of the Board of Directors, members of the Supervisory Board, the Director (General Director), or other managers, where the public company and such organizations are companies within the same group or companies operating under a group of companies—including parent-subsidiary companies or economic groups—the General Meeting of Shareholders or the Board of Directors shall approve such transactions in accordance with the Company’s Charter.

Transactions valued at 35% or more, or transactions resulting in a total transaction value arising within 12 months from the date of the first transaction valued at 35% or more of the total asset value recorded in the most recent financial statements (or a smaller percentage or value as stipulated in the Company Charter) between a public company and one of the following parties:

Members of the Board of Directors, members of the Board of Controllers, the Director (General Director), other managers, and their related persons;
Shareholders or authorized representatives of shareholders owning more than 10% of the company’s total ordinary shares and their related persons;
Enterprises related to the subjects specified in Clause 2, Article 164 of the Law on Enterprises;
Contracts or transactions involving loans or asset sales valued at more than 10% of the total asset value recorded in the most recent financial statements between the company and a shareholder owning 51% or more of the total voting shares or that shareholder’s related person.

Related-party transactions are more than just a legal formality; they serve as a “litmus test” for the transparency and governance capabilities of a modern enterprise. Strict adherence to approval regulations and disclosure of interests under the Law on Enterprises 2020 (including the latest updates from Decree No. 245/2025/ND-CP) and securities laws not only shield the company from critical legal risks but also forms the foundation for building trust with shareholders and partners. Controlling these transactions should be viewed as a strategic approach to safeguarding your business’s assets and long-term reputation.

Time of writing: 30/03/2026

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