Under Item (b), Clause 1, Article 57, of the Law on Enterprises, a director or general director must "own 10 per cent or more of the charter capital or be a person with expertise and experience in relation to business management or the major business activities of the company."

While reasonable at first blush, these conditions lack clarity as expertise is not specifically defined in the law. At the same time, owning 10 per cent of the charter capital is not really a substitute for qualifications.

Clause 3, Article 70, provides that the general director of a single-member limited liability company not be related to members of the members’ council, the chairman of the company, and any person with power to appoint the authorised representative or chairman of the company.

Item e, Clause 17, Article 4, defines related persons as wife, husband, father, foster father, mother, foster mother, child, adopted child, or sibling of a manager or a member holding a dominant capital share or shareholder holding a majority of shares. The Article 70 restriction aims at preventing these persons from colluding with managers of the enterprises to encroach on the company’s capital and assets.

But, in the case of a privately-held company with a single owner, the appointment of managers should be at the owner’s discretion, making this provision not only unnecessary but meddlesome. The Article 70 restriction should be imposed on State-owned and publicly-listed companies only.

The Enterprises Law also provides for differing terms for general directors in limited liability companies with two or more members, single-member limited liability companies and joint stock companies. There is no limit on the term of general director in a limited liability company with two or more members; but the general director in a single-member limited liability company may serve no more than 5 years and it is not clear whether the term is not renewable (Article 70) or can be renewed without limit (Clause 2 Article 116).

Such provisions can also conflict with the labour laws because Article 27 of the amended Labour Code provides that a definite term labour contract cannot exceed a duration of three years and may only be extended for one additional term. If the employee continues to work after that, an indefinite-term labour contract must be granted to the employee.

Crafting a labour contract for a director that complies with both the Enterprises Law and the Labour Code can become problematic. A better approach might be that the term of the director or general director of an enterprise should not be governed by these laws but agreed upon in the charter of each enterprise. — VNS