Scenario: you hold 5% of an FDI manufacturer. You discover the general director — appointed by the majority shareholder — diverted lucrative orders to his family’s own company, depressing profits two years running. The board (mostly the majority’s people) refuses to act. Can you sue the director yourself to recover money for the company?
Yes — the derivative action in Article 166
Yes, and this is the weapon the 2020 Law on Enterprises gives minority shareholders. Clause 1, Article 166 (in force as of 19/10/2026; untouched by Law 76/2025/QH15) provides: shareholders holding at least 1% of total ordinary shares, alone or as a group, may sue in their own name or on the company’s behalf to pursue personal or joint liability of board members, directors, or general directors, seeking disgorgement or damages for the company.
The key point: the plaintiff is the shareholder, but the damages belong to the company, not the suing shareholder’s pocket. The four suable cases: (a) breaching managers’ duties under Article 165; (b) non-performance, incomplete, late, or unlawful performance of assigned powers; (c) abusing position to use the company’s information, secrets, business opportunities, or assets for self-dealing; (d) other cases under law and the charter.
Three elements to prove
An Article 166 suit is not won by merely “spotting wrongdoing”. Courts require all three elements of non-contractual damages: (1) the wrongful act — e.g., ultra vires resolutions, concealed conflicts, diverting opportunities to a side company; (2) actual loss — profit decline, asset dissipation, lost opportunities, quantified in numbers; (3) causation — the loss flows directly from the wrongful act. Missing one collapses the case.
Build the file with: contracts and market comparative quotes, meeting minutes, cash-flow statements, audit reports, and every document showing the director knew of the conflict yet signed anyway.
Costs and limitation — two numbers to remember
Costs: Clause 2, Article 166 charges litigation costs of a company-name suit to the company — unless the claim is dismissed. This is a major departure from ordinary suits: small shareholders don’t “burn their own money” defending the company. Limitation: 3 years from when the claimant knew or should have known of the infringement (Article 588, 2015 Civil Code). Discovering misconduct in 2024 and suing in 2028 means losing the right.
Practical sequence
- Write first to the board/supervisory board demanding action — building a record that internal channels were exhausted (courts value this good faith).
- Gather evidence under court/arbitration decisions: suing shareholders may inspect and extract necessary information (Article 166(3)).
- File in court under civil procedure; consider interim urgent measures (account freezing, asset-transfer bans) where dissipation threatens.
- In parallel, seek annulment of unlawful board resolutions to stop ongoing loss.
Frequently asked questions
How many shares are needed to sue a director?
At least 1% of total ordinary shares, alone or grouped, under Article 166(1) of the 2020 Law on Enterprises. Below 1%, no derivative standing.
Who receives the damages — the suing shareholder or the company?
The company. Damages and disgorged gains from a company-name suit vest in the company, not the plaintiff personally.
Who bears court costs in a company-name suit?
Litigation costs are charged to the company, unless the claim is dismissed (Article 166(2)). Small shareholders need not fund the suit from their own pockets.
What is the limitation period?
3 years from when the claimant knew or should have known of the infringement (Article 588, 2015 Civil Code). Act promptly on discovery — to keep evidence fresh and limitation alive.
This article has been quality-reviewed by the FLAW AI Legal Council Content prepared by the AI Legal Council of FLAT Law Firm for general reference only; it has not been reviewed by a human lawyer for your specific situation.