Circular No. 72/2005/TT-BTC guiding the establishment of Financial Management Regulations for state-owned companies operating under the "Parent Company - Subsidiary" model

CIRCULAR

Guidelines for establishing Financial Management Regulations of State-owned Enterprises operating under the "Parent Company - Subsidiary" model

operates under the "Parent Company - Subsidiary Company" model

Pursuant to Decree No. 153/2004/NĐ-CP dated August 9, 2004 of the Government on the organization and management of state-owned holding corporations and the transformation of state-owned holding corporations and independent state-owned enterprises into the Parent Company - Subsidiary model;

Pursuant to Decree No. 199/2004/NĐ-CP dated December 3, 2004 of the Government promulgating the Financial Management Regulations of State-owned Enterprises and the Management of State Capital Invested in Other Enterprises;

The Ministry of Finance issues guidelines for establishing the Financial Management Regulations of State-owned Enterprises operating under the Parent Company - Subsidiary model as follows:

This technical regulation sets out technical requirements, testing methods, sampling procedures; management requirements; responsibilities of organizations and individuals producing, trading, and importing cigarettes.

1. The scope and objects subject to these guidelines are state-owned holding corporations, independent accounting units of state-owned holding corporations, and independent state-owned enterprises (hereinafter referred to as state-owned enterprises) operating under the Parent Company - Subsidiary model as stipulated in Decree No. 153/2004/NĐ-CP dated August 9, 2004 of the Government.

2. The parent company is a state-owned enterprise operating under the Law on State-Owned Enterprises and Decree No. 153/2004/NĐ-CP dated August 9, 2004 of the Government. The parent company has the function of directly engaging in production and business activities and investing in other enterprises or solely conducting financial investments in other enterprises.

3. The State is the sole owner of the entire charter capital of the parent company. The State implements capital investment in the parent company. Investment decisions for subsidiaries and associated companies are made by the parent company.

4. Assets of the parent company are formed from state capital invested in the parent company, loans, and other lawful sources managed and utilized directly by the parent company. Assets of subsidiaries are formed from capital invested by the parent company, loans, and other lawful sources managed and utilized by the subsidiaries.

5. All purchase-sale, lease-rental, loan-lending, and asset transfer transactions between the parent company and subsidiaries must be conducted through economic contracts and settled like transactions with other legal entities.

II. SPECIFIC PROVISIONS

A. Financial Management Regulations of the Parent Company:

1. The parent company shall manage and utilize capital and assets, revenues and expenses, profits and profit distribution, and use funds according to Articles 1, 2, 3, and 4 of Chapter II of the Financial Management Regulations of State-owned Enterprises and the Management of State Capital Invested in Other Enterprises issued together with Decree No. 199/2004/NĐ-CP dated December 3, 2004 of the Government and Circular No. 33/2005/TT-BTC dated April 29, 2005 of the Ministry of Finance guiding certain provisions of the Financial Management Regulations of State-owned Enterprises and the Management of State Capital Invested in Other Enterprises.

2. The parent company shall manage state capital invested in subsidiaries and associated companies according to Articles 45, 46, 47, 48, 49, 50, and 51 of Chapter IV of the Financial Management Regulations of State-owned Enterprises and the Management of State Capital Invested in Other Enterprises issued together with Decree No. 199/2004/NĐ-CP dated December 3, 2004 of the Government and Circular No. 33/2005/TT-BTC dated April 29, 2005 of the Ministry of Finance.

B. Financial Relationship Between the Parent Company and Subsidiaries and Associated Companies:

1. In the case where the subsidiary is a single-member limited liability state-owned enterprise:

1. 1. The Board of Directors of the parent company is the owner of the subsidiary. The Board of Directors of the parent company exercises the rights and obligations of the owner towards the single-member limited liability state-owned enterprise (subsidiary) according to Article 1 Clause 1, Article 46 Clause 1 and 2, Article 47, Article 48 of the Enterprise Law and current regulations on single-member limited liability state-owned enterprises. Apart from the provisions on the rights and obligations of the owner, the parent company treats the subsidiary equally as it does other economic entities.

1. 2. The subsidiary, being a single-member limited liability state-owned enterprise, is organized and operates according to current regulations.

1. 3. The registered capital of the subsidiary is the capital invested by the parent company and recorded in the articles of association of the subsidiary.

1. 4. The subsidiary manages and utilizes capital and assets, revenues and expenses, and profits according to the financial management regulations of single-member limited liability state-owned enterprises as guided by the Ministry of Finance.

1. 5. The Board of Directors of the parent company monitors and supervises the subsidiary in the use, preservation, and development of capital, fulfillment of obligations to the State, and achievement of State-set objectives; evaluates the effectiveness of the subsidiary's operations according to State regulations.

2. In the case where the subsidiary is a joint-stock company, a limited liability company with two or more members, a foreign joint venture, or an overseas company with controlling shares held by the parent company:

2. 1. The subsidiary, being a joint-stock company, a limited liability company with two or more members, a foreign joint venture, or an overseas company with controlling shares held by the parent company, is established, organized, and operates according to the Enterprise Law, the Law on Foreign Investment in Vietnam, foreign laws, and related legal provisions.

2. 2. The parent company exercises the rights, obligations, and responsibilities of shareholders or contributing members according to the law and the articles of association of the joint-stock company or the company with controlling shares held by the parent company.

2. 3. The parent company is the owner of the capital and directly manages controlling shares at the subsidiaries mentioned in point 2.1; it has rights and obligations over controlling shares according to Article 58 of the Law on State-Owned Enterprises and point 2 of Article 45 of Chapter IV of the Financial Management Regulations of State-owned Enterprises and the Management of State Capital Invested in Other Enterprises issued together with Decree No. 199/2004/NĐ-CP dated December 3, 2004 of the Government and Circular No. 33/2005/TT-BTC dated April 29, 2005 of the Ministry of Finance.

2. 4. Profits of the subsidiary are distributed according to the decision of the shareholders' meeting, board of directors, or contributing members of the subsidiary.

3. Relationship between the parent company as an investor and the associated company: The associated company shall exercise its business autonomy in accordance with the provisions of the law. The parent company shall perform the rights and obligations of a shareholder or capital contributor through its representative at the enterprise where it holds shares or contributed capital, in compliance with the law and the Articles of Association of the associated company. In cases where the parent company deems it unnecessary to appoint a representative for the invested capital in the associated company over which it does not have controlling power, the parent company must organize the monitoring of the invested capital and the dividends received from such investment, and assign personnel to carry out the rights of shareholders or capital contributors as stipulated by the law and the Articles of Association of the associated company.

4. Responsibilities of the Parent Company towards Subsidiaries:

In cases where the parent company abuses its position of holding the entire registered capital or controlling shares or contributed capital, thereby harming the interests of subsidiaries, creditors, and other related parties, the provisions of Article 27 of Decree No. 153/2004/NĐ-CP dated August 9, 2004 of the Government shall be implemented.

C. Financial Plan - Accounting - Auditing:

The parent company shall implement the provisions set forth in Section 5 of the Financial Management Regulations of State-Owned Enterprises and the Management of State Capital Invested in Other Enterprises issued together with Decree No. 199/2004/NĐ-CP dated December 3, 2004 of the Government. In addition to the financial reports on its own direct business operations, the parent company must prepare consolidated financial statements for the entire group in accordance with the law.

The Supervisory Board of the parent company shall conduct checks and oversight of business activities recorded in accounting books and financial reports of the company. Through the state capital representative at subsidiaries and associated companies and the Supervisory Boards of subsidiaries and associated companies, the Supervisory Board of the parent company assists the Board of Directors in managing the use of invested capital in subsidiaries and associated companies to ensure the most effective operation.

III. IMPLEMENTATION ORGANIZATION

This Circular takes effect fifteen days after its publication in the Official Gazette. State-owned corporations, independent accounting units of state-owned corporations, and independent state-owned enterprises operating under the parent company-subcompany model shall base their financial management regulations on this Circular for construction, amendment, and supplementation, and submit them to the competent authority for approval.

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