August 18, 2020

VIETNAM NEW ENTERPRISE LAW 2020 - SUMMARY OF MAIN ISSUES

By bizconsult Law Firm

Bizconsult.vn

 

New Adopion

A new Law on Enterprises of Vietnam (Law No. 59/2020/QH14) (“Law 2020”) was passed on June 17, 2020 by the 13th  National Assembly of Vietnam at its 9th  session. The Law 2020 will become effective for implementation on 01 January 2021 and replace the current Law on Enterprises (Law No. 68/2014/QH13 (“Law 2014”). Hereunder are our summary on regarding the most remarkable new regulations/amendments including in the Law 2020:

Legal Forms of Enterprises (1)

All legal forms of enterprises provided for in the Law 2014 are repeated in the Law 2020, namely the form of limited liability companies (including single member limited liabilities company and multi-member  limited  lability companies), joint  stock  companies, partnership  companies and private entrepreneurs.

The Law 2020 does not provide  detailed provisions governing  the form  of business households. It vests the right to issue legal regulations on registration and operation of such form of business to the Government of Vietnam. At the time of making this summary, August 2020, we are not aware of such legal regulations promulgated by the Government of Vietnam.

State Guarantee to the Enterprises and Owners of Enterprises (2)

In the Law 2020, the State guarantee to the enterprises and owners of the enterprises as made under the Law 2014 on recognition  of long-term  existence and development of enterprises; ensuring the equality before law among the enterprises regardless their form of ownership and economic  sectors; recognition  of the lawful profit-making  nature of the business operations; recognition and protection of property ownership rights, investment capital, income, rights and other interests of enterprises and owners of enterprises; representation and warranty of not nationalizing, confiscating the lawful assets and investment capital of enterprises and owners of enterprises is once again confirmed. However, it should be noted that in a very necessary case, an enterprise’s assets may be compulsorily purchased or requisitioned by the State with payment, compensation in accordance with the laws and regulations on compulsory purchase, requisition of property. Such payment or compensation must ensure the interests of enterprise without discrimination among different forms of enterprises.

Prohibited Acts (3)

Prohibited acts under the Law 2020 are similar to those under the Law 2014, except prohibited acts # 6 and #7 under the Law 2014 are revised in italic letters as follows:

  • Prohibited act #6: Conducting business in banned sectors or trades; conducting business in sectors or trades not yet accessed for foreign investors; conducting conditional businesses without satisfying all the business conditions prescribed by regulations or failing to maintain all business conditions in the course of operation.
  • Prohibited act #7: Committing fraud, laundering money, financing terrorism.

Rights and Obligations of Enterprises (4)

The rights and obligations of enterprises as stipulated in the Law 2014 remain unchanged in the Law 2020.

Legal Representative

Basically, rights, obligations and responsibilities of the legal representative of enterprise set out in the Law 2020 are similar to those set forth in the Law 2014, except the followings are news: In case a limited liability company or a joint stock company has more than one legal representative, rights and obligations of each of the legal representatives must be clearly stipulated in the Charter of the company. In case such stipulations are not clear in the Charter, each of the legal representatives shall be a full-competent representative to third parties. All legal representatives must take joint responsibilities to any damages caused to the company in accordance with the civil laws and other related laws and regulations.

Representatives under Authorization by Owners, Members, Organizational Shareholders

Basically, rights and obligations of the representatives under authorization by owners, members, organizational shareholders of a company as stipulated in the Law 2020 are similar to those under the Law 2014.

Charter of Company (5)

Charter of company (or other countries may refer it to as articles of incorporation etc.) is an important document signed by the founder(s) of company. Basically requirements on the following minimum principal heading of the terms and conditions of a charter under the Law 2020 are similar to those under the Law 2014, which are summarized hereunder:

  • Name and head office address of the company; name(s) and address(es) of branch(es) and representative office(s), if any;
  • Business line;
  • Charter capital;6 total number of shares, types of shares and par value of shares of each type, for joint stock companies;
  • Full names, contact addresses, citizenships of general partners, for partnerships; of the company owner or members, for limited liability companies; of founding shareholders, for joint stock companies. Contributed capital amount and its value of each member, for limited liability companies or partnerships; number of shares, types of shares, par value of shares of each type of founding shareholders, for joint stock companies;
  • Rights and obligations of members, for limited liability companies and partnerships; of shareholders, for joint stock companies;
  • Management and organizational structure;
  • Number, managerial titles and rights, obligations of at-law representatives of the enterprise; rights and obligations division among at-law representatives if there is more than one at- law representative;
  • Procedures  for  adoption  of  company  decisions;  principles  for  settlement  of  internal disputes;
  • Bases and method of determining wages, remuneration, and bonuses for managers and supervisors;
  • Circumstances in which a member or a shareholder may request the company to redeem his/her/its contributed capital amount, for limited liability companies, or his/her/its shares, for joint stock companies;
  • Principles of distribution of after-tax profits and handling of losses in business;
  • Cases of dissolution, procedures for dissolution and procedures for liquidation of company assets.

 Assets Contributed as Capital of Enterprise

Similar to those stipulated in the Law 2014, assets contributed as capital of an enterprise can be in the form of Vietnam Dong (VND), freely convertible foreign currencies, gold, land use rights, intellectual property rights, technologies, technical know-how, other assets that can be valued in Vietnam Dong. It should be noted that only individuals, organizations that are lawful owners or have lawful use right of such assets are entitled to use such assets for contribution  as capital in accordance with the laws.

For assets with registered ownership or land use rights, the capital contributor shall have to carry out the procedures for transferring the ownership of such assets or the land use rights to the company in accordance with the laws. The transfer of ownership of assets, land use rights contributed as capital is not subject to registration fee. For assets with the ownership of which is not subject to registration, except through account, contribution of such assets shall be made by handing over assets contributed as capital, certified with a minutes.

Enterprise Registration Certificate (7)

Under the Law 2020, the contents of the Enterprise Registration Certificate (“ERC”) are basically similar to those set forth in the Law 2014, except that the investment capital of the private entrepreneur is added. Conditions for issuing the ERC are similar to those under the Law 2014.

Seal of Enterprise (8)

A new stipulation under the Law 2020 on the seal of an enterprise is that, apart from the normal caved seal, the Law 2020 provides another form of seal in the form of digital signature. Number, types, form and content of information of seal of enterprise, enterprise’s branch, representative office and business address are decided by the enterprise. Management and use of seal is also stipulated in the Law 2020.

Branch, Representative Office, Business Address of Enterprise (9)

Enterprise is entitled to set up its branch(es), representative office(s), business address(es) in location(s) other than its head office address by registering and notifying the incorporation of such branch(es),  representative  office(s)  and  business address(es) respectively  with  the  relevant Business Registry.

Multi-Member Limited Liability Company (10)

Number of Members: From at least 2 members and not exceeding 50 members.

Limitation of Liability: Member’s liability to the debt and other property obligations of company within the capital contributed to the company, except cases stipulated in Article 47.4 of the Law 2020 (11)

Legal Person Status: From the date on which the company is granted the ERC.

Share/Bond Issuance: Is not permitted to issue shares, except for the purpose of converting into joint stock company. Is permitted to issue bond and the issuance of bond private placement is in accordance with Article 128 and Article 129 of the Law 2020.

Rights and Obligations of Members, Assignment of Capital: Are similar to those set forth in the Law 2014.

Charter capital: At the time of registration for incorporation of the company, is the total value of the share of capital contribution committed by the members and inscribed in the Charter.

Organizational Structure: Provisions set forth in the Law 2014 on the company’s organizational structure are revised and changed as follows in the Law 2020:

  • A multi-member limited liability company being a state-own enterprise and its subsidiary must have Board of Control.
  • Company must have at least one legal representative holding  the position  of either Chairperson of Board of Members, Director or General Director. If the Charter does not stipulate such issue, the Chairperson of the Board shall be the legal representative of the company.

Conditions and Procedures for Conducting Meetings of the Board: Provisions on the conditions and procedures for conducting meetings of the Board of Members under the Law 2020 are similar to those set forth in the Law 2014. Particularly, except a higher percentage of Charter capital is stipulated in the Charter of the company, the Board’s meeting of the 1st invitation will be conducted if there is a number of attending members representing at least 65% of the Charter capital of the company. If conditions for 1st invitation are not satisfied for conducting the meeting, the Board’s meeting of the 2nd invitation will require number of attending members representing at least 50% of the Charter capital. The Board’s meeting of the 3rd  invitation can be conducted regardless number of attending members and the amount of Charter capital represented by such attending members.

Conditions for Adopting the Board’s Resolutions: Similar to those set forth in the Law 2014. Particulars are as follow: Unless other proportion provided by the company’s Charter, a resolution or decision of the Board shall be adopted in a meeting in the following cases:

(a) It is approved  by  the  number  of  votes representing  at least 65% of  the aggregate contributed capital amount of all attending members, except the case provided at Point (b) hereunder;

(b) For a decision relating to the sale of assets valued at 50 or more percent of the total value of assets recorded in the latest financial statement of the company, or a smaller percentage or value as provided in the company’s Charter, the amendment and supplementation to the company’s Charter, the reorganization or dissolution of the company, it is approved by a number of votes representing at least 75% of the total contributed capital amount of all attending members.

Director or General Director: The director or director general of a company is the person who manages day-to-day business operations of the company and is responsible to the Board for the exercise of his/her rights and performance of his/her obligations. The director or director general has the following powers and obligations: (12)

  • To organize the implementation of the resolutions, decisions of the Board;
  • To decide on all matters related to day-to-day business operations of the company;
  • To organize the implementation of business plans and investment plans of the company;
  • To issue the internal management regulation of the company, unless otherwise provided in the company’s Charter;
  • To appoint, relieve of duty and remove from office managers in the company, except those falling within the competence of the Board;
  • To sign contracts in the name of the company, except cases falling within the competence of the chairperson of the Board;
  • To make recommendations on the organizational structure of the company;
  • To summit annual financial statements to the Board;
  • To make recommendations on the plan for use and division of profits or handling of losses in business;
  • To recruit employees;
  • Other rights and obligations provided  in the company’s Charter, in the resolution or decision of the Board or in the labour contract.

Criteria and conditions for acting as director or director general:

  • Not being subjects prescribed in Clause 2 Article 17 of the Law 2020 (providing the list of individuals who are not entitled to establish and manage enterprises in Vietnam);
  • Having  professional  qualifications  and  experience  in  business  administration  of  the company and other conditions provided in the company’s Charter;
  • For the State company prescribed at Point b, Clause 1, Article 88 of the Law 2020, and subsidiary company prescribed in Clause 1, Article 88 of the Law 2020, director or director general must meet criteria and conditions as above prescribed and not be person who has family relationships of managers, Supervisors of the company and the parent company; the person representing the company's capital, the person representing the state capital in the company and the parent company.

Increase, Decrease of Charter Capital: There is no change in the increase, decrease of the Charter capital of the company under the both Law 2020, except provisions on the decrease of the Charter capital are clearer in the Law 2020.

Initiation of Lawsuit against Managers: Provisions on initiation of lawsuit against managers of the company are clearer in the Law 2020, to which member(s) of the company on its name or on behalf of the company may take legal action against the Chairperson of the Board, Director or General Director, legal representative and other managers on the grounds of violation of their rights, obligations and responsibilities as set out in Article 72 of the Law 2020.

Single Member Limited Liability Company (13)

Number of Member: one member being individual or organization.

Limitation of Liability: Member’s liability to the debt and other property obligations of company within the Charter capital of the company.14

Legal Person Status: From the date on which the company is granted the ERC.

Share/Bond Issuance: Is not permitted to issue shares, except for the purpose of converting into joint stock company. Is permitted to issue bond and the issuance of bond private placement is in accordance with Article 128 and Article 129 of the Law 2020.

Charter capital: At the time of registration for incorporation of the company, is the total value of the share of capital contribution committed by the member and inscribed in the Charter.

Rights and Obligations of Owner, Board’s members, Chairperson, Director or General Directors are clearly stipulated in the Law 2020.

Organizational Structure: Similarity with the Law 2014, under the Law 2020 a limited liability company with one member being an organization is organized, managed and operated in either of the following models:

  • Chairperson, Director or General Director;
  • Board of Members, Director or General Director.

Board of Members: The Board shall consist of 3 to 7 members who are appointed, discharged by the owner of the company with their office term not exceeding 5 years. Chairperson of the Board is also appointed, discharged by the owner of the company or all members of the Board under the simple majority vote.

Chairperson of the company is appointed by the owner of the company.

Director or General Director is appointed by the Board or the owner of the company.

While the organizational structure  of a limited  liability company with  one member  being  an individual consists of a chairperson, Director or General Director.

Rights and Obligations of Owner, Board’s members, Chairperson, Director or General Directors are clearly stipulated in the Law 2020.

Joint Stock Company (15)

Number of Shareholders: At least 3 shareholders and no maximum.

Limitation of Liability: Shareholder’s liability to the debt and other property obligations of company within the capital contributed to the company.

Legal Person Status: From the date on which the company is granted the ERC.

Share/Bond Issuance: Is permitted to issue shares, bonds and other securities of the company.

Rights and Obligations of Members, Assignment of Capital: Are similar to those set forth in the Law 2014.

Charter capital is the total par value of the sold shares of all types. The charter capital of the company at the time of registration for incorporation is the total value of the subscribed shares inscribed in the Charter.

Types of Shares: The company must have ordinary shares. Owners of ordinary shares are ordinary shareholders. In addition to ordinary shares, the company may have preference shares. Owners of preference shares are called preference shareholders. Preference shares include the following types:

  • Dividend preference shares;
  • Redeemable preference shares;
  • Voting preference shares;
  • Other preference shares according to company’s Charter and the laws on securities.

Shareholders’ Rights: Rights of an ordinary shareholder under the Law 2020 are similar to those of the shareholder in the Law 2014, which are listed hereunder. Any new right is in italic letters:

  • To attend, express opinions at the meetings of the General Meeting of Shareholders (“GMS”) meetings and to exercise the right to vote directly or through an authorized representative or in other forms provided by the company’s charter and law. Each ordinary share must carry one vote;
  • To receive dividends at the rate decided by the GMS;
  • To be given priority in purchasing new shares in proportion to the number of ordinary shares that each shareholder holds in the company;
  • To freely transfer his/her/its shares to other persons, except in the cases specified in Clause  3 of Article 120 and Clause 1 of Article 127 of the Law 2020 16  and other regulations of relevant laws;
  • To examine, look up and extract information about name and addresses in the list of shareholders with voting rights and to request modification of incorrect information;
  • To examine, look up, extract or copy the company charter, the minutes of meetings of the
  • General Meeting of Shareholders and resolutions of the GMS;
  • Upon dissolution or bankruptcy of the company, to receive part of the residual assets in proportion to his/her/its number of shares in the company.
  • A shareholder or a group of shareholders holding at least 5% of the total ordinary shares, or holding a smaller percentage provided in the company’s Charter shall have the following rights:

        - To examine, look up and extract the book of minutes and resolutions, decisions of the Board of Management (“BOM”), mid-year and annual financial statements, reports of the Supervisory Board, contracts and transactions required approval of the BOM and other documents, except for documents related to commercial secret and the company's business secret;

                -  To request convening of a GMS in the following cases:

                          o   The BOM commits  a serious breach  of the rights  of shareholders or obligations of managers or issues a decision which falls outside its assigned competence;

                          o   Other cases provided by the company’s Charter.

         - To request the Supervisory Board to inspect each particular issue related to the management and administration of the operation of the company when finding it necessary. Such request must be made in writing and including the following contents: Full name, contact address, nationality, serial number of legal document for an individual shareholder; name, identification number of an enterprise or legal document  of  an  organization, address  of  the  head  office  for  an  institutional shareholder; number of shares and time of registration of shares of each shareholder, total number of shares of the group of shareholders and the percentage of ownership in the total number of shares of the company; issues to be inspected and purposes of the inspection;

              -   Other rights provided in this Law and the company charter.

  • A shareholder or a group of shareholders holding at least 10% of the total ordinary shares, or holding a smaller percentage provided in the company’s Charter shall have the right to nominate candidates to the BOM or the Supervisory Board.
  • Other rights provided in this Law and the company’s Charter.

Ordinary Shares of Founding Shareholders: All founding shareholders must together subscribe at least 20% of the total ordinary shares permitted to issue at the time of registration for incorporation of the company.

Sale of Shares: The Law 2020 provides more detailed provisions on the sale of shares, private offering of shares, private offering of bonds, assignment of shares from Article 124 to Article 130.

______________________________________ 

Art. 127.1 “Shares may be freely transferred, except the cases specified in Article 120.3 of this Law and cases of transfer restriction provided in the company charter. If the transfer restriction is provided in the company charter, such provision shall only be effective if it is clearly mentioned in the share certificates of the relevant shares”.

 

Rights and Obligations of the GMS: The GMS includes all shareholders that have the right to vote and is the highest decision-making body of a joint stock company. Rights and obligations of GMS in the Law 2020 are basically similar to those set out in the Law 2014, which are listed down hereunder. Any news in the Law 2020 compared with the Law 2014 are in italic letters:

  •  To pass the development orientations of the company;
  • To decide on the types of shares and total number of shares of each type which may be offered for sale; to decide on the rate of annual dividends for each type of shares;
  • To make investment decisions or decisions on sale of assets valued at 35% or more of the total value of assets recorded in the latest financial statements of the company unless another percentage or value is provided in the company’s Charter;
  • To decide on amendments and supplements to the company’s Charter;
  • Approval of annual financial statements;
  • To decide on redemption of more than 10% of the total number of shares of each type already sold;
  • To consider and handle violations committed by members of the BOM and supervisors which cause damage to the company and its shareholders;
  • To decide on reorganization and dissolution of the company;
  • To decide  on  budget  or  total  revenue, bonus  and other  benefits  for  the  BOM and Supervisory Board;
  • To approve the internal management regulation; regulation on operating of the BOM, Supervisory Board;
  • To approve the list of independent auditing companies; to decide on which independent auditing company shall inspect the company operations, relief from duty, dismissal of independent auditors when necessary;
  • Other rights and obligations provided in the Law 2020 and in the company’s Charter.

Conditions for Conducting Meeting of the GMS in the Law 2020 are slightly different from those set out in the Law 2014, which are quoted hereunder. New conditions are in italic letters.

  • The meeting of the GMS shall be conducted if the number of attending shareholders represents is more than 50% of the total votes; the specific percentage shall be provided in the company’s Charter.
  • If the first meeting cannot take place because the conditions are not satisfied, the 2nd time meeting will be invited and will be conducted if the number of attending shareholders represents at least 33% of the total votes; the specific percentage shall be provided in the company’s Charter.
  • If the 2nd meeting cannot take place because the conditions are not satisfied, the 3rd time meeting will be invited and will be conducted irrespective of the number of attending shareholders and the percentage of votes of attending shareholders.

Conditions for Adopting GMS’ Resolutions in the Law 2020 are similar to those set forth in the Law 2014. In particular

  • a resolution of the GMS on the following issues shall be adopted when approved by a number of shareholders representing  at least 65% of the total votes of all attending shareholders, excepts the Cases of Except hereunder:

          -     Types of shares and total number of shares of each type;

         -     Change in business sectors, trades and fields;

         -     Change in organizational and management structure of the company;

        -     Investment projects or sale of assets with a value of at least 35% of the total value of assets recorded in the latest financial statements of the company, unless another percentage or value is provided in the company’s Charter;

         -     Reorganization or dissolution of the company;

         -     Other issues provided by the company’s Charter.

  • Resolutions shall be adopted when approved by a number of shareholders owning more than 50% of the total votes of all attending shareholders, except the Cases of Except hereunder; the specific percentage shall be provided in the company charter.

Cases of Except: Election of members to BOM and Supervisory Board shall be implemented by the method of cumulative voting; if adopted by collecting written opinions, a resolution of the General Meeting of Shareholders shall be adopted when it is approved by the number of shareholders owning more than 50% of the total number of votes of all shareholders entitled to vote for approval. The specific percentage shall be provided in the company’s Charter; the GMS’ resolution on the issue that adversely changes the rights and obligations of shareholders owning preference shares shall only be approved if it is approved by the number of preference shareholders of the same type attending the meeting who own from 75% of the total preferred shares of that type or more or approved by favoured by preference shareholders of the same type who own from 75% of the total preferred shares of that type or more in case of adopting resolution in the form of collecting written opinions)

Effective Date of GMS’ Resolution: Resolution of the GMS shall become effective as of the date on which it is adopted or the date inscribed in such resolution.17 GMS’ resolution can be revoked by the court or arbitrator at request of the GMS submitted within 90 calendar days from receipt of such resolution or meeting minutes or vote counting minutes of the GMS.

 

Board  of  Management (BOM): The BOM  is the  body  managing the  company  and has full competence to make decisions in the name of the company and to exercise the rights and perform the obligations of the company which do not fall within the competence of the GMS. Rights and obligations of the GMS in the Law 2020 are similar to those under the Law 2014.

  • The BOM shall have from 3 to 11 members. Detailed number of members is regulated in the company’s Charter.
  • A meeting of the BOM shall be conducted if it is attended by three quarters or more of the total members. If a meeting convened does not include sufficient attending members as required, the 2nd meeting shall be convened, and it shall be conducted if it is attended by more than half of the members of the BOM.
  • A resolution of the BOM shall be adopted when it is approved by the majority of the attending members. In the case of a tied vote, the final decision shall be made in favour of the vote of the chairperson of the BOM.

Auditing Committee is the professional agency of the BOM. There are 02 members or more in the Audit Committee, the chairperson of the Audit Committee must be a member of the BOM. Other members of the Audit Committee must be non-executive members of the BOM.

Director, General Director of the company is appointed among BOM’s members or hired by the BOM. Rights, obligations and responsibilities of the Director, General Director of the company in the Law 2020 are similar to those set out in the Law 2014.

Public disclosure of related interests: 18 This provision is new in the Law 2020. Unless more strictly is not provided in the company’s Charter, the public disclosure of related interests and affiliated persons of the company shall be carried out as follows:

  • The company shall prepare and update the list of affiliated persons of the company as provided in Clause 23, Article 4 of this Law and their respective contracts, transactions with the company;
  • Members of the Board of Directors, supervisors, the director or director general and other managers of the company shall declare their related interests to the company, including:

         -     Name, enterprise identification number, head office address and business lines of the enterprise that they are owners or in which they own capital contributions or shares; ratio and time of being owners or time of ownership of such capital contributions or shares;

        -     Name, enterprise identification number, head office address and business lines of the enterprise that their affiliated persons are owners or in which their affiliated persons jointly or separately own capital contributions or shares of more than 10% of charter capital;

  • The declaration provided in Clause 2 of this Article shall be conducted within 07 working days from the date on which the related interest arises; any amendment, supplementation shall be notified to the company within 07 working days from the date of amendment, supplementation;
  • The retention, public disclosure, looking up, extraction and copying of the list of affiliated persons and related interests under Clauses 1 and 2 of this Article shall be carried out as follows:

        -     The company shall notify the list of affiliated persons and related interests to the General Meeting of Shareholders at its annual meetings;

       -     The list of affiliated persons and related interests shall be kept in the enterprise’s head office; when necessary, part or the whole of the above list may be kept at its branches;

      -     Shareholders, authorized representatives of shareholders, members of the Board of Directors, the Supervisory Board, director or director general and other managers shall have the right to look up, extract and copy part or the whole of the declared contents;

          -     The company must create conditions for the persons mentioned at Point c of this Clause to access, look up, extract and copy the list of affiliated persons and related interests in the quickest and most convenient manner; obstructing  or causing difficulties to them in exercising this right is prohibited. The order and procedures for looking up, extracting, copying the declared contents regarding affiliated persons and related interests shall comply with the company charter.

  •  Members of the Board of Directors, director or director general who perform work in all forms on behalf of themselves or others within the scope of business operations of the company shall explain the nature and content of that work to the Board of Directors and Supervisory Board, and may only perform this work if it is approved by the majority of the remaining members of the Board of Directors; if they perform the work without reporting to or approval from the Board of Directors, all incomes earned from that work must belong to the company.

Responsibilities of managers of the company:19 Members of the BOM, Director or General Director general and other managers have the following responsibilities:

  •  To exercise their vested rights and perform their assigned obligations according to the Law 2020, other relevant laws, the company charter, and resolutions of the GMS;
  • To exercise their vested rights and perform their assigned obligations in an honest, prudent and best manner to ensure the best lawful interests of the company;
  • To be loyal to the interests of the company and shareholders; to refrain from abusing their positions and posts, and using business information, know-how and opportunities and other assets of  the  company  for  their  own  personal  benefits  or  for  the  benefits  of  other organizations, individuals;
  • To promptly, fully and accurately notify to the company about contents specified in Article 164.2 of the Law 2020 on public disclosure of related interests;
  • Other responsibilities provided in this Law and the company’s Charter.

Members of the BOM, Director or General Director and other managers that violate the above stipulations shall be liable for or jointly liable for compensating lost interests, returning received interests and compensating the company and the third party for all damages.

 

Right to initiate lawsuits against members of the BOM, Director, General Director, Managers: (20)

This issue is mentioned in the Law 2014, but under the Law 2020 it is clearer.

As to the limited liability company, a company member may act on his/her own or in the name of the company to initiate a civil lawsuit against the chairperson of the Board of Members, Director or General Director, legal representative and other managers on the ground of violating the rights, obligations and responsibilities of the managers in the following cases:

  • Violating the provisions of Article  71 of the Law 2020 on the responsibilities of the chairperson of the Board of Members, Director, General Director and other managers, legal representative, members of the Board of Controller;
  • Failing to perform or properly and sufficiently perform or perform against the law or the company charter, the resolutions, decisions of the Members’ Council for assigned rights and obligations;
  • Other cases provided by law and the company charter.

The order and procedures for initiating lawsuits must comply with the civil procedure law. Legal costs in the case of initiating lawsuits in the name of the company shall be included in the company expenses, except when the lawsuits are rejected.

However, as to a joint stock company, a shareholders, a group of shareholders owning at least 1% of the number of ordinary shares shall have the right, in their own name or on behalf of the company, to initiate lawsuits with regard to personal liability, jointly liability against members of the BOM, Director or General Director and request for returning interests or compensating the company or other persons for damages in the following cases:

  • Violating responsibilities of the company managers prescribed in Article 165 of the Law 2020 on the responsibility of the managers of the company;
  • Failing to exercise, failing to fully, timely exercise or exercising contrary to the law or company charter, resolutions, decisions of the BOM regarding  the vested rights and assigned obligations;
  • Abusing their positions and posts, and using business information, know-how, opportunities and other assets of the company for their own personal benefits or for the benefits of other organizations, individuals;
  • Other cases provided by law and the company charter.

The order and procedures for initiating lawsuits shall comply with the civil procedure law. Legal costs in case shareholders, groups of shareholders initiate a lawsuit on behalf of the company shall be included in the company’s expenses, unless such lawsuit claim is rejected.

Shareholders, groups  of  shareholders  specified  above may review,  look  up,  extract necessary information under a court and arbitration’s decision prior or during the lawsuit

.

Approval of contracts and transactions between the company with affiliated persons (21)

Requirements on approval of contracts and transactions between the company and affiliated persons in the Law 2014 are clearer stipulated in the Law 2020. Particulars are as follows:

1.   As to the limited liability company, Article 67 of the Law 2020 requires that a contract or transaction between the company and the following parties must be approved by the Board of Members:

  • A member, the authorized representative of a member, the director or director general or the at-law representative of the company;
  • An affiliated person of the persons specified at Point a of this Clause;
  • A manager of the parent company, the person with competence to appoint managers of the parent company;
  • An affiliated person of the persons specified at Point c of this Clause.

 

The person entering into a contract or transaction in the name of the company shall notify members of the Board and supervisors of the parties and benefits related to such contract or transaction; accompanied by the draft of such contract or the main contents of the transaction intended to conduct. Unless otherwise provided in the company chapter, the Board shall decide on approval of the contract or transaction or not within 15 days after receiving the notice in accordance with the provision of adoption of the resolution of the Board. Member(s) of the Board related to the parties of such contract or transaction shall not be included in the voting.

A contract or transaction that is entered into at variance with the above stipulations shall be invalidated under a decision of a court and handled in accordance with law. The person entering into such contract or transaction, concerned member and the affiliated persons of such member who participate in such contract or transaction shall compensate for any damage arising and return to the company any benefits gained from the performance of the contract or transaction.

2.   As to a single-member limited company, Article 86 of the Law 2020 requires that   unless otherwise provided in the company charter, contracts and transactions between a company of an organizational owner with the following parties shall be approved by the Board or the company’s Chairperson, Director or General Director or Supervisor:

  • The company owner and affiliated persons of the company owner;
  • A member of the Board, the company’s Chairperson, Director or General Director or
  • Supervisor;
  • An affiliated person of member of the Board, the company’s Chairperson, Director or
  • General Director or Supervisor;
  • A manager of the company owner, the person with competence to appoint such manager;
  • An affiliated person of a manager of the company owner, the person with competence to appoint such manager.

The person who enters into a contract in the name of the company shall notify the Members’ Council or the company president, director or director general and supervisors of the persons and benefits related to such contract or transaction, accompanied by the draft contract or main contents of such transaction.

Unless otherwise provided by the company charter, members of the Members’ Council or the company president, director  or director  general and supervisors must decide on the approval of the contract or transaction within 10 days after receiving the notification on the principle of majority with one vote for each person; persons related the parties are not entitled to vote.

  • The contract or transaction provided in Clause 1 of this Article may only be approved if satisfying the following conditions:
  • The parties to the contract or transaction are independent legal entitles with separate rights, obligations, assets and interests;
  • The price used in the contract or transaction is the market price at the time the contract is entered into or the transaction is performed;
  • The company owner complies with the obligations provided in Article 77.4 of the Law 2020.

A contract or transaction that is entered into at variance with Clauses 1, 2, 3 and 4 of Article 86 shall be invalidated under a decision of a court and handled in accordance with law. The person signing the contract or transaction and the parties of the contract or transaction must be jointly liable for  any damage arising and return  to  the company  any benefits gained from  the performance of such contract or transaction.

A contract or transaction between a single-member limited liability company of an individual owner with the company owner or an affiliated person of the company owner shall be recorded and preserved as a separate dossier of the company.

3.   As to the joint stock company, Article 167 of the Law 2020 requires that the GMS or BOM shall approve contracts, transactions between the company and the following affiliated persons:

  • Shareholders, authorized representatives of institutional shareholders holding more than
  • 10% of the total ordinary shares of the company, and their affiliated persons;
  • Members of the BOM, director or director general and their affiliated persons;
  • Enterprises in which members of the BOM, supervisors, the director or director general and other managers of the company must declare under Article 164.2 of this Law.

The BOM shall approve contracts and transactions specified in Clause 1 of this Article and having value at less than 35% of the total value of the company’s assets as recorded in the latest financial statement or a smaller percentage or value provided in the company charter. In this case, the person representing the company to sign the contract, transaction shall notify the members of the Board of Directors and supervisors of the persons related to such contract, transaction; the notice shall be enclosed with the draft contract  or main contents of the transaction. The Board of Directors shall decide on the approval of the contract, transaction within 15 days after receiving the notice, unless another time limit is provided in the company charter; members of the Board of Directors with interests related to parties of the contract, transaction shall not have the right to vote.

 The GMS shall approve the following contracts, transactions:

  • Other contracts, transactions other than those prescribed in Clause 2 of this Article;
  • Contracts, transactions on lending, borrowing, purchasing assets with value at more than 10% of the total value of the enterprise’s assets recorded in the latest financial statement between the company and shareholders owning 51% or more of the total voting shares or such shareholders’ affiliated persons.

In case of approval of a contract, transaction under Article 167.3, the person representing the company to sign the contract, transaction shall notify the BOM and supervisors of the persons related to such contract, transaction; the notice shall be enclosed with the draft contract or main contents of the transaction. The BOM shall submit the draft contract, transaction or explain the main contents of the contract, transaction at the meeting of the GMS or collect written opinions from shareholders. In such case, shareholders with interests related to parties of the contract, transaction shall not be allowed to vote; contracts, transactions shall be approved according to Clauses 1 and 4 of Article 148 of the Law 2020, unless otherwise provided by the company’s Charter.

Contracts and transactions which have been signed not according to Article 167 shall be invalid according to the court’s decision and handled according to law. The persons signing the contract, transaction, concerned shareholders, members of the BOM or Director or General Director must be jointly liable for compensating for the arising damage and return to the company any benefits gained from the performance of such contract, transaction.

The company must publicize related contracts, transactions according to relevant laws.

Reorganization, Dissolution and Bankruptcy of Enterprises (2)

Provisions on the reorganization, dissolution and bankruptcy of enterprises in the Law 2020 are basically similar to those set out in the Law 2014 but are clearer for implementation.

1.   Reorganization includes the followings:

  •  Division of companies;
  • Separation of companies;
  • Consolidation of companies;
  • Merger of companies;
  • Conversion of a limited liability company into a joint stock company;
  • Conversion of a joint stock company into a single-member limited liability company;
  • Conversion of a joint stock company into a multi-member limited liability company;
  • Conversion of a private entrepreneur into a limited liability company, a partnership company.

2.   The Law 2020 also provides short provisions on suspension, cessation of operation, termination of business, procedures for dissolution etc. which shall be further guided by the Government of Vietnam for implementation.

3.   The bankruptcy of enterprises shall be in accordance with the Law on Bankruptcy.

 

_____________________________________________________________________________

(1)  The terms “enterprises”  used in this Law mean companies, including limited liability companies, joint stock companies, partnership companies and private entrepreneurs.

(2) Art. 5, Law 2020.

(3) Art. 7, Art. 8, Law 2020.

(4) Art. 7, Art. 8, Law 2020.

(5) Art. 24.

(6) The capital of the company as registered and described in the charter of the company at the time of registration for incorporation, which can be amended during the operational term of the company.

(7) Art. 28.

(8) Art.43.

(9) Art. 45.

 (10) Chapter III (from Art. 46 to Art.73)

(11)  Art.47.4: “In case a member fails to contribute or fails to contribute in full the committed capital amount, the company shall register for the adjustment of the charter capital and capital contribution ratios of the members according to the paid-in capital amount within 30 days from the last date for sufficient capital contribution under Clause 2 of this Article. The members who fail to contribute capital or fail to contribute in full capital amounts as committed must be liable with their committed capital amounts for the financial obligations of the company arising before the date the company registers for the adjustment of the charter capital and capital contribution ratios of the members.

(12) Art.63, 64.

(13) Chapter III (from Art. 74 to Art.87).

(14) Art.74.

(15) Chapter V (from Art. 111 to Art.176).

(16)  Art. 120.3 “Within 03 years from the date the enterprise registration certificate is granted to the company, the founding shareholders’ ordinary shares shall be freely transferred to other founding shareholders and may only be transferred to persons other than founding shareholders if it is approved by the General Meeting of Shareholders. In this case, founding shareholders intending to transfer ordinary shares may not vote on the transfer of such shares”.

(19) Art.165.

(20) Art. 72, Art.166.

(21) Art.167.

(22) Chapter IX.

 

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