Currently, the form of joint-stock company is increasingly popular in Vietnam. In this context, the transfer of shares takes place more and more often and there are also many disputes arising. In this article, Lac Duy & Associates takes some notes on share transfers and disputes that may arise so that readers have a better overview of the issue.
What is a share transfer?
Currently, legal documents in force have not yet given the definition of what is the transfer of shares. However, through the provisions of the Enterprise Law No. 59/2020/QH14 (“Enterprise Law 2020“) and the guiding documents on the issue of share transfer, it can be understood that: Share transfer is the fact that the holder of shares in the joint-stock company performs acts of change (buying, donating, inheriting …) the number of shares held to the other party, and the other party is the organization, individual or shareholder in the joint stock company itself.
Limited cases and some considerations when transferring shares under the Enterprise Law 2020
- Cases of restrictions on share transfer:
Point d Clause 1 Article 111 of the Enterprise Law 2020 stipulates as follows: “Shareholders have the right to freely transfer their shares to others, except for the cases specified in Clause 3, Article 120 and Clause 1, Article 127 of this Law.
When referring to Clause 3, Article 120 of the Enterprise Law 2020, it is stipulated as follows: “Within 03 years from the date the company is granted the Certificate of Enterprise Registration, the common shares of the founding shareholders are free to transfer to other founding shareholders and may only be transferred to non-founding shareholders if getting approval of the General Shareholders. In this case, the founding shareholders who plan to transfer common shares do not have the right to vote on the transfer of such shares.” This is the first case of transfer restrictions under the Provisions of the Enterprise Law 2020.
When referring to Clause 1, Article 127 of the Enterprise Law 2020, it is stipulated as follows: “Shares are freely transferred, except for the cases specified in Clause 3, Article 120 of this Law and the Company’s Charter which restricts the transfer of shares. In case the company’s charter has restrictive provisions on share transfer, these regulations shall only take effect when clearly stated in the shares of the respective shares.” Thus, in the second case, ordinary shares will be restricted from transfer in case the company’s charter has other provisions.
In addition, Clause 3, Article 116 of the Enterprise Law 2020 stipulates: “Shareholders who own preferential voting shares may not transfer such shares to others, except for cases of transfer according to judgments or decisions of courts that have taken legal effect or inherited them.” Thus, voting preference shares are also shares that cannot be transferred to others, except for transfers according to legally effective or inherited judgments or decisions of courts.
- Some notes when conducting share transfers:
When conducting the transfer of shares, the parties involved in the transfer transaction should take note of some of the following issues:
- The transfer must be in accordance with the provisions of Vietnamese law; comply with the regulations on transfer restrictions as set out in Section 2(i) (if any);
- The parties involved in the transfer must sign and fully stamp on the relevant documents;
- The transfer of shares must be expressed by the transfer contract and liquidated by the minutes of liquidation of the transfer contract;
- Transfer activities must be approved at the meeting of the General Meeting of Shareholders of the Company and expressed in the Minutes and Decisions of the General Meeting of Shareholders if they fall under the case specified in the Company’s Charter;
- The Company must register the change of shareholders in the shareholder register at the request of the relevant shareholder within 24 hours from the receipt of the request as prescribed in the Company’s Charter.
- The transfer of shares is completed when the company completes the procedure for notifying the transfer of shares and changing the company’s shareholders to the business registration authority.
Risks of disputes when transferring shares and preventive solutions
Currently, Vietnamese law does not specify whether the procedure for transferring shares needs to be confirmed by the company, so it is easy to arise disputes when transferring or buying shares, for example:
- After receiving the money for some reason, the Business Registration Office does not accept the application for change of members of the Enterprise, or returns the request for amendment and supplement but the member who makes the transfer (the seller) does not cooperate to supplement the procedural documents, the consequences of which the investors will be caught in a dilemma is that if they continue to be entangled in the procedure and if they withdraw, they do not know when the seller will return their money;
- The parties have completed the transfer but the company has not cooperated to carry out procedures at Business Registration Office to change members for investors. In this case, the investors have to sue in court to require the court to force the company to carry out procedures to transfer the name to the investor, quickly it takes 6 months, or the whole year to settle or withdraw the contract to get the money back.
Therefore, in order to ensure safety, the two parties should have a section confirming the transfer between the parties. In addition, in the contract, the parties must specify and strictly stipulate the payment terms, methods and conditions of payment.
The above are some notes on disputes arising from the transfer of shares in accordance with the new provisions of Vietnamese law in 2021. In case there are any questions left or further advice is needed on issues related to share transfers, you can contact Lac Duy & Associates for timely support at:
- Phone: +84 (28) 3622 1603
- Email: info@lacduy-associates.com or lacduy@lacduy-associates.com
Best regards.