Joint Stock Company (JSC) is one of the most popular types of companies. With the features of capitalizing business, JSC can mobilize capital most optimally and effectively. The fact that many investors are organizations or individuals, contributing capital for the company to become shareholders which will cause difficulties in the control and governance of the company. For that reason, JSC needs to have better control mechanisms and closer coordination in the operation and corporate governance. Understanding this issue, the 2020 Enterprise Law, has made more practical changes in the direction of protecting minority shareholders, focusing on company operations and governance, limiting the majority or a group of large shareholders colludes to be arbitrary and self-interested. Hereinafter, KAV Lawyers would like to collect some prominent points for reader to follow on this matter, sincerely!
- Prominent point in the regulation on JSC of the 2020 Enterprise Law.
Rights and Obligations of Shareholders.
The 2020 Enterprise Law stipulates Shareholder’s right and obligation with the purpose of protecting the intend of minority shareholders. According to the 2020 Enterprise Law, as defined in Clause 2, Article 115, “A shareholder or a group of shareholders owns 05% or more of the total number of common shares or a smaller percentage according to the company’s charter then have the right to review, lookup, extract the record book, resolutions, decisions of the Board of Directors (BOD), mid and annual financial statements, reports of the Supervisory Board, contracts, transactions which shall pass the Board of Directors and other documents (except documents related to trade secrets, business secrets of the company)”. This figure compares with the 2014 Enterprise Law is from 10% or more and the ownership term limit is for at least 06 consecutive months, in the 2020 Enterprise Law, the continuous ownership term is removed and the percentage is reduced.
Moreover, the 2020 Enterprise Law supplements the obligations of shareholders in Article 119, whereby shareholders are obliged to keep the information confidential, to prohibit distributing or copying information to other organization or individuals. Despite the fact that, the obligation to keep information confidential of shareholders is considered, it is not clearly defined, if not properly implemented, how will they be penalized? On the other hand, this provision does not specify whether it will prevent shareholders in the company from providing company’s information to potential buyers?
According to Clause 1, Article 145 of the 2020 Enterprise Law, the General Meeting of Shareholders (GMS) shall be conducted when a number of shareholders represent more than 50% of the votes participating; or a specific percentage is prescribed by the company’s Charter. Compared to Enterprise Law 2014, to conduct a GMS, it is necessary to have shareholders attending the meeting representing at least 51% of the total number of votes. Thus, a shareholder or a group of shareholders only need to own more than 50% of the total votes, they will have the right to pass resolutions of the General Meeting of Shareholders (except in some other cases).
If a JSC is not a public company, when offering private shares of the company, there is no need to notify the private offering of shares to the business registration authority. (Whereas, the 2014 Enterprise Law requires the private offering of shares to be notified to the business registration authority within 05 working days). The share offering of a JSC shall be performed according to the following provisions:
– The JSC will decide the plan to offer private shares;
– The company’s shareholders exercise the pre-emptive right to buy shares under the Law (except the case of merger or consolidation of the company);
– In case the Shareholders and the transferee of the pre-emptive right does not purchase all the remaining shares, the remaining shares shall be sold to another person under the plan of a private share offering with less favorable conditions than those offered for sale for Shareholders, unless otherwise agreed by the General Meeting of Shareholders.
Note: Foreign Investors buy private-share offering shall conduct the procedure of purchasing shares according to Investment Law.
Term of the independent members of BOD
The 2014 Enterprise Law has no term limit which an independent member could be re-elect. However, the 2020 Enterprise Law stipulates the BOD as follows: “The term of a member of the BOD is not more than 05 years and can be re-elected for an unlimited number of terms. An individual can only be elected as an independent member of the Board of Directors of a company for no more than 2 consecutive terms”. Thus, the 2020 Enterprise Law, the term of the independent members of BOD must not exceed 05 years and an individual is elected to be an independent member of BOD must not exceed 02 continuous terms.
Dismissal Right of General Meeting of Shareholders, when necessary, despite the fact that the event has not stipulated in Company’s Charter
The 2014 Enterprise Law specifically lists the dismissal cases of members of the Board of Directors, cases of dismissal outside the provisions of the law must be recorded in the company’s charter. The 2020 Enterprise Law has expanded the scope of cases where members of the Board of Directors were dismissed and the right to consider dismissal of members of the Board of Directors of the General Meeting of Shareholders. According to Clause 3 Article 160 of the 2020 Enterprise Law, when necessary, the GSM has the right to dismiss members of the BOD, not including the cases specified in law and company’s charter.
In addition, there are also other new points
– Depository Receipts has no voting rights (Clause 6 Article 114 of the 2020 Enterprise Law);
– Changing the rights of preferred shareholders, clause 6 Article 148 stipulates the conditions for passing resolutions of the General Meeting of Shareholders: “A resolution on adverse changes to rights and obligations of preference shareholders may only be ratified if it is voted for by a number of preference shareholders that participate in the meeting and hold at least 75% of the same kind of preference shares. In case of questionnaire survey, it needs to be approved by a number of preference shareholders that holding at least 75% of the same kind of preference shares.”.
– The Board’s internal audit of BOD was changed to “Audit Committee”.
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