As in many countries across the world, instituting changes at a corporate level in Vietnam requires the approval of a majority of shareholders during a shareholder meeting. The Law on Enterprises outlines matters that can be discussed and decided during these meetings, what is required to convene shareholder meetings, and what percentage of shareholders, or members, are required to successfully pass decisions.
The latest update of the Law on Enterprises was passed in late 2014 and has been effective since July 2015, bringing with it some changes to the way shareholder meetings are being held. This article outlines how shareholder meetings in Vietnam are used, what can be achieved during these meetings, and how meetings differ between corporate structures.
Given the significant growth of foreign investment seen in recent years, in conjunction with market opportunities emerging each day, navigating the ins and outs of shareholder meetings will be an important consideration for new market entrants when structuring their holdings in Vietnam.
Limited Liability Company (LLC)
Members of a Limited Liability Company (LLC) are in their right to request shareholder meetings, called Members’ Council in the Law on Enterprises. Regulations are outlined in Chapter III (“Limited Liability Companies”) of the Law on Enterprises. The number of members in LLCs can be as low as one, but cannot exceed 50 and each member has voting rights proportional to the amount of charter capital contributed to the company.
A member or group of members owning at least 10 percent of the chartered capital can call a meeting of the Members’ Council. In case of a single member holding more than 90 percent, the other members together are also within their right to call up a meeting. Furthermore, the chairman of the Members’ Council may also call up a meeting.
To be able to conduct a meeting, aggregate charter capital of the attending members should add up to at least 65 percent of the total amount outstanding. If this condition has not been satisfied, a second meeting may be convened within 15 working days, where attending members’ charter capital share only has to add up to a minimum of 50 percent. Finally, if this condition has again not been met, a meeting may be convened within a further 10 working days irrespective of attendance.
Article 56 of the Law on Enterprises outlines the rights and obligations of the Members’ Council. These can be subdivided into two categories, namely those for ordinary resolutions, requiring 65 percent of the attending members’ aggregate charter capital (75 percent before the 2014 update), and special resolutions, requiring 75 percent.
As indicated in article 60 of the law, resolutions shall be redeemed passed when at least 65 percent of attending members vote in favor of the following:
- Amendments of or additions to the content of the charter of the company in accordance with article 25 of the Law on Enterprises;
- Decisions on the developmental direction of the company;
- Election, discharge or removal of the chairman of the Members’ Council; appointment, dismissal or removal of the director or general director; and
- Approval of annual financial statements.
Furthermore, at least 75 percent of the attending members’ agreement is required for the:
- Sale of assets valued at over 50 percent of the total value of company assets (or a smaller percentage if stipulated in the charter of the company);
- Amendment of or addition to the charter of the company; and
- Re-organization or dissolution of the company.
Note: For minority stakeholders, little recourse will be available if requisite votes cannot be mustered in support or opposition to motions fielded at membership council meetings.
Joint Stock Company (JSC)
Shareholders of a JSC can similarly request meetings, although regulations differ slightly. Regulations for JSCs are outlined in Chapter V (“Shareholding Companies”) of the Law on Enterprises, where shareholder meetings are called General Meeting of Shareholders. The number of shares available is unlimited and each share has an equal weight for voting, with the exception of preferential shares. The power of preferential shares shall be stipulated in the charter of the company.
The major differences between JSCs and LLCs are the number of attending shareholders required to convene meetings and the thresholds at which resolutions can be passed. For JSCs, at least 51 percent of shareholders have to be present to be able to conduct a meeting. If this requirement is not been met, a second meeting can be convened within 30 days if at least 33 percent of shareholders are present. If this requirement is also not met, then a meeting may be convened within another 20 days, irrespective of attendance.
And with the update of the law, the voting threshold changed from 65 percent to 51 percent for ordinary resolutions, where this changed from 75 percent to 65 percent for special resolutions. Resolutions shareholders decide on are similar to those decided on by members of an LLC, plus the inclusion of issues commonly related to public firms, such as deciding on the issuance or buy-back of large amounts of shares.
Partnerships (JV)
Meetings in a joint venture are called Partners’ Council; its regulations are outlined in Chapter VI (“Partnerships”) of the Law on Enterprises. In these meetings, partners decide on similar topics as in the previous examples. To adopt a decision, at least two-thirds of partners must vote in favor.
Key takeaways
Investors need to be aware of the lowered thresholds required to pass resolutions which have been effective since the Law on Enterprises was updated in 2015. As a result of the update, it has become harder to exercise veto-rights for minority shareholders and thereby block unfavorable proposals during shareholder meetings. To reduce this risk, investors can either increase their shareholdings, or push for corporate charter amendments that require higher voting thresholds.
To avoid issues arising from the misalignment of interests of members or shareholders within a company, investors should maintain a large enough share to be able to block unfavorable proposals. Furthermore, it is key to stay on top of regulatory changes and be aware of prevailing statues in case these situations do arise. If used correctly, shareholder meetings can be a powerful tool to decide on the direction of the company and avoid discrepancies.
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Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email vietnam@dezshira.com or visit www.dezshira.com.
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