Vietnam passes new Law on Enterprises, strengthening protection for shareholders

2 October 2020

On 17 June 2020, Vietnam's National Assembly passed the Law on Enterprises 2020 ("LOE 2020"), which is intended to replace the Law on Enterprises 2014 (“LOE 2014”) effective from 1 January 2021. The LOE 2020 replaces the LOE 2014 in regulating the establishment, operation, and governance of corporate entities, and will generally be the main law for the regulations of companies in Vietnam.  

Some of the key highlights of the LOE 2020 are as follows: 

• Removal of requirement to appoint official controllers: a one-member limited liability company that is owned by a corporate member and a multiple member limited liability company that is owned by eleven members or more is no longer required to establish a board of controllers (or the so-called inspector committee) under the LOE 2020, meaning that investors no longer have to set up such potentially cumbersome organisation structures. 
• Detailed regulations on corporate bond issuers and investors: LOE 2014 provided general regulations on the issuance of bonds by private joint stock companies, with detailed conditions, issuance process and transfer of bonds being provided under guiding decrees. LOE 2020 sets out these regulations in greater detail than the LOE 2014 and also incorporates all other regulations on issuance of bonds by private joint stock companies set out in the guiding decrees 
• Multiple member liability companies to be able to issue bonds: The LOE 2020 allows for multiple member liability companies to be able to issue bonds. This is not provided for in the LOE 2014. 
• Protection for minority shareholders enhanced: The LOE 2020 allows any shareholder or group of shareholders holding at least 5% of ordinary shares to be accorded rights similar to shareholders or group of shareholders holding 10%, with the exception of being able to nominate members to the Board of Directors or Board of Controllers. Ordinary shareholders will no longer be required to hold their shares for a minimum ownership period (stipulated as six months under the LOE 2014) before being able to exercise general shareholder rights. 
• Rights of preference shareholders strengthened: Statutory protection is provided for preference shareholders in the LOE 2020 by allowing for such shareholders to have limited participation rights, such as attending and voting in shareholder meetings where proposed resolutions may adversely impact their rights and obligations. Such a resolution will only pass where it is approved by shareholders holding at least 75% of that specific class of shares. 
• Reduction of minimum voting threshold by shareholders of joint stock companies: LOE 2020 provides the minimum voting threshold of more than 50% for shareholders to approve non-major matters at shareholders’ meetings or to pass any matters by way of collection of written opinions. These matters are subject to a minimum threshold of more than 51% under the LOE 2014.Minimum voting threshold by shareholders to approve major matters at shareholders’ meetings remains at 65%.
• Private placement procedures amended: The LOE 2020 provides that where a private joint stock company seeks to issue new shares by way of private placement, existing shareholders must be given the opportunity to exercise their pre-emptive right, with the exception of issuance of shares in connection with amalgamations or mergers.