In June 2020, the National Assembly passed a new Law on Enterprises 2020 (Enterprise Law 2020) to replace the Enterprise Law 2014 from 1 January 2021.
Enterprises do not have to do notification seal samples
“Article 43. The enterprise’s seals
- The enterprise’s seals can be physical or digital as prescribed by e-transaction laws.
- The enterprise shall decide the type, quantity, design, and content of its seal and the seals of its branches, representative offices, and other units.
- The management and storage of seals shall comply with the company’s charter or regulations of the enterprise, branch, representative office, or unit that owns the seal. Seals shall be used by enterprises in transactions as prescribed by law.”
Adding subjects who are not allowed to establish a business
Specifically, the Enterprise Law 2020 adds more subjects who are not allowed to establish and manage enterprises, including:
– People with difficulties in cognition and behavior control;
– Public security workers in agencies and units of the Vietnam People’s Public Security (except for those appointed as authorized representatives to manage the State’s capital contribution in enterprises);
– Organizations being commercial legal entities are prohibited from doing business or operating in certain fields according to the provisions of the Penal Code.
Notification to the business registration authority before the suspension
Article 206 of the Enterprise Law 2014 provides: An enterprise shall send a written notification to the business registration authority at least 03 working days before the suspension or resumption date.
Simplification of license requirements
The New Law removes the scope of business activities of an enterprise and the list of founding shareholders of a joint-stock company (“JSC”) from the enterprise registration certificate (“ERC”). If an enterprise changes its business activities, founding shareholders, or foreign shareholders, it must “report” to the corporate registration authority to update its corporate registration records, but does not need to “register” for an update of its ERC as required under current laws.
Change of foreign shareholders under new Law on Investment
One should distinguish the above corporate procedural requirements from any possible investment procedural requirements under the new Law on Investment. Under the new Law on Investment, an acquisition of shares by a foreign investor must be registered if the target enterprise operates in a conditional business sector for foreign investors or if it results in foreign investors (and certain forms of semi-foreign-investors) owning in aggregate at least 51% of the shares in the target enterprise. Effectively, the two new laws substantially simplify the process of share acquisition by a foreign investor in cases where foreign equity in the target does not reach 51% and the target does not operate in a conditional business sector.
More than one legal representative permitted
The New Law allows a JSC or limited liability company (“LLC”) to have more than one legal representative and only one of them is required to reside in Vietnam. If a JSC has more than one legal representative, the chairman, and the general director must both be legal representatives.
Lower quorum and voting thresholds
In multi-member LLCs: the quorum of the first convened members’ council meetings and voting threshold for circular resolutions is reduced to 65% of the charter capital from the current 75% requirement.
In JSCs: the quorum of the first convened general meeting of shareholders (“GMS”) and voting threshold for circular resolutions of shareholders is reduced to 51% of the voting shares from the current 65% and 75% requirement respectively. At a GMS, the voting threshold is reduced to 51% of the voting shares of attending shareholders from the current 65% for ordinary matters and to 65% of the voting shares from the current 75% for reserved matters.
New reporting duties regarding change of managers
A company is required to report to the relevant licensing authority within 5 days of a change of the information (i.e. name, identification information, nationality, contact address) about certain managers of the enterprises, including members of the board of management of a JSC, inspectors and general directors of a JSC or LLC.
Change of requirements on charter capital of LLC
Under the old Law on Enterprises, a one-member LLC is not permitted to reduce its charter capital. The New Law now permits a one-member LLC to reduce its charter capital in certain circumstances. Additionally, full payment of the registered charter capital of an LLC must be made within 90 days of the issuance of the ERC (in contrast to the 36-month period under the old Law on Enterprises), or the actual-paid charter capital must be registered as adjusted charter capital.
Fewer restrictions on founding shareholders in JSC
The identities of founding shareholders are no longer recorded in the ERC so a change of founding shareholders need not be registered (but has to be “reported”). Furthermore, the restriction on transfer of shares by a founding shareholder to third parties during the first 3 years after the issuance of its ERC does not apply to:
- additional shares acquired by a founding shareholder after incorporation of the JSC, or
- shares acquired by a third party from a founding shareholder.
Simplified procedure for JSC to issue new shares
In a private placement of shares, a non-public JSC must file a notification to the corporate registration authority but may proceed with the private placement if 5 business days have elapsed from the filing and the corporate registration authority does not issue an objection.
In the issue of shares proportionally to existing shareholders, if the offered shares are not fully subscribed, the JSC may issue the remaining shares to shareholders or third parties acting reasonably and on terms not more favorable than those applicable to the shareholders, except where otherwise approved by the GMS.
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