With a large business scale, multi-industry in Vietnam, the type of joint stock company is increasingly attracting the attention of investors. In order to ensure the sustainable development of joint stock companies as well as promote investors to contribute capital to joint stock companies, the protection of minority shareholders in joint stock companies is an urgent issue that needs to be addressed. The law establishes, and at the same time, in the general corporate governance mechanisms, it is good practice to ensure equal treatment of all shareholders, including minority shareholders, to foreign shareholders. The law on enterprises does not currently have a definition of what is a shareholder. However, from a theoretical perspective, there are many different views on this issue:

• The first view is that minority shareholders are shareholders, a group of shareholders owning less than 5% of the shares in the company. This understanding comes from the fact that the Law on Securities (Clause 18, Article 4 of the Securities Law 2019) defines a major shareholder as a shareholder owning 5% (five percent) or more of the number of shares with voting rights. Accordingly, those who own less than 5% of the total shares in the company are classified as minority shareholders. With this understanding, the percentage of share ownership is the only criterion to identify shareholders in the company.
• The second point of view is that in order to identify minority shareholders, it is necessary to consider the whole criteria on both the percentage of share ownership and the ability to dominate and control activities in the company among groups of shareholders. Because in fact, there are still cases where shareholders own relatively large shares, but do not have control in the company because the group of major shareholders holds enough shares to have full control over the operation of the enterprise.

Property rights 

Property rights include the right to receive dividends, the right to freely transfer shares, and the right to receive part of the assets when the company is dissolved. The property rights group is an indispensable group of rights of shareholders when they have contributed capital to the company, therefore, according to the law, minority shareholders, as well as other shareholders, have the same group of property rights. 

Corporate governance rights – the right to nominate members of the Board of Directors and Board of Controllers

According to the provisions of Point a, Clause 5, Article 115 of the Law on Enterprises 2020, a shareholder or group of shareholders owning 10% or more of the total number of ordinary shares or a smaller percentage as prescribed in the company’s charter has the right to: nominate people to be on the Board of Directors and Board of Controllers. This is a common right of minority shareholders and other shareholders, however, for minority shareholders, these are rights that are especially important to enhance shareholder power.

With this provision, minority shareholders who gather 10% or more of the total number of ordinary shares will have the right to nominate candidates for the Board of Directors and Supervisory Board and can obtain information about the contents of the meeting. The General Meeting of Shareholders (The General Meeting of Shareholders usually approves the content that the Board of Directors has prepared), participates in deciding and giving opinions on some important issues of the company.

The Enterprise Law 2020 has removed the provisions on the period of continuous share ownership for at least six months, then a shareholder or a group of shareholders owning 10% or more of ordinary shares has the right to nominate a person to be a member of the board. management, supervisory board and the right to sue the manager, Article 166 of the Enterprise Law 2020.

Moreover, Article 115 of the Enterprise Law 2020 also adds a regulation that a shareholder or a group of shareholders owning 5% or more of the total number of ordinary shares is entitled to convene a general meeting of shareholders in some cases. and request the Supervisory Board to examine issues related to the management of the company. This new regulation has expanded the rights of minority shareholders by giving them the initiative in protecting their interests.

Information rights 

Information must be publicly and transparently disclosed, including:

• the company’s financial and operating results such as financial statements;
• the company’s operational goals;
• owned by major shareholders and has voting rights.

This group of rights helps minority shareholders grasp the specific operation situation of the company and take measures to check and prevent violations. In addition, the Enterprise Law 2020 has added regulations on gathering and updating the list of people related to the company, members of the board of directors must declare their interests related to them with the company (Article 164). Enterprise Law 2020). This regulation has opened a door for minority shareholders to control transactions between the board of directors and related people, which must make all transactions more transparent and fair.

Regarding this group of information rights, Vietnam’s legal regulations as well as the Enterprise Law 2020 basically stipulate quite fully. There are a few shortcomings such as the rate of information to be provided when there is a limited request and mainly attention to the past information, but the Enterprise Law 2020 also has significant changes related to the protection of the contents of a presentation. However, the benefits of applying these rights also depend on the capacity and ability to analyze and evaluate the information of minority shareholders.

Rights to restore benefits

This is the right to request the Court or Arbitration to cancel a part or all of the decision of the general meeting of shareholders. The Enterprise Law 2020 gives this right to a shareholder or group of shareholders owning 5% or more of common shares to request a court or arbitration to consider and cancel a resolution or part of a resolution of the General Meeting of Shareholders. in case of serious violations of the order and procedures for convening meetings and making decisions or content of resolutions in violation of the law and the company’s charter.

With the provision of this right, the corporate law has created opportunities for shareholders and especially minority shareholders to actively intervene in the internal affairs of the company as well as actively protect themselves. However, in practice to exercise this right, minority shareholders rarely use it. In addition, the request for arbitration can only be done when it is determined that the dispute falls under the jurisdiction of commercial arbitration under Clause 1, Article 2 of the Law on Commercial Arbitration 2010 as a dispute between the parties arising from commercial activities, and commercial activities are the performance of one or more commercial acts of business individuals or organizations.

Therefore, whether shareholders request arbitration, the decision of the general meeting of shareholders is under the jurisdiction of the arbitrator or not is a matter of many different opinions. Moreover, in the court settlement procedure, determining whether the request to cancel the decision of the General Meeting of Shareholders is a business or commercial dispute according to the proceedings or just a business request. Commercial due process for civil matters is still an unresolved issue.

If you need more detailed advice and answers as well as how to access this service, please contact directly the Deputy Director of Sales: Lawyer Nhat Nam via hotline: 0912.35.65.75, 0912.35.53.53 or call the free legal consultation hotline 1900.6575 or send a service request via email: lienheluathongbang@gmail.com

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