What
Rights Shareholder Holds in Joint Stock Company?
Shareholders are individual or organization that owns at least
one share of the joint-stock company and also are owner of the joint-stock
company. Along with these roles, their interests are tied to business
operations although they may not directly manage the day-to-day company
affairs. In order to implement governance, the powers and responsibilities of
each interest group such as shareholders, the board of directors, managerial
personnel, etc. should be assigned based on the statutory principles and procedures.
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Vietnam
According to the regulations on shareholders in the Law on
Enterprise 2020, the rights of shareholders can
be categorized into the following groups: economic rights, governance rights,
information rights, and litigation rights.
Economic rights
Economic right is the right to gain all pecuniary interest with
respect to the shares. The purpose of starting a business or investing in
securities comes mainly from earning income or gaining profits. Economic rights
accordingly include:
-Right to entitlement to dividends
-Right to transfer ownership
-Priority right to acquire the newly issued shares
-Right to entitlement to a portion of the assets after
dissolution or bankrupt
-Appraisal Right
Among these above rights, right to entitlement to dividends and
right to transfer ownership are the fundamental economic rights of a
shareholder.
Dividend of common shares is determined according to the
realized net profit and the dividend payment from the company’s retained
earnings. Despite right to entitlement to dividends, shareholders are still
subject to a number of limitations in law and in fact. Dividend entitlement is
determined by the General Meeting of Shareholders based on the recommendation
of the Board of Directors, after the company has fulfilled tax obligations and
other financial obligations, contributed to reserve fund, paid for previous
losses and met the solvency for all due debts and other property obligations.
Dividend is not required to be distributed annually. Depending on the business
situation, the General Meeting of Shareholders may decide to retain profits for
reinvestment.
Besides dividend entitlement from the company’s operating
results, shareholders can also gain profits by share transfer. This kind of
investment is popular with respect of shares or securities of public companies,
investors do not aim for corporate governance rights as well as dividend, they
intend to earn benefits by the difference of the market values of stocks,
especially when the stock value increases.
Governance rights
Modern corporate governance has two principles, one is to
separate ownership and governance and to separate governance and management. It
means that the major shareholders should not hold senior managerial positions
in the company and Chairperson of the Board of Directors should not be assigned
to other senior managerial positions such as General Director and/or Director.
Shareholders may be an individual or organization which they
have their own different interests, goals and abilities. The separation between
ownership and management makes the situation of whom the owner is and how the
share get transferred not to affect the business operation. In the meantime,
the separation helps gather professional managers to implement target intended
by the company. According to the laws, members of the Board of Directors of a
public company concurrently holding several executive titles must be reduced to
the minimum to ensure the independence of the Board of Directors, specially the
Chairperson of the Board of Directors shall not be the Director/General
Director in a public company as of August 1st, 2020. There are no similar rules
applicable to joint stock companies which are not public company.
Attendance, speaking and voting at General Meeting of
Shareholders are fundamental in governance right of common shareholders,
applicable to all shareholders holding at least one share. ty. In principle,
being a shareholder who holds shares of the company regardless of the number
has equal rights to attend and vote at the General Meeting of Shareholders. By
the General Meeting of Shareholders, the shareholders holding a certain number
of shares can impact decisions on some matters such as election, dismissal, and
removal of members of the Board of Directors and Controllers, amendment and
supplementation of internal documents, major transactions, and others as
stipulated in law on enterprise or charter. In addition to the above rights,
the majority shareholders also have a number of other rights related to
governance as follows:
The shareholder or group of shareholders holding at least 5% of
the total number of common shares (charter may require a smaller percentage) is
entitled to:
-Call a General Meeting of Shareholders
-Request Board of Controllers to inspect each specific matter
relating to management, governance of company affairs if necessary
-Recommend matters to be included in agenda of General Meeting
of Shareholders
-The shareholder or group of shareholders holding at least 10%
of the total number of common shares (charter may require a smaller percentage)
is entitled to nominate candidates for the Board of Directors, Board of
Controllers
Information rights
Shareholders have the right to access documents and information
of the company. In addition to the basic documents such as the charter, list of
shareholders, meeting minutes and resolutions of the General Meeting of
Shareholders, shareholders have the right to access to reports related to the
business affairs.
However, some information is only reviewed by
shareholders who own required percentage of share:
-Access and extract information on full name and contact address
as specified in list of shareholders having voting right and list of
shareholders having right to attend General Meeting of Shareholder; request to
adjust his/her inaccurate information
-Access, extract and scan charter of company, meeting minutes of
General Meeting of Shareholder and its resolution
-Access, extract and copy partial or whole list of involved
persons and their contracts, transaction of which the company is other party,
interests of Board of Directors, Controllers, Directors or General Directors
and other managerial positions of company
-Access and extract minutes and resolutions of Board of
Directors, annual or mid-year financial reports, reports of Board of
Controllers, contracts and transaction approved by Board of Directors and other
documents, excepting for documents related to company’s know-how and trade
secrets (applicable to shareholder and group of shareholders who own at least
5% of total number of common shares, the charter may require a smaller
percentage)
-Access profit and loss statements, finacial reports, governace
and management assement reports; inspection reports of Board of Controllers
(applicable to shareholder who own shares at least 1 consecutive year, the
charter may require a smaller percentage).
Different to common joint stock company, a public company must
annouce fully, accurately and promptly the periodic and extraordinary
information on business, finance and governace. Other information must be
annouced if it influences share price and investment decisions of shareholders
and investors.
Litigation rights
The Law on Enterprises has provided a mechanism to request the
Court or Arbitration to rescind the resolution of the General Meeting of
Shareholders or sue the managerial personnels when they fail to fully and
properly implement their tasks, including:
The shareholder or group of shareholders holding at least 5% of
the total number of common shares (charter may require a smaller percentage) is
entitled to:
-Request to rescind resolutions of the General Meeting of
Shareholders when the orders and procedures of calling the meeting and making
resolution of the General Meeting of Shareholders seriously violate the
regulations of the Law on Enterprises and company’s charter
-However, the resolution of the General Meeting of Shareholders
adopted by 100% of the total number of voting shares is legal and effective
even when the orders and procedures of calling the meeting and adopting such
resolution violates regulations of the Law on Enterprises and company’s
charter.
-Request to rescind resolutions of the General Meeting of
Shareholders when its provisions violates the laws or company’s charter
-The shareholder, group of shareholders holding at least 1% of
the total number of common shares is entitled to:
-Sue members of Board of Directors, Directors, General Directors
separately or jointly under certain circumstances
The Chairperson of Board of Directors or the Director or General
Director usually acts as the legal representative of the company, representing
the company to perform rights and obligations arising from the company’s
transactions, representing the company to take proceedings before the court or
arbitrator. However, when their interests conflict with those of the
shareholders, shareholders have the right to initiate a lawsuit claiming benefits
or compensation. The Law on Enterprise also permits shareholders to sue on
behalf of the company when the above managerital personnels commit violations,
causing damage directly to the company and indirectly to shareholders.
Not all shareholders have the right to sue for the above
managerial personnels, only those who own at least 1% of the total number of
common shares. This restriction makes sense with respect of public companies,
in order to eliminate unfair competition actions conducted by minority
shareholders who is controlled by the rival companies because amount of 1% in
public company is not a small number.
Similar to a lawsuit against a manager, shareholder or group of
shareholders is also required to own at least 5% of the total number of common
shares to request rescission of the resolution of the General Meeting of
Shareholders if there is violation on substantive law and procedural law.
Accordingly, all resolutions of the General Meeting of Shareholders violating
the substantive laws or the company’s charter are rescinded at the request of
shareholders, but only serious procedural violations may be rescinded. There is
no specific instructions for serious procedural violations at this time, the
assessment will depend on personal perspective of the court and arbitrator.
In order to seek further advice, please contact
us at ant@antlawyers.vn or call + 84 912 817 823. ANT Lawyers,
your law firm in
Vietnam.
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