Some basic legal knowledge about IPO

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Some basic legal knowledge about IPO

When it comes to raising capital and the public offering of securities, people often use the word “IPO” (short for Initial Public Offering) or listing the company’s stocks on a stock exchange… However, these commonly used words or current understandings of many people do not reflect the legal nature of the term “the public offering of securities” under the provisions of Vietnamese securities laws. To facilitate joint-stock companies to better understand the public offering of securities and prepare for raising capital from investors, I offer some basic legal knowledge as follows:

1| Types of securities

According to Clause 1, Article 6 of the Law on Securities, securities are not limited to stocks (shares) of a certain joint-stock company to show shareholders’ ownership of a part of the charter capital of that company. Securities include broader meaning, which is evidence confirming the lawful rights and interests of the owner over assets or capital shares of an issuing organization, including the following types:

  • Stocks, Bonds, Fund Certificates;
  • Rights, warrants, call options, put options, futures, securities groups or stock index;
  • A capital contribution agreement;
  • Other types of securities prescribed by the Ministry of Finance.

2| Forms of the public offering of securities

There are the following forms of the public offering of securities:

  • The initial public offering of securities:
    • The initial public offering of stocks to raise capital for the issuing organization;
    • The initial public offering of fund certificates to establish a securities investment fund;
    • The initial public offering of stocks to become a public company through a change in ownership structure without increasing the issuing organization’s charter capital;
    • Initial public offering to establish an enterprise in the infrastructure sector, high-tech fields, or joint-stock credit institutions;
    • The public offering of the capital contribution agreement.
  • The additional offering of shares or rights to the public:
    • Public companies offer additional stocks to the public or issue rights to existing shareholders to increase their charter capital;
    • Fund management companies offer additional fund certificates to the public to increase charter capital of Investment Funds.
  • Majority shareholders sell their stakes in public companies to the public; Public companies offer bonds and other securities to the public.

3| Methods of the public offering of securities

The company may choose the method of the public offering of securities by one of the following methods:

  • Through the mass media, including the Internet;
  • Offering securities for at least one hundred investors, excluding professional securities investors;
  • Offering to an unspecified number of investors.

4| Conditions for the public offering of securities

(i) Conditions for the public offering of stocks include:

  • Enterprises with charter capital already contributed at the time of registration for the offering of VND 10 billion or more according to the value inscribed in the accounting books;
  • Business operations of the year immediately preceding the year of registration of the offering must be profitable, and there must be no accumulated losses up to the year of registration of the offering;
  • Having a plan for issuance and a plan to use the capital gained from the offering approved by the General Meeting of Shareholders;
  • Public companies that register for the public offering of securities must commit to put securities into trading on organized markets within one year from the end of the public offering approved by the General Meeting of Shareholders.

(ii) Conditions for the public offering of bonds:

  • Enterprises with charter capital already contributed at the time of registration for the offering of VND 10 billion or more according to the value inscribed in the accounting books;
  • Business operations of the year immediately preceding the year of registration of the offering must be profitable, and there must be no accumulated losses up to the year of registration of the offering, no overdue debts payable for more than one year;
  • Having a plan for issuance and a plan for use and repayment of loan proceeds from the offering approved by the Board of Directors or the Board of Members or the company’s owner;
  • There is a commitment to fulfil the issuing organization’s obligations to investors regarding conditions for issuance, payment, assurance of lawful rights and interests of investors and other conditions.

(iii) Specific conditions for the public offering of securities:

Depending on each specific case, the public offering of securities may also meet specific conditions specified from Article 12 to Article 21 and Article 23 of Decree No. 58/2012/ND-CP and Decree No. 60/2015/ND-CP. For example, in the case of the public offering of stocks to establish a high-tech enterprise, the company must meet the following conditions:

  • Being an enterprise in the high-tech sector encouraged to invest under the provisions of law;
  • Being an enterprise in the high-tech sector encouraged to invest under the provisions of law;
  • There is a commitment of joint responsibility of the Board of Directors or the founding shareholders for the issuance plan and the plan to use the capital gained from the offering;
  • Having a guarantee of issuance under a form of firm commitment with a securities company licensed to operate in the domain of underwriting securities issuance;
  • Having a bank to supervise the use of the capital gained from the offering;
  • There is a commitment of the Board of Directors or the founding shareholders to bring the company’s stocks into the centralized stock market within 01 (one) year from the date the enterprise officially commences operations.

Besides, in case of the public offering of securities on stock exchanges such as Ho Chi Minh Stock Exchange (HOSE), Hanoi Stock Exchange (HNX) or Upcom trading system, The company must also meet different conditions depending on the selection of stock exchanges under the provisions of Article 54 to Article 56 of Decree No. 58/2012/ND-CP and Decree No. 60/2015/ND-CP.