Some Matters That Have Not Been Clearly Specified Related To The Transfer Of Voting Preference Shares Of Founding Shareholders Within 03 Years From The Date Of Establishment

Voting preference shares are one of the special types of shares in a joint stock company because it has more votes than ordinary shares to give its owners special control over the company. Especially, it enhances the right to dominate the company for shareholders who do not own enough shares to dominate, control but they want to dominate the company. Accordingly, founding shareholders are entitled to hold voting preference shares so that they can dominate the company and easily carry out their business ideas even when there is not enough capital to dominate, control.

According to Clause 3 Article 119 of the 2014 Law on Enterprises, within 03 years from the issuance date of the Enterprise registration Certificate, the right to transfer shares of founding shareholders is prescribed as follows:

  • Founding shareholders may transfer their shares to other founding shareholders; and
  • They may transfer their ordinary shares to people other than founding shareholders if approved by the General Meeting of Shareholders.

Accordingly, there are two issues that the Law on Enterprise 2014 has not specified clearly regarding the transfer of voting preference shares within 03 years from issuance date of the Enterprise registration Certificate as follows:

1| Are the voting preference shares of founding shareholders transferred to other founding shareholders?

Clause 3 Article 116 of the Law on Enterprise 2014 stipulates that “shareholders of voting preference shares must not transfer such shares to other persons.”. Accordingly, it can be understood that the case of founding shareholders owning voting preference shares will also not transfer them to anyone including other founding shareholders.

However, according to Clause 3 Article 119 of the Law on Enterprises 2014 stipulates that “Within 03 years from the issuance date of the Enterprise Registration Certificate, founding shareholders may transfer their shares to other founding shareholders; they may transfer their ordinary shares to people other than founding shareholders if approved by the General Meeting of Shareholders…”. In this regulation, there is a difference between shares that a founding shareholder is permitted to transfer in the case of 03 years from issuance date of the Enterprise registration Certificate for other founding shareholders and people other than founding shareholders. Because in the case of transfer to another shareholder other than the founding shareholder, only ordinary shares can be transferred, which is consistent with the provisions of Clause 3, Article 116 of the Law on Enterprises 2014. Meanwhile, shares that founding shareholders are free to transfer to other founding shareholders, the Law on Enterprise 2014 only stipulates a general “shares” without clearly defining the type of shares to be transferred like the case of transfer to people who are not founding shareholders. Such the provision would give those who apply the law an inconsistent interpretation, some may misunderstand that voting preference shares will also be freely transferred to other founding shareholders if the provisions on transfer of shares of founding shareholders to other founding shareholders are provided in such a general way and this interpretation will not be consistent with the provisions of Clause 3, Article 116 of the Law on Enterprises 2014.

Therefore, the law needs to be amended in the following direction to have a more unified understanding, accordingly, shareholders can easily know their rights or limitations so that they can be better applied:

Within 03 years from issuance date of the Enterprise registration Certificate, founding shareholders may transfer their shares to other founding shareholders(except voting preference shares)…

2| If the founding shareholder transfers all his/her shares to another shareholder who is not the founding shareholders in the company, how will the voting preference shares be handled?

Clause 3, Article 119 of th eLaw on Enterprises 2014 stipulates that within a period of 03 years from the date of issuance of the Enterprise registration Certificate, founding shareholders may only transfer ordinary shares to people other than founding shareholders if approved by the General Meeting of Shareholders. With such provision, it will make it difficult for founding shareholders who own preferred voting stocks in case of transferring all shares to other people who are not founding shareholders within 3 years from the date of issuance of the Enterprise registration Certificate because then only ordinary shares can be transferred, and voting preference shares are not transferable. Only after 03 years do these voting preference shares cease to be converted into ordinary shares as prescribed in Clause 3 Article 113 of the Law on Enterprises 2014 can they be transferred.

And with the analysis in Section 1 above, this not only makes it difficult for founding shareholders to transfer their entire shares to other non-founding shareholders but also the entire transfer of shares. his share to other founding shareholders.

As such, there is no provision to resolve preferred voting shares of founding shareholders in the case of transfer within a period of 03 years is a defect of the law that needs to be improved. Because voting preference shares only make sense when their owners need to hold the right to decide, manage and run the company. In the case that they have transferred the whole thing and do not want to take over management rights, the preferred voting stock is then no longer meaningful and true to its nature, so it is necessary to have regulations. handling preferred shares in this case to ensure the interests of their owners.

Therefore, in order to resolve the preferred voting shares of founding shareholders when they want to transfer their entire shares to others (other founding shareholders and other non-founding shareholders) in within 03 years from the date of issuance of the Enterprise registration Certificate, it is necessary to amend by separating the phrase “After this period, voting preference shares of founding shareholders shall be converted into ordinary share” in Clause 3 Article 113 of the Law on Enterprise 2014 should be amended and supplemented into another clause in Article 113 as follows:

Voting preference shares of founding shareholders will be converted into ordinary shares when the founding shareholders transfer their entire shares to others or after 03 years from the date of issuance of the Certificate. business registration.

 

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.

Share: share facebook share twitter share linkedin share instagram

Find out how we can help your business

SEND AN ENQUIRY

    Send Contact
    Call Us
    Zalo
    This site is registered on wpml.org as a development site.