Can a foreign investor who owns 65% of charter capital control the entire operations of an LLC company? - Apolat Legal
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Can a foreign investor who owns 65% of charter capital control the entire operations of an LLC company?

Currently, many foreign investors enter joint ventures with Vietnamese investors at a rate of 65% to control all company operations. However, is 65% a ratio that can control all company operations without being influenced by Vietnamese investors? 

1. General powers of company members 

Capital-contributing members in the Company will have the following basic rights:  

  • Attending meetings of the Board of Members, discussing, making recommendations, and voting on issues within the authority of the Board of Members; 
  • Having several votes corresponding to the capital contribution; 
  • Receiving profits in proportion to the capital contribution after the Company has fully paid taxes and fulfilled other financial obligations according to the provisions of law; 
  • To be divided in the value of the Company’s remaining assets corresponding to the capital contribution when the Company is dissolved or goes bankrupt; 
  • Priority to contribute more capital to the Company when the Company increases its charter capital;
  • Disposing of your capital contribution by partial or complete transfer, donation, and other forms according to the provisions of law and the Company’s Charter; 
  • On your own or on behalf of the Company, initiate a civil liability lawsuit against the Chairman of the Board of Members, Director or General Director, legal representative, and other managers; 
  • Other rights according to the Enterprise Law and the Company’s Charter provisions. 

2. The rights of members holding 65% of charter capital affect the Company

In addition to the above basic rights, members holding 65% of charter capital will impact the Company’s operations as follows: 

2.1 Influence on members’ council meetings  

  • A meeting of the Board of Members is conducted when the number of attending members owns 65% or more of the charter capital; The company charter prescribes the specific rate. 
  • In case the first meeting of the Board of Members does not meet the conditions to proceed and the Company Charter has no other provisions, the convening of the Board of Members meeting is carried out as follows: 
    • The notice inviting the second meeting must be sent within 15 days from the intended date of the first meeting. The second meeting of the Board of Members is conducted when the number of attending members owns 50% or more of the charter capital;
    • In case the second meeting of the Board of Members fails to meet the conditions to proceed as prescribed in point a, the notice inviting the third meeting must be sent within ten days from the intended date of the second meeting. The third meeting of the Board of Members is conducted regardless of the number of members attending the meeting and the amount of charter capital represented by the number of members attending the meeting.

Thus, Members holding 65% of the charter capital can consider the content and agenda of the meeting and decide whether to participate in the Board of Members meeting or not. This is also an advantage for members holding 65% of charter capital if they do not want to approve an issue proposed by a member holding less than 35% of charter capital. However, non-attendance only prolongs the organization of the Board of Members meeting. The Board of Members meeting will still be held even if the member holding 65% of the charter capital does not participate in the third meeting 

2.2 Pass resolutions and decisions of the Board of Members

  • Resolutions and decisions passed by the Board of Members at the meeting:
    • Be approved by attending members who own 65% or more of the total capital contribution of all attending members, except for the case specified in Point B of this Clause;
    • Approval of resolutions and decisions on the following issues by attending members owning 75% or more of the total capital contribution of all attending members: 
      • selling assets with a value of 50% or more of the total asset value recorded in the Company’s most recent financial report or another smaller percentage or value specified in the Company’s Charter; 
      • amend and supplement the company charter; 
      • reorganize the Company; 
      • Dissolution of the Company. 

Thus, for members holding 65% of charter capital, it is only possible to approve issues such as changing business lines, company charter capital, business plan, electing, dismissing, and dismissing the Chairman. Chairman of the Board of Members; appoint, relieve from office, dismiss the Director or General Director; Through annual financial reports…  

  • Resolutions and decisions of the Board of Members are passed in written opinions when approved by the number of members owning 65% or more of the charter capital. The company charter prescribes the specific rate. 

Suppose the company charter does not have other provisions. In that case, the Chairman of the Board of Members shall decide to collect written opinions of members of the Board of Members to pass resolutions and decide on issues within his authority. 

Thus, to determine the form and rate of approval of the Company’s issues, the Board of Members needs to agree and specifically stipulate in the Charter for convenience during operations. 

3. Rights of group members owning 35% or less of charter capital 

In addition to the basic rights stated in Section 1 above, groups of members owning 10% or more of charter capital will have the following rights: 

  • Request to convene a meeting of the Board of Members to resolve issues within its authority;
  • Check, review, look up records, and monitor transactions, accounting books, and annual financial reports; 
  • Check, review, look up, and copy the member registration book, meeting minutes, resolutions, decisions of the Board of Members, and other documents of the Company; 
  • Request the Court to annul resolutions and decisions of the Board of Members within 90 days from the end of the meeting of the Board of Members if the order, procedures, meeting conditions, or resolution content, That decision is not implemented correctly or is inconsistent with the provisions of the Enterprise Law and the Company’s Charter. 

From the above analysis, members holding 65% of charter capital can only control the Company in some instances. The Board must approve all Members’ issues, and depending on the issue, members holding 65% of the charter capital have the right to approve. 

However, in some cases, members holding 65% of charter capital can only approve if members holding 65% of charter capital disagree with the proposal of the group of members holding 35% of capital; if the Charter is lower, the member council’s decision will not be approved. 

This is also the advantage of the group of members holding 65% of the charter capital, not being approved but having the right to veto issues at the Board of Members meeting. 

In addition, before cooperating with Vietnamese investor groups, foreign investors should consider reaching an agreement and drafting a charter to protect the interests of the foreign investor group in case the investor group Foreign investors are the parties that invest capital and manage all operations of the Company. 

The Company’s Charter is a valuable legal document for the parties to follow when a dispute occurs and to help members comply during operations.  

Above are some things to remember when foreign investors conduct joint ventures in Vietnam. 

Disclaimers:

This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.

For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.

Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Business and Investment  and contact our team of lawyers in Vietnam via email info@apolatlegal.com.

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