Under the laws of Vietnam, the Company’s Charter is considered as a written agreement amongst Shareholders on the management and administration of the Company, including main contents such as organizational and management structure, rights and obligations of Shareholders, profit-sharing principles, and losses handling principles in business, approval procedures of the company’s decision… The laws of Vietnam also do not require signing any more agreements or documents to regulate the relationship amongst the Shareholders in the Company.
However, under M&A transactions, Investors and Existing Shareholders normally negotiate key terms specific to each transaction and terms outside the scope of the Company’s Charter. Therefore, the parties signed an additional Shareholders Agreement (“Shareholders Agreement”) and amended the Company’s Charter to be consistent with the contents of the Shareholders Agreement simultaneously.
See more: M&A structures, advantages, and disadvantages of each type.
The following are some of the terms of the Management Organization that Investors and Existing Shareholders often negotiate:
1. General Meeting of Shareholders
The General Meeting of Shareholders, consisting of all shareholders with voting rights, is the highest decision-making body of the Company. Under the Law on Enterprise, the meeting of the General Meeting of Shareholders shall be conducted when:
- Where the number of attending shareholders represents more than 50% of the total number of voting slips for the first meeting.
- Where the first meeting is unable to be conducted, the second meeting shall be conducted where the number of attending shareholders represents at least 33% of the total number of voting slips.
- Where the second meeting is unable to be conducted, the third meeting shall be conducted irrespective of the total number of voting slips of shareholders attending the meeting.
Upon the ownership rate in the Company, the Investor can consider and negotiate to change the above ratio in the direction of increasing. For example, if the Investor’s ownership rate of voting shares in the Company is 40%, the Investor will require the first meeting must have at least 75% of the total number of voting slips and the second meeting must have at least 65% of the total number of voting slips to ensure that the decisions of the General Meeting of Shareholders will not be passed without the Investor’s approval.
Unless the meeting of the General Meeting of Shareholders approves contents that adversely change the rights and obligations of shareholders owning preferred shares or election of members of the Board of Management and the Inspection Committee under the form of cumulative voting…, resolutions of the General Meeting of Shareholders are passed when:
- If the number of shareholders representing at least 65% of the total number of voting slips of all shareholders attending and voting in favor of the following issues in the meeting: Classes of shares and the total number of shares of each class; Change of business lines and business sectors; Change of the organizational and management structure of the company; Investment project or sale of assets valued at least 35% of the total value of assets recorded in the most recent financial statements of the company; Re-organization or dissolution of the company (“Extreme Important Issues”).
- If the number of shareholders representing at least 50% of the total number of voting slips of total shareholders attending and voting in the favor of other issues other than the above issues in the meeting (“Important Issues”).
Upon the ownership rate, the Investor may consider and negotiate to change the above ratio in the direction of increasing. For the same example that the Investor owns 40% of the voting shares, the Investor can negotiate a change from 75% to pass the Extreme Important Issues and from 65% to pass the Important Issues.
In addition, the Investor may list additional issues that are considered extremely important and make an addendum in the Shareholders Agreement. To pass these issues, the Investor is required to participate in the meeting of the General Meeting of Shareholders (regardless of how many times the meeting is convened), and/or the Investor’s approval is required.
2. Board of Management
The Board of Management is the body managing the company and has full authority to make decisions on behalf of the company and exercise the rights and obligations of the company, except for those within the authority of the General Meeting of Shareholders. The following terms regarding the Board of Management are often agreed upon by the Shareholders:
- Shareholders are entitled to agree on the number of members of the Board of Management ranging from 03 to 11 members and the resolution of the Board of Management is passed when a majority of the members attending the meeting agree. To limit the case of equal votes, the Chairman of the Board of Management will make the final decision, the number of members of the Board of Management is usually chosen as an odd number.
- Upon the ownership rate and the number of members of the Board of Management, the Investor will request to appoint one or several members of the Board of Management to participate in and decide important issues of the company. Although the Board of Management is elected by the General Meeting of Shareholders in the form of cumulative voting, if signing the Shareholders Agreement, the Shareholders must arrange to meet the appointment of members of the Board of Management as agreed.
In addition, the Investor can list additional issues that are considered important and make an addendum in the Shareholders Agreement. To approve these issues, the members of the Board of Management appointed by the Investor are required to participate in the meeting of the Board of Management, and/or the approval of the members of the Board of Management appointed by the Investor is required.
3. Inspection Committee
To supervise the Board of Management and the Director concerning the management and administration of the company. Simultaneously inspect and evaluate the business reports and annual financial statement; To review contracts and transactions with a related person which fall within the approval authority of the Board of Management of the General Meeting of Shareholders… The following terms regarding the Inspection Committee are often agreed upon by the Shareholders:
- Shareholders are entitled to agree on the number of members of the Inspection Committee ranging from 03 to 05 members, the number of members of the Inspection Committee is usually determined under the scale and business sector of the company.
- Upon the evaluation of the Company’s operation, the Investor will request to appoint one or several members of the Inspection Committee to inspect and supervise all activities of the Company. Although the Inspections Board is elected by the General Meeting of Shareholders in the form of cumulative voting, if signing the Shareholders Agreement, the Shareholders must arrange to meet the appointment of members of the Inspection Committee as agreed.
4. Director
In M&A transactions, the Investor often requires the Director (also an Existing Shareholders) to continue working at the Company for a certain period from the date of receipt of investment capital (3 years or 5 years), to ensure that the Company’s business activities are performed as planned. Or in other cases, the Investor will allow the Existing Shareholders, who have managed and operated the Company for a long time, to appoint a Director or replace him/her in the favor of the Company.
In addition, under the laws of Vietnam, the legal representative plays an important role in representing the Company to participate in transactions and sign business contracts. Upon the Company’s Charter, the legal representative may be the Chairman of the Board of Management or the Director, the number of legal representatives may be more than 01 individual. Normally, the Director will be the legal representative of the Company.
5. Chief Accountant
The Chief Accountant plays an extremely important role in the review of expenses and is often the signatory of the Company’s payment orders. The Chief Accountant is responsible for assessing the reasonableness and validity of the expenditures, ensuring the maintenance of the Company’s operation without wasting, and preserving the investors’ capital and profits. Therefore, Investors often request the right to appoint the Chief Accountant of the Company. When receiving the notice of appointment of the Chief Accountant of the Investor, the Board of Management or the Director must sign documents and files to legally appoint the Chief Accountant.
Upon the Investor’s investment plan in the Company and the agreement between the Investor and Existing Shareholders, the above contents will be changed accordingly. The parties need to consider the legal terms, arrange the organizational structure, and appoint personnel for each position carefully, especially connect the terms to form a unified whole to protect its interests.
Disclaimer: This article is for general information only and is not a substitute for legal advice. Apolat Legal is a Vietnamese law firm with experience and capacity to advise on matters related to M&A Consulting, International Commercial & Trade, Business and Investment. Please click here to learn more about our services and contact our lawyers in Vietnam for advice via email info@apolatlegal.com.
