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Legal regulations on joint stock companies

11/10/2021
The joint stock company and the legal regulations on it are relatively complicated, requiring investors to master. This type of business is quite common in Vietnam because it can raise charter capital from many shareholders to meet business goals and improve the size and quality of the business.

1. What is a Joint stock company?

According to Clause 1 Article 111 of Law on Enterprise 2020, a joint stock company is an enterprise in which:

  • The charter capital is divided into units of equal value called shares.

  • Shareholders can be organizations and individuals; the minimum number of shareholders is 03; there is no limit on the maximum number of shareholders.

  • A shareholder’s liability for the company’s debts and liabilities is equal to the amount of capital contributed to the company by the shareholder.

  • Shareholders may transfer their shares to other persons except for the case of transfering of ordinary shares of founding shareholders in the first 3 years after the establishment.

  • A joint stock company has the status of a juridical person from the day on which the Certificate of Enterprise Registration is issued.

  • A joint stock company may issue shares, bonds and other kinds of securities.

2. Organizational structure of joint stock company

According to Clause 1, Article 137 of the Enterprise Law 2020, a joint-stock company has the right to choose one of the following two organizational models:

Model 1

Model 2

- General Meeting of Shareholders (GMS).

- Board of Directors.

- Board of Controller and Director/General Director.

- General Meeting of Shareholders (GMS).

- Board of Directors.

- Director/General Director.

Note: In case the company has less than 11 shareholders and the shareholders are organizations holding less than 50% of the total shares of the company, it is not required to have a Board of Controllers.

Note: At least 20% of the members of the Board of Directors shall be independent members and there has to be an audit committee affiliated to the Board of Directors.

3. Types of shares

A joint-stock company has two types of shares: ordinary shares and preference shares. Ordinary shares are required, in addition, a joint stock company may have preference shares.

Preference shares include:

  • Participating preference shares.

  • Redeemable preference shares.

  • Super-voting shares.

  • Other types of preference shares prescribed by the company’s charter and securities laws.

In which, only organizations authorized by the Government and founding shareholders are entitled to hold super-voting preference shares for the first 3 years after establishment. At the end of that time limit, the super-voting preference shares of the founding shareholders shall be converted into ordinary shares.

4. Advantages and disadvantages of joint stock company

Advantages

Disadvantages

- Joint stock company is a type of enterprise with limited liability, so the level of risk is not high;

- Large scale of operation, unlimited maximum number of shareholders, favorable for business expansion;

- High ability to raise capital through stock issuance - these are outstanding advantages of this type of business compared to other types.

- The company has a high degree of independence between the manager and the owner, the management will be more effective.

- The number of shareholders can be very large, the management and administration of the company is relatively complicated, especially in the case of the appearance of groups of shareholders with opposing interests;

- Business and financial confidentiality is limited because the company must disclose and report to shareholders.


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CÔNG TY SIGLAW
Headoffice in Hanoi:
Address: Floor 12A Sao Mai building, No. 19 Le Van Luong street, Nhan Chinh Ward, Thanh Xuan District, Hanoi.
Hotline: +84 967 818 020
Email: hanoi@siglaw.vn
 
Ho Chi Minh City Branch:
Address: 21 N4 street, Commercial service and housing complex at No.16/9 Bui Van Ba street, Tan Thuan Dong Ward, District 7, Hochiminh city.
Hotline: +84 985 982 659
Email: hcm@siglaw.vn
 
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