Asia Counsel In-Depth
New Law On Enterprises
On 17th June 2020, the National Assembly of the Socialist Republic of Vietnam adopted the Law on Enterprise No. 59/2020/QH14 (“New LOE”), which will come into effect from 1 January 2021. The New LOE will replace the current Law on Enterprise No. 68/2014/QH13 dated 26 November 2014 (“Current LOE”). This insight provides a brief summary of the key changes to be brought in by the New LOE.
Single-member LLC (SLLC)
The New LOE removes the requirement for a SLLC to have an inspector if the SLLC is owned by an organisation, unless the SLLC is a state-owned enterprise.
The New LOE also requires that at least one legal representative of a SLLC owned by an organisation must be the chairman of the members’ council, the company chairman or the director/general director; and if the charter of the SLLC does not have any other relevant provision, the chairman of the members’ council or the company chairman will be the legal representative of the company.
Voting in the members’ council (MC)
It should be noted that under the Current LOE, passing a MC’s resolution in a SLLC is determined based on the number of attending members. However, taking into the consideration that the owner of the SLLC may want to assign more voting power to certain MC members, the New LOE will allow a resolution to be passed depending on the number of votes that the MC members are assigned by the owner.
In this regard, the resolution of the MC in a SLLC is passed if:
• it is approved by more than 50% of the attending members OR approved by those attending members who hold more than 50% of the votes;
• in terms of resolution on charter amendment, re-organisation of the company, partial OR whole assignment of the charter capital, it is approved by at least 75% of the attending members OR approved by those attending members who hold 75% of the votes or more.
Multi-member LLC (MLLC)
At least one of the legal representatives must be the chairman of members’ council or director/general director of that MLLC; and if its charter does not contain any other relevant provision, the chairman of the members’ council will be the legal representative of the company.
If a capital contribution member fails to contribute its charter capital within 90 days after the issuance of an enterprise registration certificate, the MLLC must register a charter capital reduction within 30 days, instead of 60 days under the Current LOE, after the expiry of the 90-day period.
If the meeting minutes are not signed by the chairman or the secretary of an MC, the meeting minutes may still be valid if it is signed by all the other attending members and includes all the required contents under the law.
Capital handling in special cases
In case a member of an MLLC is declared to be missing, the New LOE clarifies his/her rights and obligations will be performed by his/her asset manager (instead of his/her asset manager automatically becoming a member in his/her place under the Current LOE).
If a member becomes incapacitated, his/her rights and obligations will be performed by his representative (instead of his guardian under the Current LOE).
Joint Stock Company (JSC)
The chairman of the Board of Management (“BOM”) of a state owned JSC is not allowed to concurrently hold the title of
director/general director of that JSC.
Independent member of the BOM
Under the New LOE, an individual is elected as an independent member of the BOM for no more than two consecutive office term, while the Current LOE does not provide any limitation.
A shareholder or a group of shareholders holding 5% or more of the common shares, or a lower percentage provided by the charter of the company is entitled to a number of rights including request the convening of a general meeting of shareholders or to request the inspection committee to investigate the management of the company. Under the Current LOE this threshold is 10% and requires the shareholder to own shares in the company for more than 6 months.
An ordinary resolution is passed if more than 50% of eligible shareholders attending the meeting, approves the resolution. Under the
Current LOE this threshold is 51%.
Holders of preference shares
Preference shareholders are now permitted to vote in any resolution that causes adverse changes to their rights and obligations. Such resolution will only be passed if it is approved by the shareholders holding at least 75% of the respective preference shares. Under the Current LOE, the preference shareholders (except for voting
preferred shareholders) have no voting rights.
Non-Voting Depositary Receipt
The New LOE introduces the concept of ordinary shares with no voting rights, which are called non-voting depositary receipt (NVDR). Although there is no definition of NVDR under the New LOE, it is stipulated that ordinary shares which are used as an underlying asset to issue a NVDR are called underlying ordinary shares. NVDR gives its holder the economic interests and obligations corresponding to the underlying ordinary share, except for voting right. Given it is unclear how the NVDR will be implemented, it is expected there will be further guiding legislations on this scheme.
Private bond placement
The New LOE provides regulations on conditions and procedures for offer and transfer of private corporate bonds. A JSC wishing to offer bonds through a private placement must satisfy a number of conditions including: (i) an audited financial statement for the preceding year; (ii) no outstanding due debt within 3 years prior to the offer of bond; (iii) maintaining the safety ratio as provided under relevant law. The GMS and BOM must approve the proposal for offer of the bond and must publicize the information prior
and after the offer of bond to the stock exchange.
Pursuant to the Current LOE, “State owned enterprise” means an enterprise in which the State holds 100% of the charter capital. This definition has been changed under the New LOE, where an enterprise is considered as a State-owned enterprise if it has more than 50% of its charter capital or shares with voting rights owned by the State. As such, a state-owned enterprise can either be a single-member LLC, a multi member LLC, or a joint-stock company under the New LOE.
Seal specimen registration
Under the New LOE, an enterprise is no longer required to notify its seal specimen to the business registration authority before use. The New LOE also officially recognizes the digital signatures provided under the Law on Electronic Transactions as a type of corporate seal and have the same legal validity as the traditional seal.
Notification of managers
An enterprise is no longer required to make notification to the business registration authority of any change on the name, address, nationality and identification information of a board member, the inspector or the inspection committee member.
Business temporary suspension
An enterprise must notify the business registration authority in writing no later than three business days before the date of business temporary suspension, instead of 15 days as per the Current LOE.