What Rights Shareholder
Holds in Joint Stock Company?
Shareholders are
individual or organization that owns at least one share of the joint-stock
company and also are owner of the joint-stock company. Along with these roles,
their interests are tied to business operations although they may not directly
manage the day-to-day company affairs. In order to implement governance, the
powers and responsibilities of each interest group such as shareholders, the
board of directors, managerial personnel, etc. should be assigned based on the
statutory principles and procedures.
Litigation dispute law firm in Vietnam
According to the
regulations on shareholders in the Law on Enterprise 2020, the rights of shareholders can be categorized into the following groups: economic rights,
governance rights, information rights, and litigation rights.
Economic
rights
Economic right is the
right to gain all pecuniary interest with respect to the shares. The purpose of
starting a business or investing in securities comes mainly from earning income
or gaining profits. Economic rights accordingly include:
-Right to entitlement
to dividends
-Right to transfer
ownership
-Priority right to acquire
the newly issued shares
-Right to entitlement
to a portion of the assets after dissolution or bankrupt
-Appraisal Right
Among these above
rights, right to entitlement to dividends and right to transfer ownership are
the fundamental economic rights of a shareholder.
Dividend of common
shares is determined according to the realized net profit and the dividend
payment from the company’s retained earnings. Despite right to entitlement to
dividends, shareholders are still subject to a number of limitations in law and
in fact. Dividend entitlement is determined by the General Meeting of
Shareholders based on the recommendation of the Board of Directors, after the
company has fulfilled tax obligations and other financial obligations,
contributed to reserve fund, paid for previous losses and met the solvency for
all due debts and other property obligations. Dividend is not required to be
distributed annually. Depending on the business situation, the General Meeting
of Shareholders may decide to retain profits for reinvestment.
Besides dividend
entitlement from the company’s operating results, shareholders can also gain
profits by share transfer. This kind of investment is popular with respect of
shares or securities of public companies, investors do not aim for corporate
governance rights as well as dividend, they intend to earn benefits by the
difference of the market values of stocks, especially when the stock value
increases.
Governance
rights
Modern corporate
governance has two principles, one is to separate ownership and governance and
to separate governance and management. It means that the major shareholders
should not hold senior managerial positions in the company and Chairperson of
the Board of Directors should not be assigned to other senior managerial
positions such as General Director and/or Director.
Shareholders may be an
individual or organization which they have their own different interests, goals
and abilities. The separation between ownership and management makes the
situation of whom the owner is and how the share get transferred not to affect
the business operation. In the meantime, the separation helps gather
professional managers to implement target intended by the company. According to
the laws, members of the Board of Directors of a public company concurrently
holding several executive titles must be reduced to the minimum to ensure the
independence of the Board of Directors, specially the Chairperson of the Board
of Directors shall not be the Director/General Director in a public company as
of August 1st, 2020. There are no similar rules applicable to joint stock
companies which are not public company.
Attendance, speaking
and voting at General Meeting of Shareholders are fundamental in governance
right of common shareholders, applicable to all shareholders holding at least
one share. ty. In principle, being a shareholder who holds shares of the
company regardless of the number has equal rights to attend and vote at the
General Meeting of Shareholders. By the General Meeting of Shareholders, the
shareholders holding a certain number of shares can impact decisions on some
matters such as election, dismissal, and removal of members of the Board of
Directors and Controllers, amendment and supplementation of internal documents,
major transactions, and others as stipulated in law on enterprise or charter.
In addition to the above rights, the majority shareholders also have a number
of other rights related to governance as follows:
The shareholder or
group of shareholders holding at least 5% of the total number of common shares
(charter may require a smaller percentage) is entitled to:
-Call a General Meeting
of Shareholders
-Request Board of
Controllers to inspect each specific matter relating to management, governance of
company affairs if necessary
-Recommend matters to
be included in agenda of General Meeting of Shareholders
-The shareholder or
group of shareholders holding at least 10% of the total number of common shares
(charter may require a smaller percentage) is entitled to nominate candidates
for the Board of Directors, Board of Controllers
Information
rights
Shareholders have the
right to access documents and information of the company. In addition to the
basic documents such as the charter, list of shareholders, meeting minutes and
resolutions of the General Meeting of Shareholders, shareholders have the right
to access to reports related to the business affairs.
However,
some information is only reviewed by shareholders who own required percentage
of share:
-Access and extract
information on full name and contact address as specified in list of
shareholders having voting right and list of shareholders having right to
attend General Meeting of Shareholder; request to adjust his/her inaccurate
information
-Access, extract and
scan charter of company, meeting minutes of General Meeting of Shareholder and
its resolution
-Access, extract and
copy partial or whole list of involved persons and their contracts, transaction
of which the company is other party, interests of Board of Directors,
Controllers, Directors or General Directors and other managerial positions of
company
-Access and extract
minutes and resolutions of Board of Directors, annual or mid-year financial
reports, reports of Board of Controllers, contracts and transaction approved by
Board of Directors and other documents, excepting for documents related to
company’s know-how and trade secrets (applicable to shareholder and group of
shareholders who own at least 5% of total number of common shares, the charter
may require a smaller percentage)
-Access profit and loss
statements, finacial reports, governace and management assement reports;
inspection reports of Board of Controllers (applicable to shareholder who own
shares at least 1 consecutive year, the charter may require a smaller
percentage)
Different to common
joint stock company, a public company must annouce fully, accurately and
promptly the periodic and extraordinary information on business, finance and
governace. Other information must be annouced if it influences share price and
investment decisions of shareholders and investors.
Litigation
rights
The Law on Enterprises
has provided a mechanism to request the Court or Arbitration to rescind the
resolution of the General Meeting of Shareholders or sue the managerial
personnels when they fail to fully and properly implement their tasks,
including:
The shareholder or
group of shareholders holding at least 5% of the total number of common shares
(charter may require a smaller percentage) is entitled to:
-Request to rescind
resolutions of the General Meeting of Shareholders when the orders and
procedures of calling the meeting and making resolution of the General Meeting
of Shareholders seriously violate the regulations of the Law on Enterprises and
company’s charter
-However, the
resolution of the General Meeting of Shareholders adopted by 100% of the total
number of voting shares is legal and effective even when the orders and
procedures of calling the meeting and adopting such resolution violates regulations
of the Law on Enterprises and company’s charter.
-Request to rescind
resolutions of the General Meeting of Shareholders when its provisions violates
the laws or company’s charter
-The shareholder, group
of shareholders holding at least 1% of the total number of common shares is
entitled to:
-Sue members of Board
of Directors, Directors, General Directors separately or jointly under certain
circumstances
The Chairperson of
Board of Directors or the Director or General Director usually acts as the legal
representative of the company, representing the company to perform rights and
obligations arising from the company’s transactions, representing the company
to take proceedings before the court or arbitrator. However, when their
interests conflict with those of the shareholders, shareholders have the right
to initiate a lawsuit claiming benefits or compensation. The Law on Enterprise
also permits shareholders to sue on behalf of the company when the above
managerital personnels commit violations, causing damage directly to the
company and indirectly to shareholders.
Not all shareholders
have the right to sue for the above managerial personnels, only those who own
at least 1% of the total number of common shares. This restriction makes sense
with respect of public companies, in order to eliminate unfair competition
actions conducted by minority shareholders who is controlled by the rival
companies because amount of 1% in public company is not a small number.
Similar to a lawsuit
against a manager, shareholder or group of shareholders is also required to own
at least 5% of the total number of common shares to request rescission of the
resolution of the General Meeting of Shareholders if there is violation on
substantive law and procedural law. Accordingly, all resolutions of the General
Meeting of Shareholders violating the substantive laws or the company’s charter
are rescinded at the request of shareholders, but only serious procedural
violations may be rescinded. There is no specific instructions for serious
procedural violations at this time, the assessment will depend on personal
perspective of the court and arbitrator.
In order to seek further advice, please contact us
at ant@antlawyers.vn or call + 84 912 817 823. ANT Lawyers,
your law firm in Vietnam.
