1. Shareholder rights

Shareholder rights can be understood as shareholders’ rights that arise when owning shares of a joint-stock company, shareholders are the owners of their shares in the company. Including: Property rights include the right to receive dividends (share interest), the right to divide the remaining assets when the company terminates operation, the right to freely transfer shares, the right to register to buy new shares…; Political rights (participation in management) include the right to attend the general meeting of shareholders, the right to stand for election, election, voting, the right to provide information …; The right to proceed is to exercise the right to initiate lawsuits on behalf of oneself or the company to initiate lawsuits to cancel resolutions of the general meeting of shareholders, initiate civil liability lawsuits against managers and operators of the company.

2. Current situation and causes leading to infringement of shareholders’ rights

Vietnam’s stock market has been experiencing conflicts of rights and interests among shareholders. In particular, a large part of shareholders dominates and holds a majority of shares, leading to shareholders’ interests in some joint-stock companies may be violated by the profiteering behavior of some large shareholders, small shareholders will be the most disadvantaged. One of the typical examples of small shareholders’ interests being disadvantaged is the situation of bad companies causing accumulated losses for many years. As a result, the stock depreciated so much that small shareholders could not sell or were forced to sell at almost lost prices.

The risk of abuse of power by company managers is also a matter of concern today. The separation between ownership and management rights is one of the causes of infringement on the rights and interests of shareholders. Managers may conduct transactions that are detrimental to the interests of the company and shareholders, even misappropriation of shareholders’ interests. For example, using the company’s assets for personal gain through overpaying salaries, buying company assets at bargain prices, borrowing company capital at interest rates lower than market interest rates, raising the contract value of renting offices, warehouses …

The dominance of large shareholders over small shareholders. The rights of shareholders correspond to the amount of capital contributed to the company. Therefore, shareholders who contribute a lot of capital (have many shares) will have more advantages for company management. With the principle of passing normal management decisions when more than half of the voting shares at the General Meeting of Shareholders approve, shareholders holding few voting shares are “inferior”. The right to the management of the company belongs to a small number of major shareholders. On the one hand, when small groups of shareholders dominate the company’s operations, they will have an incentive to maximize the company’s value for their own benefit. On the other hand, the benefits from the company’s business are likely to be unfairly distributed to the majority of small shareholders, the abuse of power by the dominant group of shareholders is likely to harm the remaining small shareholders.

Therefore, it is necessary to develop shareholder protection mechanisms in joint-stock companies to enhance management efficiency, promote company operations and economic growth.

3. Methods of protecting shareholders’ rights

The first is self-protection

Facing acts of infringement or threats of infringement on legitimate rights and interests, shareholders before asking for help from other institutions need to stand up for themselves. Shareholders can by themselves or through their legal representatives request the above subjects to stop the violation.

The second is through internal institutions:

– The General Meeting of Shareholders, consisting of all shareholders with voting rights, is the highest decision-making body. The rights and obligations of the General Meeting of Shareholders are recognized in Clause 2, Article 138 of the Enterprise Law 2020. These powers will help the General Meeting of Shareholders promote its pioneering role in ensuring the legitimate rights and interests of shareholders in the face: company development orientation along with specific business strategies and plans; Select candidates who meet the qualifications and competencies to perform the management, administration and performance of supervisory functions; Decide financial issues to ensure the legitimate interests of shareholders’ profits…

– The Board of Directors is an body elected by the General Meeting of Shareholders, with the function of managing the company; Full power on behalf of the company to exercise the rights and obligations of the company according to its competence. The director/general director is the person who runs the company’s business; subject to supervision before the Board of Directors and before law on the exercise of assigned rights and obligations. Whether the Board of Directors, the Director/General Director performs the assigned powers and obligations is the basis to ensure the interests of shareholders.

– The Enterprise Law stipulates the obligations of the Control Board in Article 170 of the Enterprise Law 2020. The Supervisory Board is elected by the General Meeting of Shareholders, has the function of supervising the Board of Directors, Director/General Director of the company and other management positions in the management and administration of the company and is responsible to the General Meeting of Shareholders. The Supervisory Board supervises on behalf of shareholders all situations related to the company’s business activities, whether the legitimate rights and interests of shareholders are violated and detected depends greatly on the work results of the Supervisory Board.

4. The provisions of law protect the rights of shareholders

Regulations on property rights groups

Firstly, on dividend payment: The current law does not deeply interfere with the payment of dividends of enterprises, but delegates full power to the General Meeting of Shareholders to decide on the approval of the dividend rate, while the payment time authorizes the Board of Directors to decide. Clause 4, Article 135 of the Enterprise Law 2020 stipulates that dividends must be paid in full within 06 months from the end of the Annual General Meeting of Shareholders. The Board of Directors shall make a list of shareholders entitled to receive dividends, determine the amount of dividends to be paid for each share…

Second, regarding the priority right to buy shares: According to the Enterprise Law 2020, shareholders are prioritized to buy newly offered shares in proportion to the existing share ownership ratio of shareholders in the company (Article 124). The Enterprise Law 2020 does not contain any provisions restricting the priority right to buy newly offered shares of existing shareholders in some specific cases. Therefore, this precedence must be construed to apply in all circumstances and not be restricted due to any conditions.

Third, about the right to request the company to buy back shares: This right to request a buyback contributes to protecting the interests of shareholders when they have a change of aspiration. The Enterprise Law 2020 stipulates that “shareholders voting against the decision on the reorganization of the company or changing the rights and obligations of shareholders specified in the company’s charter have the right to request the company to buy back their shares”.

Regulations on information rights groups

Shareholders or groups of shareholders owning 05% or more of the total number of ordinary shares or a smaller percentage as prescribed in the company’s charter have the right to review, look up and extract minutes and resolutions, decisions of the Board of Directors, mid-year and annual financial statements, reports of the Control Board, contracts and transactions must be approved by the Board of Directors and other documents (Article 115 of the Law on Enterprises 2020). This regulation expands access to information and increases shareholders’ ability to supervise transactions that need to be monitored such as transactions with related persons to limit the loss of assets and damage to the company.

Above is the content of KALF’s advice on protecting the interests of shareholders and some related legal issues. All of our above advice opinions are based on applicable legal provisions. If you have any questions or requests about legal issues, please contact us for timely answers.