The new Law on Enterprises No. 59/2020/QH14 (“LOE 2020”) was passed by the National Assembly of Vietnam on June 17, 2020 and will take effect from January 1, 2021.  

The objectives of the LOE 2020 are to (i) promote private sector and efficiency of state-owned enterprises, (ii) improve the business environment and national competitiveness, and (iii) reduce the administrative costs payable by enterprises.  

We set out below some key changes under the LOE 2020. 

1.   Definition of State-Owned Enterprise (“SOE”) 

The LOE 2020 has broadened the definition of SOEs and divided SOEs into two groups based on the State ownership percentage.  Pursuant to the LOE 2020, SOEs include (i) enterprises with 100% charter capital held by the State (as provided under the current Law on Enterprises 2014 (“LOE 2014”)) and (ii) enterprises with more than (not including) 50% (but less than 100%) charter capital/voting right held by the State.  Separate regulations on corporate governance will be applied to each group of SOEs to ensure the efficient management of State-owned capital in these SOEs.  

2.   Right of Shareholders 

Under the LOE 2014, only shareholders or groups of shareholders which hold at least 10% of the total common shares (unless the charter provides a lower threshold) for six consecutive months are allowed to take part in the management activities of the target company, such as nominating candidates to be selected to the management board and the controllers committee or accessing internal documents of the company (i.e., management resolutions, financial statements and accounting books).  

The LOE 2020 strengthens the rights of the minority shareholders as follows: 

1. Right to nominate candidates to be selected to the management board and the controllers committee: This right is granted to shareholders or groups of shareholders which hold at least 10% of the total common shares (unless the charter provides a lower threshold) but the condition of holding 10% shareholding for six consecutive months was removed; and 

2. Other rights including right to access to the internal documents of the company (i.e., management resolutions, financial statements and accounting books), right to request to convene the general meeting of shareholders in special cases and right to request the board of controllers to review irregularities of the company management: These rights are granted to the shareholders or groups of shareholders holding 5% or more of the total common shares (unless the charter provides a lower threshold), which under the current LOE 2014 are only available to those holding 10% or more of the total common shares.  The reduction to 5% shareholding under the LOE 2020 aligns with the definition of a major shareholder under the Law on Securities and provides better protection to minority shareholders in non-public companies.  

3.   Private Placement of Bonds by Non-Public Companies 

Under the current LOE 2014 and Decree No. 163/2018/ND-CP (issued in December 2018) on issuance of corporate bonds, non-professional securities investors such as individuals and companies are permitted to subscribe for corporate bonds issued by private companies.  The LOE 2020 provides stricter regulations over the private placement of bonds by non-public companies.  As a result, only professional securities investors (i.e., banks and securities companies) and strategic investors may subscribe for corporate bonds issued by non-public companies.  

4.   Payment for Capital Transfer Transaction 

The LOE 2014 requires all payments for the capital/share transfer of foreign investors in a foreign-invested company to be made via the company’s onshore capital account.  However, the recently promulgated Circular No. 06/2019/TT-NHNN on forex control over direct investment in Vietnam allows payments for capital/share transfer in a foreign-invested company between two offshore investors to take place via their offshore accounts.  

The LOE 2020 ends this inconsistency by providing that payments for the capital/share transfer transaction to be made in accordance with the forex control regulations.  

5.   Legal Representative of Enterprises 

Under the LOE 2014, an enterprise may have multiple legal representatives.  The LOE 2020 sheds more light on this issue.  The rights and obligations of each legal representative in representing the enterprise are required to be provided under the enterprise’s charter.  If an enterprise fails to do so in its charter, each legal representative will be deemed to be the competent legal representative of the enterprise before any third party in all matters and shall be jointly and severally liable for any damage (caused by any of the legal representatives) to the enterprise.  

6.   Time-Limits for Capital Contribution In-Kind 

Under the LOE 2020, the time limit for the charter capital contribution remains 90 days from the issuance date of the enterprise registration certificate.  However, the time for transportation, import and completing other administrative procedures to transfer the ownership of assets to the company will not be counted to the 90-day limit if the capital contribution is to be made in-kind.  
 

7.   Report on Change of Enterprise Managers’ Information 

The LOE 2020 abolishes the obligation to report to the licensing authorities when there is any change in respect of information of the enterprise managers (e.g., members of the management board of a JSC, members of the controller committee or controller, director/general director if he/she is not the legal representative of the company).  

8.   Seal 

It is no longer required for an enterprise to notify its seal to the licensing authorities before putting the seal in use.  The enterprise is at its discretion to determine the type, number, form and content of its seal.  The LOE 2020 also recognizes two types of seal being (i) the physical seal and (ii) the digital signature in accordance with the laws on electronic transactions.  

[Korean version]

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