Legal issues and lack of anti-deadlock mechanisms in a recent shareholder dispute

In the recent controversial case of shareholder dispute in Vietnam, the appellate court of Ho Chi Minh City (Appellate Court) held that two following articles of a company charter conflict with each other and therefore the provisions of the Enterprise Law 2014 are applied to resolve the dispute:

· Article 10.1 of the company charter which provides a member’s right to request the redemption of its capital contribution portion if such member objects a resolution of the Members’ Council on some important matters of the company; and

· Article 23.1 of the company charter which requires a consensus of all members on some important matters of the company.

Can members of an LLC determine their capital contribution ratios based on their contributed capital in USD?

1. There are cases where foreign invested companies in form of a limited liability company (LLC) registered the charter capital in USD. The capital contribution ratios of members were also determined based on their contributed capital in USD as at the time of establishment. If such companies increase the charter capital by raising funds from new investors. The question is that whether the capital contribution ratio of new investors can be calculated based on their contributed capital in USD.

2. Legally speaking, under the Enterprise Law 2020, the capital contribution ratios of members in an LLC are calculated based on the value in VND of the contributed capital or assets contributed by such members to the charter capital. That said, in this specific case, licensing authorities might consider accepting the determination of the capital contribution portions of new investors based on their contributed capital in USD on the ground of guidance of the Ministry of Planning and Investment (MPI) under Letter 5437/BKHDT-DKKD dated 12 July 2016 (MPI Guidance).

This post is written by Ha Thi Dung.

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Private placement of shares and pre-emption rights of existing shareholders under Enterprise Law 2020

Under Article 125.2(b) of the Enterprise Law 2020, except for the cases of merger and consolidation of companies, when a non-public joint stock company (a target company) plans to conduct a private placement of shares, the existing shareholders must be offered to purchase such shares first. Only after the existing shareholders do not subscribe for new shares, the target company could conduct a private placement of shares. While the new regulations clarify an unclear point before the Enterprise Law 2020, they could increase the risks that a target company may not be able to successfully issue shares to a desirable investor via a private placement. Below are some potential mechanism to mitigate such risks.

New Decree on Enterprise Registration in Vietnam

The Government recently issued Decree 1/2021 which takes effect from 4 January 2021 and replaces Decree 78/2015 in terms of enterprise registration procedures. There are certain new regulations and changes under Decree 1/2021 in relation to registration and notification of enterprise information as follows:

Decree 1/2021 clarifies “person submitting the application” including the person having the authorization to sign the application (Authorized Signatory) and the person being authorized by the Authorized Signatory.
ID number issued to a branch or representative office of an enterprise is specified as tax identification code of such branch or representative office.
Language of the application - Enterprise registration application must be prepared in Vietnamese. The translation of documents in a foreign language must be notarized. In case the application is made in the bilingual language of English and Vietnamese, the Vietnamese version will be used for registration procedures. That means, although parties may agree that the English version will prevail as between the parties, parties must take care of the Vietnamese version/translation to avoid any inaccuracy as the authority only review the Vietnamese version of the application.

Vietnam Business Law