Possible new procedures for FIEs to apply for a Trading Licence

The inconsistencies between the new Investment Law 2014 and Decree 23/2007 have caused many lawyers confused about the process of foreign invested enterprises (FIEs) to obtain a Trading Licence to operate in the sector of sale and purchase of goods (i.e. conducting export/import rights) and the related activities (e.g. distribution) (Trading Activities). Some temporary guidelines of licensing authorities recently could help clarify the situation.

According to an official correspondence in June 2016 of Ho Chi Minh City's Department of Planning and Investment (HCMC DPI) to a foreign investor applying for an investment project relating to Trading Activities, the foreign investor should conduct the licensing procedures in the following steps:

Transfer of shares in a public company in Vietnam without registration with VSD

Under the Securities Law 2006, shares issued by a public joint stock company (Public JSC) must be registered with the Vietnam Securities Depository (VSD). If shares of a Public JSC are registered with the VSD, then the transfer of shares in such Public JSC must be conducted via the VSD. Title over a share of such Public JSC will only be transferred after details of the transfer are recorded in VSD’s system.

Stricter regulations on representative offices of foreign companies in Vietnam

Under Decree 7/2016, it is more difficult for a foreign company to set up and operate a representative office in Vietnam. In particular,

Now only foreign companies from countries which have an international treaty with Vietnam can set up a representative office. And the scope of operation a representative office must be consistent with the relevant international treaty. Vietnam is a member of the WTO. Therefore a company from a country which is a member of the WTO should be entitled to open a representative office. However, Vietnam’s commitments to the WTO only cover a limited service sectors. It is not clear if companies operating in sectors outside of the WTO’s commitments of Vietnam could set up a representative office. Under the old Decree 72/2006, virtually any foreign company from any country and any sector can set up a representative office;

Private placement of shares by private joint stock company (Target Co)

No.	Description	Legal basis	Note
1	Target Co' Shareholder Meeting to decide to increase authorised share capital.	Articles 24, 111.2, 111.3 and 111.4 of Enterprise Law 2014	Authorised share capital are defined as all of the shares of all classes that the Shareholder Meeting decides to offer for sale for capital mobilisation. Authorised shares capital include both shares that have been sold and shares that have not been sold.
2	Target Co notifies Business Registration Authority of the change in the authorised capital.	Article 32 of Enterprise Law 2014	In practice, this is rarely done in practice since there is no clear implementing procedures for this step.
3	Target Co' Shareholder Meeting to decide to issue new shares by way of private placement.	Article 123.1 of Enterprise Law 2014	The shareholder authorisation should include a "plan for private placement of shares".
4	Target Co notifies the Business Registration Authority about a proposed private placement of shares (Placement Notice).	Articles 123.1 and 123.2 of Enterprise Law 2014	This should be done within five business days after the shareholder authorisation is issued. The Placement Notice must follow a prescribed form.
5	Business Registration Authority raises objection the Placement Notice (if applicable).	Article 123.3 of Enterprise Law 2014	Objection should be issued within five business days after the Placement Notice is made.
6	Target Co and Investor apply to obtain an Acquisition Registration for the proposed placement.	Article 26 of the Investment Law 2014	This step is necessary , if (1) the Investor is a foreign investor and (2) the placement results in foreign investors holding 51% or more charter capital or the Target Co operates in conditional businesses for foreign investors.
7	Target Co to issues new shares to Investor.	Article 123.3 of Enterprise Law 2014	Investor becomes a shareholder once it receives the share certificate and the shareholder register of the company records its ownership interest.
8	Target Co to register new charter capital with the Business Registration Authority as a result of the private placement.	Article 31.1 of Enterprise Law 2014.	At law, this steps is supposed to be done after Investor becomes a shareholder in the company. However, since the Business Registration Authority has the discretion to reject the registration, a prudent Investor may require to make these steps to be conditions precedent.
9	Target Co to notify Business Registration Authority of the changes regarding founding shareholders and foreign shareholders.	Articles 32.1(b) of the Enterprise Law 2014, and Articles 51 and 52 of Decree 78/2015	Same comments at 8.

Update 22 October 2016: After closing, Target Co will also need to (1) make an Approved Notification to the Business Registration Authority regarding changes to the Charter of Target Co (due to change in charter capital) and (2) report any changes to Board directors to the Business Registration Authority. This comment is from Tran Thi Thu Thao, VILAF associate.

Update 5 November 2016: The above table does not discuss whether waiver of pre-preemption rights by existing shareholders should be obtained. This matter deserves a separate discussion.

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Vietnam Business Law