Article 79.2(a) of the Enterprise Law provides that a shareholder (10% Major Shareholder) or a group of shareholders (10% Group Major Shareholder) holding more than 10% of the total ordinary shares for a consecutive period of six months or more, or holding a smaller percentage  as stipulated in the charter of a joint stock company (JSC) will have the right to nominate candidates to the Board of Director of the JSC (the Board).

Both Decree 102/2010 and the Enterprise Law do not set out a clear mechanism for implementing the nomination right of a 10% Major Shareholder or a 10% Group Major Shareholder in the context of a JSC. In particular, 

• Article 79.4 of the Enterprise Law provides that except where otherwise stipulated in the charter of the company, the shareholders forming a 10% Group Major Shareholder must notify other attending shareholders of the formation of the 10% Group Major Shareholder no later than the beginning of a meeting of the General Meeting of Shareholders (GMS). Article 29.2 of Decree 102/2010 allows the formation of a 10% Group Major Shareholder to occur before and during a meeting of the GMS. From the 10% Group Major Shareholders’ perspective, the provisions of the Enterprise Law and Decree 102/2010 could allow a group of shareholders to have maximum flexibility in exercising the rights of a 10% Group Major Shareholder. On the other hand, other shareholders or the JSC would likely want to know as early as possible if there is any 10% Group Major Shareholder who intends to exercise its nomination rights in the JSC to manage the operation of the company. A JSC (especially a public JSC) which wants to avoid a surprised proxy contest or hostile take-over may consider setting up a mechanism to require a 10% Group Major Shareholder to notify the JSC well in advance (even at the beginning of the six-month period) before exercising the rights of such 10% Group Major Shareholder.

•  It is not clear if during a six-month holding period, internal transfers among the shareholders constituting a 10% Group Major Shareholder will affect such 10% Group Major Shareholder’s nomination rights. For example, at the beginning of the six-month shareholding period, a 10% Group Major Shareholder comprises of Shareholder A and Shareholder B holding 10% and 5% shares respectively. During the six-month shareholding period, A sells 2% shares to B. As such, at the time, the 10% Group Major Shareholder exercises its nomination rights, the 10% Group Major Shareholder still comprises of A and B but the shareholding ratios are different (being 8%/7% instead of 10%/5%). It is not clear if the 10% Group Major Shareholder at such time is still regarded as the same 10% Group Major Shareholder and is entitled to exercise the nomination right under Article 79.2 of the Enterprise Law.
•  Similarly, it is not clear if any increase in the number of shares held by a 10% Group Major Shareholder during a six-month holding period would be entitled to the same nomination rights attached to the original number of shares. For example, at the beginning of the six-month shareholding period, a 10% Group Major Shareholder holds 11% shares in the JSC which empowers them to nominate one candidate for Board member if they were to continue to hold the same number of shares. Two month later during the six-month shareholding period the 10% Group Major Shareholder increases its shareholding to 31% which empowers them to nominate three candidates for Board members at the end of the six-month shareholding period. However, the question is whether the JSC can refuse the nomination rights attached to the 20% increased during the six-month shareholding period on the ground that the actual holding period for such increased shareholding is less than six month.
•  The provisions of the Enterprise Law and Decree 102/2010 do not limit how many times during the term of the Board the nomination rights of a 10% Major Shareholder or a 10% Group Major Shareholder could be exercised. Therefore, to maintain control of the Board and to avoid the effect of cumulative voting requirement, a controlling shareholder may “divide” the election of Board members into smaller lots. In particular, under cumulative voting principle, whenever a JSC elects new Board members, each shareholder will have a number of votes equal to the number of new Board members to be elected times the number of voting shares held by such shareholder and such shareholder may cash all or some of his/her votes for any candidate. As such, the smaller the number of new Board members to be elected, the lesser the chance that a minority could win a Board seat.

• The provisions of the Enterprise Law and Decree 102/2010 do not contemplate the nomination procedures where the nomination and selection of Board Members is conducted through obtaining written opinions from shareholders rather than through physical meetings of the GMS.

•  The provisions of the Enterprise Law and Decree 102/2010 do not have any restriction for one shareholder to participate in the formation of more than one group of 10% Major Shareholders.
  
  
•  The Enterprise Law and Decree 102/2010 do not contemplate whether and how a 10% Major Shareholder or a 10% Group Major Shareholder needs to present evidence that it satisfies the holding period requirement under Article 79.2 of the Enterprise Law. Under the Enterprise Law, the shareholders register (Sổ đăng ký cổ đông) provides conclusive evidence of ownership over shares. For a public JSC, whose shareholders register is maintained by the Vietnam Securities Depository Centre (VSD), the public JSC may not be able to confirm whether a 10% Major Shareholder or a 10% Group Major Shareholder is holding a number of shares consecutively during a period of time without the VSD’s cooperation and confirmation.

To avoid confusion and potential disputes, the Charter of a JSC should address the various uncertainties regarding the right of a 10% Major Shareholder or a 10% Group Major Shareholder to nominate Board Members candidate under the Enterprise Law and Decree 102/2010.