Enterprise Law 2014 – Some confusions about definition of State-owned enterprises

Determination whether an enterprise is a State-owned enterprise may be important in certain context. For example,

  • The tendering regulations apply to, among other things, investment projects of State-owned enterprises. If an enterprise is not a State-owned enterprise then in many cases, it may not need to follow tendering procedures when selecting contractors or making procurement decision; and
  • Under Investment Law 2014, a Government guarantee for an important investment project is only available to, among other things, State-owned enterprises participating in that project. Therefore, sponsors of a BOT project should not expect to ask for a Government guarantee for obligations of non-State owned enterprises under Investment Law 2014.

The Enterprise Law defines a State-owned enterprise (doanh nghiệp nhà nước) to mean an enterprise where “the State” holds 100% charter capital. Under the Constitution 2013, the State of the Socialist Republic of Vietnam is a socialist rules of law State which belongs to the people and for the people. From a corporate law perspective, the definition of the State is a general and vague. The new Law on Management of State Capital in Enterprises 2014 introduces the concept institution representative of the owner”

Therefore, in practice, it may be difficult to determine whether an enterprise is wholly owned by the State. For example,

  • If the Business Registration Certificate of a single member limited liability company (Top-level SOE) records “the State” or a State authority (e.g. a Ministry or a provincial People’s Committee) as the owner of such company then such Top level SOE could be considered as a State-owned enterprise. PetroVietnam and EVN are typical Top-level SOE.
  • If the Business Registration Certificate of a single member limited liability company records a Top level SOE as the owner of such company (Low-level SOE) then it becomes less clear whether a Low-level SOE (or a wholly-owned subsidiary of a Low-level SOE) is a State-owned enterprise. In practice, the number of Low-level SOEs is much higher than Top-level SOE. Many Low-level SOEs (e.g. Genco 3, a subsidiary of EVN) control substantial assets and are parties to important project documents .
  • The Enterprise Law 2014 seems to assume that a State-owned enterprise must be a single member limited liability company. Therefore, it is not clear whether an enterprise jointly owned by more than one State authorities (e.g. a joint stock companies between three ministries) could be considered as a State-owned enterprise.