Conversion of preference shares into ordinary shares in a Vietnamese joint stock company

The Enterprise Law 2014 does not have specific provisions on alteration of rights attached to a class of shares other than ordinary shares. Since the Shareholder Meeting has the right to create a class of shares, logically, an amendment to class rights should also be approved by the Shareholder Meeting. Under Article 113.6 of the Enterprise Law 2014,

·        ordinary shares may not be “converted” (chuyển đổi) into preference shares; and

·        preference shares may be converted into ordinary shares pursuant to a resolution of the Shareholder Meeting.

There is no definition of “conversion” in the context of Article 113.6. However, a conversion from one class of shares into another class of shares would likely result in the change of rights attached to the shares being converted. Therefore, arguably conversion of shares could qualify as an alteration of class rights. Each share in the charter capital of a JSC has the same par value. Therefore, logically, one preference share should be converted into one ordinary share only. If one preference share is not converted into one ordinary share then the charter capital of a JSC will be increased or reduced which may not be clearly permitted by law.