NEW FDI LEGISLATION Part III

Date: 10 July 2006

Pursuant to Parts I and II of this article, this Part III continues to examine investment forms under the new Law on Enterprises which became effective on 1 July 2006.

Shareholding Companies ("SHCs")

1. General

A SHC must have at least 3 shareholders, with no restriction on the maximum number. A shareholder may be either an individual or an organization. Shareholders are only liable to the extent of contributed capital in the SHC.

2. Shares

2.1 Classes. SHCs may have both ordinary and preference shares. Preference shares may be any of the following classes:
(i) Voting preference shares;
(ii) Dividend preference shares;
(iii) Redeemable preference shares; and
(iv) Other preference shares stipulated in the charter of the company.

All holders of the same class of shares are entitled to the same rights, obligations and interests.

2.1.1 Voting preference shares. Only organisations authorized by the Government and founding shareholders can hold voting preference shares. The "voting preference" of founding shareholders is only valid for three years from the date of the business registration certificate of the SHC. The number of votes attributable to voting shares shall be stipulated in the charter of the company and it should be noted that voting preference shares can not be assigned. Shareholders holding voting preference shares can vote at General Meetings of Shareholders, and hold the same other rights as shareholders of ordinary shares.

2.1.2 Dividend preference shares. Dividend preference shares entitle the holder to a higher dividend rate than ordinary shareholders, or to an annual fixed rate. Dividend preference shareholders do not have the right to attend or vote at General Meetings of Shareholders, nor the right to nominate people to the Board or the inspection committee, but hold the same other rights as ordinary shareholders.

2.1.4 Redeemable preference shares. Redeemable shares can be redeemed at any time by the SHC upon demand by the shareholder, or in accordance with conditions stipulated on the share certificate. Otherwise redeemable preference shareholders have the same rights as ordinary shareholders, other than they are not entitled to vote or attend at General Meetings of Shareholders, nor have the right to nominate people to the Board or the inspection committee.

2.2 Conversion of shares. Ordinary shares may not be converted into preference shares. Preference shares may only be converted into ordinary shares pursuant to a resolution of the General Meeting of shareholders.

2.3 Assignment of shareholders' interests. Shareholders are free to assign their shares to whoever they chose, without the requirement to give priority to existing shareholders, other than founding shareholders holding ordinary shares, who in the first three years of the date of issuance of the business registration certificate, may only assign their shares to other founding shareholders, unless authorized to assign to other persons by a resolution of the General Meeting of Shareholders. The assignor remains the owner of the shares until the name of new shareholder is recorded in the register of members.

2.4 Redemption of shares on demand by shareholders. Where a shareholder votes against a resolution passed at a General Meeting of Shareholders to re-organise the company, or to change the rights and obligations of shareholders stipulated in the charter, such shareholder can demand the company to redeem its shares by giving notice within 10 working days of the date such resolution was passed. The price for such shares is either market value, or such other price calculated based on the principles stipulated in the charter of the company.

3. Shareholders

3.1 Rights of ordinary shareholders. Ordinary shareholders of SHCs have, amongst others, the following rights:
(i) to attend and express opinions at the General Meeting of Shareholders;
(ii) to be entitled to one vote at such meetings for each share held;
(iii) to be given priority to purchase newly offered shares in proportion to the number of ordinary shares such shareholder holds in the SHC;
(iv) to receive dividends at the rate decided by the General Meeting of Shareholders;
(v) to examine and copy an extract from the list of shareholders with voting rights;
(vi) to examine and copy the charter of the SHC; and
(vii) upon dissolution/bankruptcy of the SHC, to receive part of the remaining assets proportional to a shareholder' shareholding in the SHC.

A shareholder or group of shareholders holding more than 10% of the ordinary shares in a SHC for a consecutive period of six months or more, or holding such smaller percentage as is set out in the charter, have the following additional rights, amongst others:
(i) to nominate candidates to the Board of Management ("Board") and inspection committee of the SHC;
(ii) to look at and copy the book of minutes of the resolutions of the Board, mid-year and annual financial statements and reports of the inspection committee;
(iii) to request the convening of a General Meeting of Shareholders when the term of the Board has exceeded 6 months; and
(iv) as otherwise stipulated in the charter of the SHC.

3.2 Obligations of ordinary shareholders. Ordinary shareholders have, amongst others, the following obligations:
(i) to pay in full for shares subscribed within 90 days of the date of issuance of the business registration certificate; and
(ii) not to withdraw capital from the SHC for any reason, except where the shares are redeemed by the company or other persons.

3.3 Ordinary shares of founding shareholders. Founding shareholders must together apply to subscribe to at least 20% of the ordinary shares of the SHC, and pay for the same in full within 90 days of the issuance of the business registration certificate. Founding shareholders are jointly liable for debts of the SHC up to the amount of unpaid founding shareholder shares, whether or not a particular founding shareholder had in fact contributed his share of capital representing the value of his founding shareholder shares.

4. Bonds

SHCs may issue bonds, and unless otherwise stipulated in the charter of the SHC, the Board will determine the issuance of bonds, although this decision must be reported and explained to the General Meeting of Shareholders.

5. Purchase of bonds and shares

Bonds and shares can be paid for in Vietnamese dong, freely convertible foreign currency, gold, value of land use rights, value of intellectual property, technology, technical know-how or other assets set out in the charter of the SHC. Shares must be paid for in full in one installment.

6. Oganisational and management structure of SHCs

6.1 Structure. SHCs must have a General Meeting of Shareholders, a Board and a “director” or “general director”. In the event that a SHC has more than 11 shareholders who together own more than 50% of the total shares in the company, the SHC must also have an inspection committee.

6.2 General Meeting of Shareholders. The General Meeting of Shareholders is the highest decision making body of the SHC. Its powers include, amongst others:
(i) to elect or remove members of the Board and inspection committee;
(ii) to make investment decisions or decisions on sale of assets valued at 50% or more of the total assets recorded in the most recent financial statements of the SHC, unless the charter stipulates a different percentage;
(iii) to amend the charter of the SHC;
(iv) to approve annual financial statements; and
(v) to decide upon re-organisation/dissolution of the SHC.

6.3 Board of Management. The Board manages the company, and amongst others, shall have the following rights and obligations:
(i) to decide upon medium term development and annual business plans;
(ii) to decide on new share offerings and raising additional funding in other forms;
(iii) to approve contracts for purchase, sale, borrowing, lending and other contracts valued at 50% or more of the total assets recorded in the most recent financial statements of the SHC, or a smaller percentage stipulated in the charter of the SHC; and
(iv) to appoint and dismiss the “director” or “general director” and other key management personnel as stipulated in the charter of the SHC.

6.4 Director or General Director. The "Director" or "General Director" manages the day-to-day business operation of the SHC, and is appointed and supervised by the Board. The Director/General Director has, amongst others, the following rights and duties:
(i) to organise the implementation of resolutions of the Board;
(ii) to make decisions on all matters relating to the day to day operations of the SHC;
(iii) to organize the implementation of the business and investment plans of the SHC; and
(iv) to recruit employees.

Other powers may be set out in the charter of the SHC.

6.5 Inspection committee. The inspection committee supervises the Board and General Director/Director of the SHC, and amongst others, has the following rights and duties:
(i) to inspect the reasonableness, legality, truthfulness and prudence in management and administration of the business activities of the SHC;
(ii) to evaluate business reports, semi-annual or annual financial statements, and reports on evaluation of the management of the Board;
(iii) to review books of account and other documents of the SHC; and
(iv) to recommend to the Board or General Meeting of Shareholders changes and improvements in the organizational structure, management and administration of the business operations of the SHC.

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