LEGAL UPDATE RELATING TO LAW ON ENTERPRISES 2020
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Name of legal document: Law on Enterprises No. 59/2020/QH14 issued
on 17/06/2020 of National Assembly (referred to as the “Law on Enterprises 2020”)
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Effective date: 01/01/2021
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Summary of changes in Law on Enterprises
2020:
2.1. Changes in General regulations on enterprises
a. Amending and supplementing regulations on definitions “Related person”
c. Deregulation on obligation of reporting changes to information
f. Deregulation on notification of seal design before using
g. Amending regulations on the duration for notification of business suspension
2.2. Changes in Regulations of Limited Company
a. Amending and supplementing regulations on settlement of stakes in some special cases
2.3. Changes in the Regulations of State Enterprises
a. Change of definition “State-owned enterprise”
2.4. Change in Regulations of Joint Stock Company
a. Supplementing provisions on non-voting depository receipts
b. Separating the rights of a shareholder or group of shareholders
c. Supplementing provisions on information confidentiality obligations of shareholders
2.5. Changes in Regulations on Partnerships and Sole Proprietorships
a. Supplementing provisions on the termination cases of general partners
a. Amending and supplementing regulations on definitions “Related person”
Specifically, Clause 23 Article 4 Law on Enterprises 2020 stipulates: “Article 4. Definitions
For the purpose of this document, the terms below are construed as follows:
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23. “related person” means any individual or organization that has a direct or indirect relationship with an enterprise in the following cases:
a) The parent company, its executive and legal representative, and the person who has the power to designate the executive officer of the parent company;
b) The subsidiary company, its executive and legal representative;
c) Any individual, organization or group of individuals or organizations that can influence the enterprise’s operation through ownership, acquisition of shares/stakes or making corporal decisions;
d) The enterprise’s executive, legal representative, controllers;
dd) Spouses, biological parents, adoptive parents, parents-in-laws, biological children, adopted children, children-in-law, biological siblings, siblings-in-law and biological siblings of spouses of the executive officer, legal representative, controllers, members/partners and shareholders holding the controlling stakes/shares;
e) Any individual that is the authorized representative of the companies or organizations mentioned in Point a, b and c of this Clause;
g) Any enterprise in which an individual, company or organization mentioned in Points a, b, c, d, dd and e of this Clause has the controlling interest.”
Specifically, Clause 2 Article 12 Law on Enterprises 2020 stipulates: “Article 12. The enterprise’s legal representative
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2. A limited liability company or joint stock company may have one or more than one legal representative. The enterprise’s charter shall specify the quantity, position, rights and obligations of its legal representatives. In case there are more than one legal representative, the charter shall specify the rights and obligations of each of them. Otherwise, each of the legal representatives shall fully representative the enterprise and take joint responsibility for any damage to the enterprise as prescribed by civil laws and relevant laws.”
c. Deregulation on obligation of reporting changes to information
Deregulation on the obligation to report when there is any change in information about the name, address, nationality, ID number, passport number or other ID papers of (i) Members of the Board of Directors of the joint-stock company; (ii) Members of the Control Board or controllers; (iii) The Director or General Director.
Abolished Article: Article 12 of the Law on Enterprises 2014.
Specifically, Clause 2 Article 17 Law on Enterprises 2020 stipulates: “Article 17. The rights to establish, contribute capital, buy shares/stakes and manage enterprises
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2. The following organizations and individuals do not have the right to establish and manage enterprises in Vietnam:
a) State authorities, People’s armed forces using state-owned assets to establish enterprises to serve their own interests;
b) Officials and public employees defined by the Law on Officials and the Law on Public Employees;
c) Commissioned officers, non-commissioned officers, career military personnel, military workers and public employees in agencies and units of Vietnam People’s Army; commissioned officers, non-commissioned officers and police workers in police authorities and units, except for those designated and authorized representatives to manage state-owned stakes in enterprises or to manage state-owned enterprises;
d) Executive officers and managers of state-owned enterprises prescribed in Point a Clause 1 Article 88 of this Law, except those who are designated as authorized representatives to manage state-owned stakes in other enterprises;
dd) Minors; people with limited legal capacity; incapacitated people; people having difficulties controlling their behaviors; organizations that are not juridical persons;
e) People who are facing criminal prosecution, kept in temporary detention, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, has limited legal capacity or is incapacitated, is not able to control his/her own behaviors, is banned by the court from holding certain positions or doing certain works; other cases prescribed by the Law on Bankruptcy and the Anti-corruption Law.
If requested by the business registration authority, the applicant shall submit the judicial records;
g) Juridical persons that are banned from business operation or banned from certain fields as prescribed by the Criminal Code.”
e. Supplementing copies of legal documents[2] of the legal representative to the list of documents in the dossier for registration of limited liability company, joint stock company
Specifically,
- For Limited liability company: Point a Clause 4 Article 21 Law on Enterprises 2020 stipulates: “Article 21. Application for registration of a limited liability company
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4. Copies of:
a) Legal documents of members who are individuals and legal representatives;”
- For Joint stock company: Point a Clause 4 Article 22 Law on Enterprises 2020 stipulates: “Article 22. Application for registration of a joint stock company
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4. Copies of:
a) Legal documents of founding shareholders and shareholders that are foreign investors who are individuals and legal representatives;
f. Deregulation on notification of seal design before using
Specifically, Law on Enterprises 2020 stipualtes on the enterprise’s seals, but dose not stipulaty on notification of seal design before using as provided in Law on Enterprises 2014. Article 43 of Law on Enterprises 2020 stipulates:
“Article 43. The enterprise’s seals
1. The enterprise’s seals can be physical or digital as prescribed by e-transaction laws.
2. The enterprise shall decide the type, quantity, design and content of its seal and the seals of its branches, representative offices and other units.
3. The management and storage of seals shall comply with the company's charter or regulations of the enterprise, branch, representative office or unit that owns the seal. Seals shall be used by enterprises in transactions as prescribed by law.”
g. Amending regulations on the duration for notification of business suspension
Specifically, Clause 1 Article 206 Law on Enterprises 2020 stipualties: “Article 206. Business suspension and termination
1. An enterprise shall send a written notification to the business registration authority at least 03 working days before the suspension or resumption date.”
Specifically, point d Clause 1 Article 206 Law on Enterprises 2020 stipualties: “Article 207. Cases of and conditions for dissolution of enterprises
1. An enterprise shall be dissolved in the following cases:
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d) The Certificate of Enterprise Registration is revoked, unless otherwise prescribed by the Law on Tax administration.”
a. Amending and supplementing regulations on settlement of stakes in some special cases
Specifically, Article 53 Law on Enterprises 2020 stipualties: “Article 53. Settlement of stakes in some special cases
1. In case of the death of a member that is an individual, his/her heir at law or designated by a will shall become a member of the company.
2. In case a member that is an individual is declared missing by the Court, his/her rights and obligations shall be performed through his/her asset manager as prescribed by civil laws.
3. In case a member that is an individual is incapacitated, has limited legal capacity or has difficulty controlling his/her behaviors, his/her rights and obligations shall be performed through his/her representative.
4. A member’s stake shall be transferred or repurchased by the company in accordance with Article 51[3] and Article 52[4] of this Law in the following cases:
a) The member’s heir does not wish to become a member;
b) The beneficiary mentioned in Clause 6 of this Article is not accepted as a member by the Board of Members;
c) The member that is an organization is dissolved or goes bankrupt.
5. In case a member that is an individual dies without an heir or the heir refuses the inheritance or is disinherited, the stake shall be settled in accordance with civil laws.
6. In case a member gives away part or all of his/her stake to another person, the beneficiary will become a member of the company in the following cases:
a) If the beneficiary is a lawful heir as prescribed by the Civil Code, he/she is obviously a member of the company;
b) If the beneficiary is not a lawful hair mentioned in Point a of this Clause, he/she will only become a member if it is accepted by the Board of Members.
7. In case a member uses that member’s stake to pay debt, the beneficiary may:
b) become a member of the company if it is accepted by the Board of Members;
b) Offer and sell the stake in accordance with Article 52 of this Law.
8. In case a member that is an individual is being kept in temporary detention, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, he/she shall authorize another person to perform some or all of his/her rights and obligations to the company.
9. A member that is an individual and is banned by the court to do certain jobs must not do those jobs at the company; A member that is a juridical person and is banned by the court from certain business lines must suspend or stop business operation in those business lines.”
2.3.
Changes in
the Regulations of State Enterprises
a. Change of definition “State-owned enterprise”
Specifically, Clause 11 Article 4 Law on Enterprises 2020 stipualties: “Article 4. Definitions
For the purpose of this document, the terms below are construed as follows:
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11. A “state-owned enterprise” means an enterprise more than 50% charter capital or voting shares of which is held by the State as prescribed in Article 88[5] of this Law.”
- Establishment of the Board of Controllers of state-owned enterprises: Article 103 Law on Enterprises 2020 stipualties: “Article 103. Controllers and the Board of Controllers
1. The state ownership representative body shall decide the establishment of a Board of Controllers, which has 01 – 05 Controllers including a Chief Controller. The term of office of a Controller shall not exceed 05 years. A Controller must not be designated more than 02 consecutive terms. In case the Board of Controllers has only 01 Controller, he/she shall be the Chief Controller and has to satisfy corresponding requirements.
2. An individual may concurrently hold the position of Chief Controller or Controller of up to 04 state-owned enterprises.
3. A Controller or Chief Controller shall satisfy the following requirements:
a) He/she has a bachelor’s degree or higher in economics, finance, accounting, audit, law, business administration or a major that is relevant to the enterprise’s business operation and at least 03 years’ experience (05 years for Chief Controller);
b) He/she is not executive of the company or any other enterprise; not a Controller of enterprises other than state-owned enterprises; not a company’s employee.
c) He/she is not a relative of the head or deputies of the state ownership representative body; any of the members of the Board of members, the Director/General Director, any of the Deputy Directors/General Directors, the chief accountant or any other Controllers of the company;
d) He/she satisfies other requirements specified in the company’s charter.
4. The Government shall elaborate this Article.”
- Organizational structure of state-owned enterprises: Article 90 Law on Enterprises 2020 stipualties: “Article 90. Organizational structure
The state ownership representative body shall decide whether to apply one of the two models below to organize the state-owned enterprise as a single-member limited liability company:
1. A company with a President, Director/General Director and Board of Controllers;
2. A company with a Board of Members, Director/General Director and Board of Controllers.”
2.4.
Change in Regulations of Joint Stock Company
a. Supplementing provisions on non-voting depository receipts
Specifically, Clause 6, 7 Article 114 Law on Enterprises 2020 stipualties: “Article 114. Types of shares
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6. Ordinary shares used as underlying assets to issue non-voting depository receipts are called underlying ordinary shares. Non-voting depository receipts have interest and obligations proportional to the underlying ordinary shares, except voting rights.
7. The Government shall provide for non-voting depository receipts.”
b. Separating the rights of a shareholder or group of shareholders
Separating the rights of the shareholder or group of shareholders that holds at least 5% of the ordinary shares or a smaller ratio specified in the company’s charter and the rights of the shareholder or group of shareholders that holds at least 10% of the ordinary shares or a smaller ratio specified in the company's charter.
Specifically, Clause 2, 3, 4, 5 Article 115 Law on Enterprises 2020 stipualties: “Article 115. Rights of ordinary shareholders
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2. The shareholder or group of shareholders that holds at least 5% of the ordinary shares (or a smaller ratio specified in the company’s charter) shall have the rights to:
a) Access, extract the minutes of meetings, resolutions and decisions of the Board of Directors, mid-year and annual financial statements, reports of the Board of Controllers, contracts and transactions subject to approval by the Board of Directors and other documents except those that involve the company’s business secrets;
b) Demand that a GMS be convened in the cases specified in Clause 3 of this Article;
c) Request the Board of Controllers to investigate into specific matters relevant to the company’s administration where necessary. The request shall be made in writing and contain the full names, mailing addresses, nationalities, legal document numbers of shareholders that are individuals; names, EID numbers or legal document numbers, headquarters addresses of shareholders that are organizations; quantities of shares and time of shares registration of each shareholder, total quantity of shares of the group and their holdings in the company; the matter that needs investigating and the purposes of investigation;
dd) Other rights prescribed by this Law and the company's charter.
3. The shareholder or group of shareholders specified in Clause 2 of this Article is entitled to demand a GMS be convened in the following cases:
a) The Board of Directors seriously violates the shareholders’ rights, obligations of executives or issues decisions ultra vires;
b) Other cases prescribed by the company's charter.
4. A request mentioned in Clause 3 of this Article shall be made in writing and contain the full names, mailing addresses, nationalities, legal document numbers of shareholders that are individuals; names, EID numbers or legal document numbers, headquarters addresses of shareholders that are organizations; quantities of shares and time of shares registration of each shareholder, total quantity of shares of the group and their holdings in the company; the reasons for convening the GMS. The request shall be enclosed with documentary evidence of the violations committed by the Board of Directors or the decision issued ultra vires.
5. Unless otherwise prescribed by the company's charter, the shareholder or group of shareholders that holds at least 10% of the ordinary shares (or a smaller ratio specified in the company's charter) is entitled to nominate candidates for the Board of Directors and the Board of Controllers as follows:
a) The ordinary shareholders shall hold a meeting to nominate candidates for the Board of Directors and the Board of Controllers and inform the participating shareholders before the opening of the GMS;
b) The number of candidates depends on the quantity of members of the Board of Directors and the Board of Controllers and shall be decided by the GMS. In case the number of candidates nominated is smaller than the permissible number, the remaining candidates shall be nominated by the Board of Directors, the Board of Controllers and other shareholders.”
c. Supplementing provisions on information confidentiality obligations of shareholders
Specifically, Clause 5 Article 119 Law on Enterprises 2020 stipualties: “Article 119. Obligations of shareholders
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5. Protect the confidentiality of information provided by the company in accordance with the company’s charter and the law; only use the provided information to perform and protect their lawful rights and interests; do not spread or share information provided by the company to any other organization or individual.”
Specifically, Article 165 Law on Enterprises 2020 stipualties: “Article 165. Responsibilities of the company’s managers
1. Members of the Board of Directors, the Director/General Director and other executives have the following responsibilities:
a) Perform their rights and obligations in accordance with this Law, relevant laws, the company's charter and resolution of the GMS;
b) Perform their rights and obligations in an honest and prudent manner to serve the best and lawful interests of the company;
c) Be loyal to the company’s interests; do not abuse their power and position or use the enterprise’s information, secrets, business opportunities and assets for personal gain or serve any other organization’s or individual’s interests;
d) Promptly and fully provide the company with the information specified in Clause 2 Article 164 of this Law;
dd) Other responsibilities prescribed by this Law and the company's charter.
2. The member of the Board of Directors, Director/General Director or executive that violates Clause 1 of this Article shall be personally or jointly responsible for compensating the lost benefits, returning benefits received and compensating all damages to the company and the third parties.”
2.5.
Changes in
Regulations on Partnerships and Sole Proprietorships
a. Supplementing provisions on the termination cases of general partners
Specifically, point d Clause 1 Article 185 Law on Enterprises 2020 stipualties: “Article 185. Termination of general partners
1. A general partner status will be terminated if he/she:
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d) is serving an imprisonment sentence or banned by the court from doing certain jobs;”
b. Supplementing regulations on exercising the rights of owners of sole proprietorships in some special cases
Specifically, Article 193 Law on Enterprises 2020 stipualties: “Article 193. Exercising the owner’s rights in special cases
1. In case the sole proprietorship’s owner is detained, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, he/she shall authorize another person to perform his/her rights and obligations.
2. In case the owner dies, this/her hair or one of the legal heirs or designated heirs shall be the owner under an agreement among the heirs. In case such an agreement cannot be reached, the sole proprietorship shall be converted into a company or dissolved.
3. In case of the owner dies without an heir or the heir refuses the inheritance or is disinherited, the owner’s assets shall be handled in accordance with civil laws.
4. In case owner is incapacitated, has limited legal capacity or has difficulty controlling his/her behaviors, his/her rights and obligations shall be performed through his/her representative.
5. In case the sole proprietorship’s owner is banned by the court to do certain jobs in the enterprise’s business lines, the owner shall suspend or stop doing business in the relevant business lines shall be suspended or stopped or transfer the sole proprietorship to another organization or individual.”
c. Supplementing the provision that sole proprietorships can be converted into joint stock companies and partnerships
Specifically, Clause 1 Article 205 Law on Enterprises 2020 stipualties: “Article 205. Conversion of a sole proprietorship into a limited liability company, joint stock company or partnership
1. The owner of a sole proprietorship may convert it into a limited liability company, joint stock company or partnership if the following conditions are fully satisfied:…”
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[1] Law on Enterprises No 68/2014/QH13 issued on
26/11/2014 of National Assembly, ceases to have effect from 01/01/2021.
[2] “Legal documents” of an individual
include the ID card (old or new format), passport and other legal personal
identification documents (Clause 16 Article 4 Law on Enterprises 2020).
[3] “Article
51. Repurchase of stakes
1. A member is entitled to request the company to
repurchase that member’s stake if that member has voted against a resolution or
decision of the Board of Members on the following issues:
a) Amendments to regulations of the company's charter
on rights and obligations of members and the Board of Members;
b) Reorganization of the company;
c) Other issues prescribed by the company's charter.
2. A written request for stake repurchase shall be sent
to the company within 15 days from the day on which the resolution or decision
mentioned in Clause 1 of this Article is ratified.
3. Within 15 days from the day on which the request
mentioned in Clause 1 of this Article is received, the company shall repurchase
that member’s stake at market value or at a value determined in accordance with
the company's charter, unless another value is agreed upon by both parties. The
payment shall only be made if the company is still able to pay its debts and
other liabilities afterwards.
4. In case the company is not able to pay for the
repurchase of the stake as requested, the member is entitled to sell the stake
to another member or a non-member.”
[4] “Article 52.
Transfer of stakes
1. Except for the cases specified in Clause 4 Article
51, Clause 6 and Clause 7 Article 53 of this Law, a member of a multiple-member
limited liability company is entitled to transfer part or all of their stake to
another person as follows:
a) Offer the stake to other members in proportion to
their holdings under the same conditions;
b) Transfer the stake under the same conditions as
those applied to other members mentioned in Point a of this Clause to a
non-member if the other members do not purchase or fully purchase the stake
within 30 days from the first day of offering.
2. The transferor still has the rights and obligations
to the company in proportion to the stake until information about the buyer
mentioned in Point b, c and dd Clause 2 Article 48 of this Law is fully
recorded in the member register.
3. In case only one member remains after transfer or
change of the members’ stakes, the company shall be converted into a
single-member limited liability company and apply for change of enterprise
registration information within 15 days from the day on which the transfer is
complete.”
[5] “Article 88. State-owned enterprises
1. State-owned enterprises shall be limited liability
companies or joint stock companies, including:
a) Wholly state-owned enterprises (100% of charter
capital of which is held by the State)
b) Partially state-owned enterprises (over 50% of
charter capital or voting shares is held by the State, except the enterprises
specified in Point a Clause 1 of this Article).
2. Wholly state-owned enterprises specified in Point a
Clause 1 of this Article include:
a) Single-member limited liability companies 100% of
charter capital of which is held by the State that are parent companies of
state-owned corporations or parent companies in groups of parent company –
subsidiary companies;
b) Independent single-member limited liability
companies 100% of charter capital of which is held by the State.
3. Partially state-owned specified in Point b Clause 1
of this Article include:
a) Multiple-member limited liability companies and
joint stock companies over 50% of charter capital or voting shares of which is
held by the State that are parent companies of state-owned corporations or
parent companies in groups of parent company – subsidiary companies;
b) Independent multiple-member limited liability
companies and joint stock companies over 50% of charter capital or voting
shares of which is held by the State.
4. The Government shall elaborate this Article.”
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