Issues related to shares in the enterprise

Shares are understood as representing the capital contribution of shareholders in the enterprise. The management and handling of issues related to shares not only affects the company’s ownership structure but also greatly impacts the rights and responsibilities of shareholders. This article will analyze in detail legal issues related to shares in businesses.

Shares in joint stock companies

What are shares?

According to Point a, Clause 1, Article 111 of the Law on Enterprises 2020, shares are equally divided parts of the company’s charter capital. Accordingly, the capital contribution is essentially an asset of the company and has the following characteristics:

• Expressing asset ownership: The basis for demonstrating ownership of the company’s assets and establishing company membership. According to Article 114 of the Law on Enterprises 2020, there are two basic types of shares: common and preferential.
• Face value: Face value is decided by the company and recorded in the company charter according to Point c, Clause 1, Article 24 of the Law on Enterprises 2020. Face value is not necessarily equal to the offering price.
• Indivisible: The smallest part of charter capital so they cannot be divided further.
• Ease of transfer: Owners have the right to transfer their capital contributions to others unless the company charter and law have restrictions. This contributes to creating an open capital structure for the joint stock company and increasing the business efficiency of the enterprise.

Classification of shares in the enterprise

Common shares

Enterprise law does not have a definition of common shares. However, based on the Law on Enterprises 2020, it can be defined as a type of shares that are required to be held in the company. This common capital contribution is usually divided based on charter capital. The owner is the common shareholder.

Common shares used as the underlying asset to issue depository receipts without voting rights are called underlying common shares. In particular, this type of capital contribution cannot be converted into preference form.

Within 3 years from the date of issuance of the Business Registration Certificate, common shares of founding shareholders can only be freely transferred to other founding shareholders, if transferred to people who are not shareholders. founders must be approved by the General Meeting of Shareholders.

Legal basis: Article 114, Clause 2, Article 119 and Clause 3, Article 120 of the Law on Enterprises 2020.

Preference shares

According to the provisions of Clause 2, Article 114 of the Law on Enterprises 2020, the forms of preferential capital contributions include the following 4 types:

First, dividend incentives:

• These are shares that pay dividends at a higher rate than the dividend rate of common shares or a stable annual rate;
• Annual dividends include fixed dividends and bonus dividends;
• The specific fixed dividend level and the method of determining bonus dividends are clearly stated in the stock.

Second, voting incentives:

• These are common shares that have more votes than other; The number of votes per voting preference share is prescribed by the company’s charter;
• Subjects entitled to hold voting preference shares are organizations authorized by the Government and founding shareholders;
• The validity of founding shareholders’ voting preferences is 03 years from the date the company is granted a Business Registration Certificate. After the voting preference period, voting preference shares are converted into common.

Third, refund incentives:

These are shares for which the company refunds its capital contribution at the request of the owner or according to the conditions stated in the shares of redeemable preference and the company’s Charter.

Fourth, other incentives as prescribed in the company charter and securities laws.

Legal basis: Article 116, Article 117 and Article 118 of the Law on Enterprises 2020.

Preference shares in the company

Rights of shareholders in the enterprise

First, shareholders who own have the following rights:

• Attend, speak, and vote at the General Meeting of Shareholders;
• Receive dividends;
• Priority in purchasing newly offered shares corresponding to the ownership ratio;
• Free transfer, unless otherwise provided by law and the company’s charter;
• Review, lookup and extract information about names and contact addresses in the list of shareholders with voting rights and request correction of inaccurate information;
• Review, look up, extract or copy the company charter, meeting minutes and resolutions of the General Meeting of Shareholders;
• When the company dissolves or goes bankrupt, you will receive a portion of the remaining assets corresponding to your ownership ratio in the company;

Shareholders or groups of shareholders owning 5% or more of the total number have additional rights:

• Review, look up, and extract minutes and resolutions and decisions of the Board of Directors, mid-year and annual financial reports, reports of the Supervisory Board, contracts and transactions that must be approved by the Board of Directors. administrative and other documents, except documents related to commercial secrets and business secrets of the company;
• Request to convene a General Meeting of Shareholders in cases prescribed by law;
• Request the Supervisory Board to examine each specific issue related to the management and operation of the company when deemed necessary.

Second, shareholders who own voting preference shares have the following rights:

• Voting on issues under the authority of the General Meeting of Shareholders with more votes than common shareholders;
• Other rights as common shareholders except transfer rights.

Third, shareholders who own dividend have the following rights:

• Receive dividends at a higher rate than the dividend rate of common shares or at a stable rate;
• Receive the remaining assets corresponding to the share ownership ratio in the company after the company has paid all debts, and preference shares are refundable when the company dissolves or goes bankrupt;
• Other rights as common shareholders, except the right to vote, attend the General Meeting of Shareholders, nominate people to the Board of Directors and Supervisory Board.

Fourth, shareholders owning have the following rights:

• The same rights as common shareholders, except the right to vote, attend the General Meeting of Shareholders, and nominate people to the Board of Directors and Supervisory Board.

Legal basis: Article 115, Article 116, Article 117 and Article 118 of the Law on  Enterprises 2020

Note when performing transfer procedures

When carrying out transfer procedures, shareholders need to pay attention to the following issues:

Firstly, transfer restriction cases:

• Within 03 years from the date the company is granted the Business Registration Certificate, common shares of founding shareholders can be freely transferred to other founding shareholders and can only be transferred to people who are not founding shareholders if approved by the General Meeting of Shareholders;
• The company’s charter has transfer restrictions.

Second, transfer form:

• Made by contract: Transfer documents must be signed by the transferor and transferee or their authorized representatives;
• Trading on the stock market: need to comply with the provisions of securities law on order and transfer procedures.

Third, register changes of shareholders in the shareholder register. Registration of changes is made at the request of the relevant shareholder within 24 hours of receiving the request as prescribed in the company’s Charter.

Legal basis: Clause 3, Article 120 and Article 127 of the Law on Enterprise 2020.

Consulting services on shares in businesses

With a team of experts with a deep understanding of corporate law, Long Phan provides customers with consulting services. This service includes the following tasks:

• Provide detailed information on issues related to shares in the business
• Support in developing company charter, including provisions related to shareholders’ rights and obligations, organizational structure, and management regulations.
• Detailed instructions on the process of issuing new shares;
• Assess value based on the company’s financial situation and development prospects;
• Consulting on capital structure and management to optimize profits of each capital contribution.

Consulting on shares in businesses

Shares play an important role in business operations. Understanding these types, shareholder rights and the transfer process helps customers make effective investment decisions. To avoid legal risks, you should consult with experts before making stock transactions or distributing dividends. Please contact Long Phan immediately via hotline 0906735386 for advice on ownership and detailed management.