Shareholder agreements should not be left open.

According to the assignment of tasks in Resolution 27/NQ-CP, the Government has tasked relevant agencies with finalizing the dossier proposing amendments to the Enterprise Law. This is a time when many issues need to be addressed and codified into law, including shareholder agreements.

Amendments to the Enterprise Law: Shareholder agreements should not be left open.

According to the assignment of tasks in Resolution 27/NQ-CP, the Government has tasked relevant agencies with finalizing the dossier proposing amendments to the Enterprise Law. This is a time when many issues need to be addressed and codified into law, including shareholder agreements.

The Law on Enterprises needs to include provisions on shareholder agreements as a legally binding document for businesses.

What is a shareholder agreement?

In reality, the establishment, management, and operation of businesses have always involved a shareholder agreement, but its effectiveness currently relies primarily on the "honorable conduct" of the participating parties, rather than legal protection.

Shareholder agreements are signed between the founders of a business (including organizations and individuals) when establishing the business, or between members/shareholders during the business's operation. From a corporate governance perspective, shareholder agreements serve as the basis for the founding group and other shareholders to operate the business according to their initial core objectives, through priority rights in management and operation (the right to have their representatives on the Board of Directors and the Executive Management Board; the right to vote with a higher number of votes or the right to veto, the right to make decisions on important issues, etc.).

The shareholder agreement serves as a basis for protecting the rights of the founders, other shareholders participating in the agreement, and minority shareholders. It also forms the basis for the commitment of contributing shareholders when entering the common market, in the spirit of respecting the founders' vision and the stable development of the business.

This document also clearly defines and protects the interests of shareholders (including founding shareholders and capital contributors), the interests of the business, and the interests of third parties, creating a level playing field and transparency based on consideration of commercial and market advantages.

Globally , such documents are commonly known as shareholder agreements or capital contribution agreements. In Vietnam, the practice of establishing and operating businesses records such agreements under various names, such as shareholder/member agreement, capital contribution agreement, joint venture agreement, business establishment agreement, pre-establishment agreement, etc.

However, current corporate and investment laws do not contain provisions recognizing shareholder agreements.

The history of Vietnam's Enterprise Law and Investment Law systems records a type of contract similar to a shareholder agreement called a Joint Venture Contract in the Law on Foreign Investment in Vietnam. For a long time, this document served as an important legal basis for the establishment, management, operation, and development of joint venture enterprises, existing alongside enterprise law, investment law, and articles of incorporation.

However, this concept has been partially abolished, starting with the Investment Law of 2005. Currently, apart from the Articles of Association, current business and investment laws do not recognize any documents/agreements between founders and/or shareholders during the establishment and operation of a business.

Validity of the shareholder agreement

In Vietnam, as mentioned above, current corporate and investment laws do not recognize shareholder agreements as a legal document related to the formation, operation, and development of a business. Therefore, even when a shareholder agreement is valid according to the provisions of the Civil Code (not contrary to the provisions of the Enterprise Law and other laws), it still faces many risks in its application.

Suppose a shareholder agreement includes restrictions on the transfer of shares/capital contributions, and these restrictions are applied to prevent a shareholder/member from transferring their shares/capital contributions because they do not comply with the restrictions agreed upon in the shareholder agreement. This shareholder can still sue and have a chance of winning because the validity of the shareholder agreement is not recognized in the regulations of corporate and investment law.

To date, according to the author's research, no court judgment or decision has recognized the validity of the shareholder agreement.

It can be seen that, apart from the Articles of Association, the Enterprise Law does not recognize any other document or agreement between shareholders. This means that enterprise law only recognizes the validity of the Articles of Association regarding the establishment and operation of the enterprise. In other words, shareholder agreements are not considered a legally binding document existing alongside the Articles of Association.

Many businesses, after signing a shareholder agreement, have attempted to concretize the provisions of the agreement into other regulations in their Articles of Association, as permitted by the Enterprise Law. However, this also faces many difficulties, such as having to explain the contents of the Articles of Association to the licensing authority during establishment, the possibility of the Articles of Association being approved (especially in cases where the content of the shareholder agreement only applies to the founder or a specific group of shareholders/members), or concerns about confidentiality when the Articles of Association are a publicly available document...

Recognition is needed in the Enterprise Law.

While existing in practice and being an important document linked to the establishment, operation, and development of a business, the provisions of a shareholder agreement are often easily violated because they are not recognized by corporate law as a legal document of the business alongside the Articles of Association, even when the parties agree to prioritize the shareholder agreement over the Articles of Association.

Currently, the number of internal disputes within businesses in Vietnam is increasing, encompassing various types of disputes. These include disputes between shareholders, disputes between shareholders and the company, disputes between shareholders and company managers, and disputes between the company and its managers, among others.

Disputes are complex and affect the normal operation, stability, and development of businesses. Many disputes have led to unfortunate "breakdowns," even for businesses that already have advantages and a good reputation in the market.

These "breakdowns" raise questions about the role of shareholder agreements in resolving disputes and impasses, with previously agreed-upon penalties for breach of contract and commitments to compliance by the participating parties – which would serve as a legal document to effectively resolve disputes and impasses, much like the role of joint venture contracts once played – and which were key to "resolving" disputes/conflicts between Vietnamese and foreign investors in joint ventures.

The existence of a shareholder agreement must first comply with the provisions of corporate law, adhere to the Articles of Association, and, in principle, not affect the rights and interests of other shareholders (especially shareholders not participating in the agreement) or third parties.

However, the agreement must be binding on all parties involved. Therefore, if a provision of the shareholder agreement is not enforced according to the principles of corporate law for all shareholders or the principles of corporate governance, it will at least remain effective for the shareholders who are parties to the agreement – ​​those who signed and committed to implementing the agreement as a civil contract. In this case, the sanctions provisions of the shareholder agreement will apply to the breaching party.

To achieve this, the shareholder agreement needs to be recognized by the Enterprise Law as a legal document of the enterprise, alongside the Articles of Association.

This aligns with the practices of establishing, managing, and operating businesses, helping to create a level playing field and transparency based on consideration of commercial and market advantages; it also meets the aspirations of all investors for the purpose of protecting the stability and sustainable development of businesses.

(*) Member lawyer of NHQuang & Associates Law Firm

Source: https://baodautu.vn/sua-doi-luat-doanh-nghiep-khong-nen-bo-ngo-thoa-thuan-co-dong-d249827.html