According to the assignment of tasks in Resolution 27/NQ-CP, the Government assigned the competent authorities to complete the dossier proposing to amend the Enterprise Law. This is the time when many issues need to be raised for legalization, including the shareholder agreement.
Amending the Enterprise Law: Shareholder agreements should not be left “open”
According to the assignment of tasks in Resolution 27/NQ-CP, the Government assigned the competent authorities to complete the dossier proposing to amend the Enterprise Law. This is the time when many issues need to be raised for legalization, including the shareholder agreement.
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| The Enterprise Law needs to have provisions on shareholders' agreements as a legal document of the enterprise. |
What is a shareholders agreement?
In reality, the establishment, management and operation of a business always requires a shareholders' agreement, but its effectiveness currently depends mainly on the "gentlemanliness" of the participating parties, rather than legal protection.
A shareholder agreement is signed between the founders of a business (including organizations and individuals) when establishing a business or between members/shareholders (shareholders) during the operation of the business. From the perspective of corporate governance, the shareholder agreement is the basis for the group of founders as well as other shareholders to operate the business according to the initial core orientation they set, through priority rights in management and operation (the right to have their representatives in the Board of Directors, Executive Board; voting rights with a higher number of votes or veto rights, decision-making rights on important issues, etc.).
The shareholder agreement is the basis for protecting the rights of the founder, other shareholders participating in the agreement, minority shareholders, and is also the basis for the commitment of shareholders contributing capital when entering the common playground, in the spirit of respecting the orientation of the founders and the stable development of the enterprise.
This is also a document that clearly defines and ensures the interests of shareholders (including founding shareholders and capital contributing shareholders), the interests of the enterprise, the interests of third parties, creating a fair and transparent playing field based on the calculation of commercial and market advantages.
In the world, such documents are known and commonly exist under the name of shareholder agreement or capital contribution contract. In Vietnam, the practice of establishing and operating enterprises records such agreements under many different names, such as shareholder agreement/member agreement, capital contribution contract/agreement, joint venture contract, enterprise establishment agreement/contract, pre-establishment agreement/contract, etc.
However, current corporate and investment laws do not have provisions on recording shareholder agreements.
The development history of the Enterprise Law and Investment Law systems of Vietnam 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 has been an important legal basis for the process of establishment, management, operation and development of joint venture enterprises, existing in parallel with the Enterprise Law, Investment Law and Charter.
However, this concept has been partially abolished, starting from the Investment Law of 2005. Currently, apart from the Charter, current business and investment laws do not recognize any documents/agreements between founders and/or shareholders during the establishment and operation of an enterprise.
Effect of shareholders agreement
In Vietnam, as mentioned above, current corporate and investment laws do not recognize a shareholder agreement as a legal document/document associated with the formation, operation and development of an enterprise. Therefore, when a shareholder agreement is effective under the provisions of the Civil Code (not contrary to the provisions of the Enterprise Law and other laws), there are still many risks when applying it.
Suppose, a shareholder agreement contains restrictions on the transfer of shares/equity contributions and these provisions are applied to prevent a shareholder/member from transferring his/her shares/equity contributions because they do not comply with the restrictions agreed upon in the shareholder agreement. This shareholder can still initiate a lawsuit and has a chance to win the lawsuit because the validity of the shareholder agreement is not recognized in the provisions of the law on enterprises and investment.
Up to now, according to the author's research, there has been no court judgment or decision recognizing the validity of the shareholder agreement.
It can be seen that, apart from the Charter, the Enterprise Law does not recognize any other documents or agreements between shareholders, which means that the Enterprise Law only recognizes the validity of the Charter for the establishment and operation of the enterprise. That is, the shareholder agreement is not considered a legally valid document that exists in parallel with the Charter.
Many enterprises, after signing the shareholder agreement, have tried to specify the provisions of the shareholder agreement into other provisions in the Charter that the Enterprise Law allows. However, this also faces many difficulties when having to explain the contents of the charter to the licensing authority upon establishment, the possibility of passing the charter (especially in cases where the contents of the shareholder agreement only apply to the founder or a certain group of shareholders/members) or concerns about confidentiality when the Charter is a public document...
Need recognition in Enterprise Law
Existing in reality and being an important document, associated with the establishment, operation and development of an enterprise, but the provisions of the shareholder agreement are often easily violated because they are not recognized by corporate law as a legal document of the enterprise besides the Charter, even when the parties agree to prioritize the application of the shareholder agreement before the Charter.
Currently, the number of internal disputes in enterprises in Vietnam is increasing, with many different types of disputes. These include disputes between shareholders and shareholders, disputes between shareholders and enterprises, disputes between shareholders and enterprise managers, disputes between enterprises and managers, etc.
Disputes have complicated developments and affect the normal operation, stability and development of enterprises. Many disputes have led to unfortunate "collapses", even for enterprises with advantages and prestige in the market.
These “collapses” raise the issue of the role of the shareholder agreement in resolving disputes and deadlocks with previously agreed sanctions and commitments to comply by the participating parties - which will be a legal document, helping to resolve disputes and deadlocks effectively, as the role of the Joint Venture Contract once was - the key to “resolving” disputes/conflicts between Vietnamese investors and foreign investors in joint venture enterprises.
The existence of a shareholder agreement must first comply with the provisions of corporate law, comply with the Charter and in principle not affect the rights and interests of other shareholders (especially shareholders not participating in the agreement) and third parties.
However, the agreement must be in the spirit of being effective for the parties to the agreement. Therefore, if a provision of the shareholders' agreement is not implemented in accordance with the principles of corporate law for all shareholders or the principles of corporate governance, it is still effective for the shareholders who are the subjects of the agreement - those who have signed and committed to implementing the agreement as a civil agreement/contract. In this case, the provisions on sanctions of the shareholders' agreement are applied to the violating party.
To do so, the shareholder agreement needs to be recognized by the Enterprise Law as a legal document of the enterprise in addition to the Charter.
This is consistent with the practice of establishing, managing and operating businesses, helping to establish a fair and transparent playing field, based on the calculation of commercial and market advantages; at the same time, it also meets the expectations of all investors for the purpose of protecting the stability and sustainable development of businesses.
(*) Member lawyer of NHQuang and Associates Law Office
Source: https://baodautu.vn/sua-doi-luat-doanh-nghiep-khong-nen-bo-ngo-thoa-thuan-co-dong-d249827.html
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