Legal issues surrounding the transfer of shares have always been a matter of concern for shareholders and investors. According to corporate law, shareholders or investors have the right to freely transfer shares through contracts or transactions on the stock market, except in certain cases where transfer is restricted or prohibited by law. The following article, with the theme of notes on Share transfer in Vietnam, will provide readers with an overview and update on this issue.
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Notes on share transfers through the Transfer agreement
The method of transferring shares through a transfer agreement is applicable for unlisted shares or in cases where shares cannot be transferred through transactions on the stock market. Such transactions can include gifting, inheritance of shares; transfer of odd-lot shares; transfer of founders’ shares during the restricted transfer period; transfer of preference shares; transfer of shares between foreign investors when the foreign ownership limit for those shares has been reached and in case that agreed price between the parties is higher than the ceiling price of the shares on the stock exchange at the time of the transaction; etc.[1]
Shareholders transferring shares through this method should note the following points:
First, regarding the restrictions on the right to transfer shares, the current law imposes certain limitations on the transfer of shares by shareholders. Specifically:
- Within three years from the date the company is issued the Enterprise Registration Certificate, founding shareholders may only transfer ordinary shares to non-founding shareholders if approved by the General Meeting of Shareholders. In this case, the founding shareholder intending to transfer ordinary shares does not have the right to vote on the transfer[2].
- The company’s charter may stipulate restrictions on share transfers, and these restrictions must be clearly stated on the respective share certificates[3].
Second, regarding transfer procedures, according to Article 127.2 of the Law on Enterprise 2020, share transfers through a transfer agreement must be signed by the transferor and the transferee or their authorised representatives. Additionally, the parties involved should note the following contents that should be included in the share transfer agreement:
- The subject matter of the agreement (the issuing organisation, type of shares, par value, quantity, etc.).
- Payment methods and deadlines.
- Rights and obligations of the parties.
- Commitments of the parties.
- Modifications and additions to the contract terms.
- Dispute resolution clauses.
The procedure for transferring shares through a share transfer agreement is as follows:
Step 1. The parties sign and execute the share transfer agreement.
Step 2. A confirmation record of the completed share transfer procedures is made.
Step 3. Hold a General Meeting of Shareholders to approve the share transfer (if required).
Step 4. Amend and update the information in the company’s Shareholder Register.
Step 5. Register the change of shareholders according to legal provisions.
Third, the share transfer agreement officially takes effect at the time agreed upon by the parties and stated in the contract. If no specific time is agreed upon, the contract takes effect from the date of signing. Once the transfer is completed, the contract will terminate.
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Notes on Share Transfers through Stock Market Transactions
According to Article 6.1 of Circular 119/2020/TT-BTC, shareholders and investors can only transfer the ownership of securities through the stock market trading system for purchase and sale transactions. For transactions that do not involve buying and selling or cannot be conducted through the stock market trading system, shareholders can only transfer shares through a contractual agreement.
The procedure, formalities of the recording of securities ownership transfer are carried out according to the regulations on securities ownership transfer operations of the Vietnam Securities Depository and Clearing Corporation and the rules of the securities company where the investor has opened a securities account.
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Other issues to note when transferring shares
First, tax obligations arising from transactions. Income from share and securities transfers is subject to personal income tax. According to Article 25.1(d) of Circular 111/2013/TT-BTC, all share and securities transfers are subject to a 0.1% personal income tax withholding on the transfer price before payment to the transferor.
Second, in some cases of share transfers involving founding shareholders or foreign shareholders, the company must perform certain notification and registration procedures in accordance with the Law on Investment and the Law on Enterprise. Specifically:
- In case a founding shareholder transfers all shares, the company must notify the change of founding shareholders according to Article 57 of Decree 01/2021/ND-CP;
- In case a foreign investor shareholder transfers shares to another foreign investor, leading to a change of foreign investor shareholders in the company, the company must notify the change of foreign investor shareholders according to Article 58 of Decree 01/2021/ND-CP;
- In case a domestic investor shareholder transfers shares to a foreign investor, resulting in an increase in the foreign ownership ratio in a company operating in a sector with conditional market access for foreign investors, or leading to a situation where foreign investors and economic organisations with over 50% foreign investment hold more than 50% of the company’s charter capital, the procedures for registering capital contribution, share purchase, or capital contribution purchase by foreign investors must be followed according to Article 26 of the Investment Law 2020.
The above is an overview of Notes on Share transfer in Vietnam. If you encounter any difficulties related to the legal field, please contact us. Phuoc & Partners is a law firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Da Nang. Phuoc & Partners is also considered one of the law firms with a team of staff specialising in the leading legal field in Vietnam and whose practice areas are rated top in the legal market such as Labour and Employment, Taxation, Mergers and Acquisitions, and Litigation. We are confident that we are one of the Law Firms providing the best legal services to our customers.
[1] Article 6.2 of Circular 119/2020/TT-BTC.
[2] Article 120.3 and 120.4 of Law on Enterprise 2020.
[3] Article 127.1 of Law on Enterprise 2020.
