Currently, many foreign investors enter into joint ventures with Vietnamese investors, holding a 65% stake to control the entire operation of the company. However, is 65% a sufficient percentage to control the entire operation without being influenced by the Vietnamese investors? Let’s explore this with OTIS LAWYERS in the following article.
General Rights of Company Members
Capital-contributing members in a company have the following basic rights:
- Attend member meetings, discuss, propose, and vote on matters within the authority of the Members' Council;
- Voting rights proportional to their capital contribution;
- Share in profits proportional to their capital contribution after the company has paid taxes and fulfilled other financial obligations as per legal regulations;
- Receive the remaining assets of the company proportional to their capital contribution when the company is dissolved or bankrupt;
- Priority in contributing additional capital to the company when there is an increase in charter capital;
- Dispose of their capital contribution by transferring, gifting, or other means as per legal regulations and the company’s charter;
- Individually or on behalf of the company, initiate civil lawsuits against the Chairman of the Members' Council, the Director or General Director, the legal representative, and other managers;
- Other rights as stipulated by the Law on Enterprises and the company's charter.
Rights of a Member Holding 65% of Charter Capital Impacting the Company
In addition to the basic rights mentioned above, a member holding 65% of the charter capital will have the following impacts on the company’s operations:
Impact on Member Meetings
A Members' Council meeting is convened when members owning 65% or more of the charter capital attend; the specific ratio is determined by the company's charter.
If the first meeting of the Members' Council does not meet the conditions for proceeding and the company's charter does not specify otherwise, the following rules apply:
- A second meeting must be convened within 15 days from the scheduled date of the first meeting. The second meeting can proceed when members owning 50% or more of the charter capital attend;
- If the second meeting does not meet the required conditions, a third meeting must be convened within 10 days from the scheduled date of the second meeting. The third meeting can proceed regardless of the number of members and the proportion of charter capital represented.
Thus, a member holding 65% of the charter capital can consider the content and agenda of the meeting and decide whether to attend the Members' Council meeting. This is also an advantage for a member holding 65% in cases where they do not wish to pass an issue proposed by members holding less than 35% of the charter capital. However, non-attendance would only delay the organization of the Members' Council meeting, which will still take place even if the member with 65% does not attend the third meeting.
Passing Resolutions and Decisions of the Members' Council
Resolutions and decisions of the Members' Council passed at a meeting:
- Are approved by members attending the meeting who own 65% or more of the total capital contributions of all attending members, except as specified in point (b) below;
- Are approved by members owning 75% or more of the total capital contributions of all attending members in relation to the following matters:
- Sale of assets valued at 50% or more of the total asset value recorded in the company's most recent financial statements, or a smaller ratio or value as stipulated in the company’s charter;
- Amendments or supplements to the company’s charter;
- Reorganization of the company;
- Dissolution of the company.
→ Therefore, a member holding 65% of the charter capital can only approve matters such as changes to the business sector, the company's charter capital, business plans, election, dismissal, or removal of the Chairman of the Members' Council, and appointment, dismissal, or removal of the Director or General Director; approval of annual financial statements, etc.
Resolutions and decisions of the Members' Council are also approved in writing when members owning 65% or more of the charter capital agree; the specific ratio is determined by the company's charter.
If the company's charter does not specify otherwise, the Chairman of the Members' Council decides whether to solicit written opinions from the members of the Members' Council to pass resolutions or decisions within its authority.
Thus, to determine the form and ratio for passing company matters, the Members' Council must agree and specifically stipulate in the charter for smooth operation.
Rights of Groups Holding 35% or Less of Charter Capital
Apart from the basic rights stated in Section 1 above, members owning 10% or more of the charter capital will have the following rights:
- Request the convening of a Members' Council meeting to address matters within its authority;
- Examine, review, and audit records and monitor transactions, accounting books, and annual financial statements;
- Examine, review, audit, and copy the members' register, minutes of meetings, resolutions, decisions of the Members' Council, and other company documents;
- Request the court to annul resolutions or decisions of the Members' Council within 90 days from the conclusion of the meeting if the procedures, conditions of the meeting, or content of the resolutions or decisions do not comply with the Law on Enterprises and the company’s charter.
Based on the analysis above, a member holding 65% of the charter capital can only control the company in certain circumstances. All matters must be approved by the Members' Council, and depending on the issue, the member holding 65% will have the right to approve or not.
Even though in some cases, a member holding 65% of the charter capital can pass resolutions, if they disagree with the proposals of members holding 35% or less, the Members' Council's decision will not pass. This is also the advantage of a member holding 65% of the charter capital—they may not be able to pass resolutions but can veto issues at Members' Council meetings.
Additionally, before cooperating with a group of Vietnamese investors, foreign investors should consider negotiating and drafting the charter to protect the interests of the foreign investor group, especially when they are the ones funding and managing the entire company's operations.
The company’s charter is a valuable legal document that parties must adhere to in the event of disputes and helps members comply during operation.
For any questions or comments, please contact:
OTIS AND PARTNERS LAW FIRM
Office address: 2nd Floor, CT3 Building, Yen Hoa Park View Urban Area, No. 3 Vu Pham Ham Street, Yen Hoa Ward, Cau Giay District, Hanoi
Email: [email protected]
Hotline: (+84)987748111
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