The Constitution is the basic law of a country, while the Charter is the basic law of an enterprise and plays a major role in setting and maintaining an effective way of oganization and operation of the enterprise. In the public company inherently having large scale, the Charter is even more important.
Therefore, with the new Charter template annexed to Circular 116/2020/TT-BTC on public company governance (replacing Circular 95/2017/TT-BTC) and effective from 15th February 2021 (“New Charter Template”), the following changes should be referenced by public companies to update their current Charter.
Amendment of shareholder’s obligations related to capital and shares
Accordingly, the shareholders is entitled to to request the public company for re-issuance of new shares but shall undertake to be responsible for any dispute arising. This new regulation provides with a barrier to protect the public companies from the potential claims and litigation related to re-issuance.
Besides, if a shareholder has not fulfilled yet the payment for all the shares registered to purchase, the shareholder shall be responsible for the financial obligations of the public company arising due to such late payment in proportion to the registered shares. Instead of requirement on full payment of principal and interest as ancient provision, this change is more effective method to ensure the shareholders respect their commitments. In addition, observing in accordance with the provisions of the enterprise law and correcting a strange omission of the ancient Charter template, the New Charter Template states that the shareholders are not entitled to withdraw their contribution capital by common shares in any form, except in the case of redemption/transfer.
Expansion of shareholders’ rights
Taking inspiration from the Enterprise Law 2020, the New Charter Template (i) changes the shareholders’ rights in respect of share ownership ratio and (ii) removes the condition of continuous shareholding period for at least 06 months to exercise the rights of shareholder.
Accordingly, the right to nominate the candidates to the Board of Directors or the Board of Supervision is vested only to the shareholder/group of shareholders holding at least 10% of the total common shares if the Charter does not provide smaller percentage (instead of 5% as before). The New Charter Template also supplement to the shareholder/group of shareholders with holding percentage of 5% and above the right to request the issues in the agenda of the General Meeting of Shareholders and the right to review, research and extract many documents related to the Board of Directors, Board of Supervision (if such documents are not trade secrets of public company).
General Meeting of Shareholders and Board of Supervision
There is no longer limitation on the number of Board of Supervision’s member (03 persons in the ancient regulation). The New Charter Template also supplements some powers of the Board of Supervision: outline its operational regulation by itself; access the files and documents of the public companies kept at working offices; enter the workplace of managers and employees during working hours, request the Board of Director and General Manager to provide with the documents on governance and operation of the public company, etc.
Regarding the General Meeting of Shareholders, according to the New Charter Template, its meeting only needs the quorum of above 50% of the total number of votes (instead of 51% as before). The same rate is also applied to approve its Resolution by shareholder opinion collection.
The New Charter Template in Circular 116/2020/TT-BTC is a good model for the public companies to update the changes of legal regulations in accordance with the Law on Enterprise 2020 and the Law on Securities 2019 which have been effective from the beginning of this year.