Approaching the international common practices on joint stock company governance related to the protection of minority shareholders, the Law on Enterprise 2020 which will be effective from 01/01/2021 will enhance the mechanisms to increase the rights of small shareholders in this type of enterprises.
Specifically, the Law on Enterprise 2014 previously required that the shareholders or groups of shareholders shall hold 10% or more of the total shares for at least 6 months in order to be entitled to enjoy the privilege of intervening in the company’s governance and monitoring of the company’s operations. The shareholder, groups of shareholders shall hold at least 1% of the total shares in similar period in order to be entitled to file lawsuit against the members of the Board of Management, Director or General Director by himself/herself or on behalf of the company.
However, the Enterprise Law 2020 reduces the rate of 10% as aforementioned to 5%, thereby allowing such shareholders to have the right to review, research or extract the information and important documents of the company, have the right to request the Inspection Committee to inspect the company’s affairs or have the right to convene a meeting of the General Meeting of Shareholders.
The privilege to nominate a person to the Board of Management, the Inspection Committee still is vested to the shareholders or groups of shareholders holding at least 10% of the total shares. The ratio of 1% of the total shares or more still allows the respective shareholders to sue the leadership board.
However, the new Enterprise Law no longer requires these shareholders to satisfy the condition of above minimum 6-month period. The abandonment of such condition which evokes the mindset of “the more powerful elderly people” will bring positive changes to shareholders. Because it allows them to speak up from the moment of sticking to the company’s interests, instead of unreasonably waiting while many things may happen.
Another new provision gives the shareholder and groups of shareholders suing have the right to review, research and extract the company’s information at the request of the Court or Arbitration. Creating the prerequisite for enforcing the right to file lawsuit, this provision ensures such shareholders can access to any necessary and useful information during the proceeding.
By the Law on Enterprise 2020, the lawmakers continue to improve the legal corridor to better protect the minority shareholders. From 1 January 2021, the existing joint stock companies are obliged to transform the above provisions into the company’s charter by the amendment. The lawmaker also allows the enterprises to reinforce such protection, by giving respective privileges to the shareholders holding shares at a rate which is smaller than the rate as required by the law.