We guess you must have heard a lot about the type of joint stock company or shareholding company in Vietnam. This is a company type that many foreign investors choose when they open their companies in Vietnam. This company type legally has a complex organizational management structure. It is only recommended for medium and large companies, especially those aiming to make an initial public offering to raise capital from the stock exchange. So what is a joint stock company? How is it different from other types of companies? How to establish a joint stock company? These questions will be answered in detail in the following article!
Definition of Joint Stock Company
Definition of Joint Stock Company
A joint stock company or JSC is a company whose charter capital is divided into many equal parts, called shares. It can issue additional shares to raise capital from the public. Those who own shares of a joint stock company are called shareholders.
Organizational management structure of a joint stock company in Vietnam
Organizational management structure of a joint stock company in Vietnam
According to the 2020 Enterprise Law of Vietnam, the organizational management structure of a joint stock company includes:
- Shareholders’General Meeting: itis the highest decision-making body of a joint stock company, gathering all shareholders with voting rights, such as those that hold ordinary or preferred shares.
- ManagementBoard: it is the governing body of a joint stock company. The ManagementBoard has the full authority on behalf of the company to decide and perform the rights and obligations of the company, except for the rights and responsibilities under the authority of the Shareholder’s General Meeting.
- Director or General Director: This position will run the company’s daily business operations under the supervision of the Management Board. The Management Board appoints the Director or General Director of the company. Suppose the charter of a jointstock company does not stipulate that the Chairman of the Management Board is the legal representative of the company. In that case, the person holding the Director or General Director position will be the jointstock company’s legal representative.
- Supervisory Board: For jointstock companies with more than 11 shareholders or institutional shareholders owning more than 50% of the company’s total shares, a Supervisory Board is required. The number of members in the Supervisory Board is 3-5 members. The term of office of the members of the Supervisory Board shall not exceed five (5)
- Audit Committee: a joint stock company can have an Audit Board under the Management Board if it doesn’t want to have a Supervisory Board as long as at least 20% of the members of the Management Board must be independent members.
Characteristics of a Joint Stock Company
Characteristics of a Joint Stock Company
A joint stock company or JSC, according to Article 111 of the 2020 Enterprise Law in Vietnam, has the following characteristics:
- The company’s charter capital is divided into equal parts, called shares.
- The person who owns shares of the company is called a shareholder.
- A joint stock company must have at least three (3) shareholders, and the maximum number of shareholders is not
- A shareholder is only responsible for debts and property obligations of the company within the amount paid for their shares subscribed. A shareholder will enjoy after-tax profits in proportion to their total shares held in the company.
- Joint stock companies in Vietnam can raise their charter capital by issuing additional shares to existing or new shareholders.
Shareholders can freely transfer their shares to others, except for the cases specified in Clause 3, Article 120, and Clause 1, Article 127 of the 2020 Enterprise Law.
Characteristics of types of shares in joint stock companies
Characteristics of types of shares in joint stock companies
Ordinary shares
Ordinary shares are a type of shares that a joint stock company must always have. Those who hold ordinary shares are called ordinary shareholders. Each ordinary share is entitled to only one vote. Voting rights are exercised by shareholders directly or through an authorized representative in accordance with the company’s charter and law.
Within three (3) years of the company registration, ordinary shares of founding shareholders are freely transferable to other founding shareholders. They can only be transferred to those not founding shareholders if approved by the Shareholders’ General Meeting. In this case, the founding shareholders who intend to transfer ordinary shares do not have the right to vote on the transfer of such shares. One thing to remember is that ordinary shares are not convertible into preference shares.
Preference shares
Preference shares are divided into three (3) types:
- Dividend preference shares: This type of share will pay dividends at a higher rate than ordinary shares and are maintained at a stable annual rate. The holders of this type of share are prescribed by the company’s charter or decided by the Shareholders’ General Meeting. Annual dividends of this type of share include fixed dividends and bonus dividends. The fixed dividend will not depend on the company’s profits. The bonus dividend depends on the business situation of the company.
- Redeemable preference shares: It is a type of share that the company shall refund at the request of shareholders or according to the company’s charter. Redeemable preference shares will not have voting rights except for the cases specified in Clause 5, Article 114, and Clause 6, Article 148 of the 2020 Enterprise Law. These shares are freely transferable.
Voting preference shares: These are ordinary shares with more than one vote. The number of votes for one share depends on the company’s charter. Voting preference shares will be held by an organization authorized by the Government or a founding shareholder. These are also shares that can be converted into ordinary shares.
Advantages and disadvantages of a joint stock company in Vietnam
Advantages and disadvantages of a joint stock company in Vietnam
Advantages
Low risk: Shareholders can quickly exit their investments in a joint stock company. Within three (3) years of the availability of an enterprise registration certificate, ordinary shares of founding shareholders are freely transferable to other founding shareholders. They can only be transferred to those who are not founding shareholders if approved by the Shareholders’ General Meeting. In this case, the founding shareholders who intend to transfer ordinary shares do not have the right to vote on the transfer of such shares. One thing to remember is that ordinary shares are not convertible into preference shares.
Easy to raise capital: Joint stock companies can raise their charter capital by issuing additional shares on the market. This is a prominent feature and is only available in joint stock companies. Shares of joint stock companies are freely transferable. The ability of shares to be freely transferable and to issue additional shares allows a joint stock company to acquire more shareholders or increase its charter capital, and shareholders efficiently can flexibly perform transactions of buying and selling shares of the company.
A joint stock company can exist independently for a long time without being affected by the existence of shareholders. Regardless of the shareholder’s death, retirement, or other problems and cannot continue to hold shares in the company, the company will continue to exist and operate until it is liquidated or dissolved in accordance with the laws of Vietnam.
The large scope of activities: Joint stock companies are suitable to operate in most fields and industries. But this is no longer the exclusive advantage of joint stock companies.
Simple share transfer procedure: The procedure for transferring shares is straightforward; a joint stock company will not limit the number of shareholders. Therefore, joint stock companies attract many individuals or organizations to buy shares issued by joint stock companies in Vietnam.
Disadvantages
A joint stock company has a complex structure; the management of the company may face many difficulties if there are many shareholders. This may lead to the division of factions to dispute internal interests.
Joint stock companies will face many difficulties in making decisions, whether on company management or business methods. Because joint stock companies must disclose and report essential issues in terms of finance, material transactions, or business strategies in annual shareholder meetings, they will face difficulties in keeping that information private and confidential.
Finally, when transferring shares, individual shareholders must declare personal income and pay a tax of 0.1% on the share transfer price each time.
Conditions for establishing a joint stock company in Vietnam
Conditions for establishing a joint stock company in Vietnam
Who is the founder of a joint stock company: Individuals and organizations are allowed to establish joint stock companies, except those prescribed in Article 17 of the 2020 Enterprise Law. For instance, State officials, employees, people who do not have the capacity for civil acts, and persons who are being examined for penal liability, detained, are serving prison sentences are not allowed to establish joint stock companies.
The number of shareholders: There must be a minimum of three (3) shareholders. At the same time, the company must maintain at least three shareholders during its operation.
Company name: According to the 2020 Enterprise Law, a JSC name must not be identical to or confusingly similar to other companies’ names nationwide. Company names with different company types are still counted as identical or confusingly similar.
Company headquarters: Joint stock companies must always have headquarters that meet the law’s requirements. Like other types of companies, joint stock companies are not allowed to have their headquarters in an apartment building or a dormitory. Company headquarters can be located in a private house or commercial building.
Business lines: The national industry code will be applied according to the Decision promulgating the system of economic sectors in Vietnam. For conditional business sectors, foreign investors must meet all the relevant requirements regarding market access conditions, investment forms, foreign ownership rate, etc., to be issued an investment registration certificate and enterprise registration certificate.
Conditions for charter capital: The time to fully contribute capital is 90 days from the date of the enterprise registration certificate. Suppose the shareholders fail to pay fully for their shares subscribed. In that case, the company needs to change the information of founding shareholders and reduce the charter capital within 30 days of the capital contribution deadline. In addition, the charter capital will determine the annual license tax to pay.
Legal capital requirements: Most business sectors require no legal capital, except for specific conditional industries, such as banking, securities, insurance services, etc.
Requirements of legal representatives: A joint stock company can have one or more legal representatives. A representative of a joint stock company can still act as a representative of other companies, except for individuals holding the director or general director position of state-owned enterprises.