MAJOR CHANGES IN VIETNAM ENTERPRISE LAW
 

On 17 June 2020, the National Assembly passed a new Law on Enterprises no 59/2020/QH14. The Enterprises Law 2020 is considered to have many changes, bring many more opportunities to domestic businesses and open directions of investment for foreign investors into Vietnam. The Article shall hightlight major changes of the laws that shall come into force on 1 January, 2021.

1. The regulations of joint stock company       

Compared to Vietnam law on enterprise 2015, the regulations of joint stock company in the law on enterprise 2020 has several changes:

• Bonds of joint stock companies that are not public company are only issued and converted to professional security investors or stategy investors. Bonds issued for stategy investors shall be convertible bonds or bonds attached to certificates.

• The amened law adds the definition of “Non – voting Depository Receipt”. Whereby, ordinary shares shall be able to use for issueing non – voting depository receipt and entitle to vote called as basement ordinary shares.  The Non – voting Depository Receipt has the same economic benefits and obligations with basement ordinary shares, except voting

• Shareholder or a group of shareholders holding 5% voting rights or more to have certain information rights and to have the right to convene the shareholders meeting to review actions of the Board or other managers of the Company. The Enterprise Law 2020 allows a shareholder or a group of shareholders holding 10% voting rights or more to have the right to nominate candidates for the Board or the Inspection Committee.

• The Enterprise Law 2020 now allows the 90-day period to be extended for the time required for transportation, import, and completing legal procedures to transfer title to the company. During this period, the founding members/shareholders who make the initial capital contribution in kind are still entitled to the members/shareholder rights attached to the capital contribution.

• If the Chairman or secretary of a meeting of the Members’ Council, the shareholders meeting, or the Board of Directors refuse to sign on a meeting minute then other attending members or directors could sign on the minutes of meeting instead.

• The amended law requires a joint stock company to update its shareholder register to record a share transfer within 24 hours after a request by the relevant parties. This new requirement is a welcome change since it offers better “exit” rights to a shareholder.

• The inspection committee of a JSC now has express rights to review related party transactions entered into by the company and to recommend related party transactions which should be approved by the Board or the Shareholders Meeting.

2. The regulations of limited company

Law on enterprise 2020 brings several changes in the regulations of limited company, for example:

• A single-member limited liability company doesn’t have to establish the Control Board or Controller

• A single-member limited liability company under the ownership of an organization shall have at least one legal representative that take up a position on The board of member, The company’s president or Director or General Director

• The owner of single - member limited liability company that is individual shall be the company’s president.

• If the enterprise has a member and such person is detained, sentenced to imprisonment, undergone drug rehabilitation, sent to reform school, that member shall designate another person in order to perform several or all his interests and rights in enterprise.

3. The regulations of household business

One of the noticeable aspects from Law on Enterprises 2020 is the official removal household business from the governing of Law on Enterprises, in order to make a separate law for this entity.
Household business is currently regulated in Decree No. 78/2015/ND-CP Enterprise Registration. Stemming from the fact that the number of household businesses outweigh the number of enterprises, aside from that, the nature, method and operating scale of household businesses are much different from those of enterprises. Therefore, making a separate to govern that operation of household businesses is necessary.
During the time when there has’t been such law yet, the Government shall provide guidance regarding registration and operation procedures of household businesses.

4. Groups of subjects under provision from establishing and managing the businessin Vietnam           

Besides organizations, individuals that are not permitted to establish and manage enterprises in Vietnam pursuant to clause 2, article 18 such as:

• Government agencies, armed force units using state-owned property to establish enterprises for self-seeking purposes;

• Officials and civil servants defined by regulations of law on officials and civil servants;

• Commissioned officers, non-commissioned officers, workers and civil servants working at units of the army; commissioned officers, non-commissioned officers working at police units, except for those appointed as authorized representatives to manage state capital contributed to other enterprises;

• Executive officers of state-owned companies, except for those appointed as authorized representatives to manage state capital contributed to other enterprises;

• Minors; people that are legally incompetent; organizations without legal status;

•  Any person facing criminal prosecution, serving a prison sentence, undergoing drug rehabilitation, sent to a reform school; or banned from doing business, holding a certain title or doing a certain job by the court; and other cases prescribed by regulations of law on bankruptcy and anti-corruption.

The amended Law has supplemented one more subject, which is prohibited to establish and manage the business, is organizations that are commercial legal persons prohibited from doing business or operating in certain in order to be suitable with the provisions of the Criminal Code 2015 amended in 2017. Hence, from 1 January, 2021, 07 groups of subjects shall be prohibited from establishing and managing the business in Vietnam.

5. The regulations of the name of business locations

Article 41 of Law on Enterprise 2014 only states the name of business locations must be written using the Vietnamese alphabet, the letters F, J, Z, W, digits, and symbols, must be written or put up at the branches, representative offices and business locations.
From 2021, besides the mentioned letter regulation, Article 40.2 of Law on Enterprises 2020 must make additional demand, name of business locations must include enterprises’ names along with the term “Business location” (currently applied only with branches, representative offices).

 6. The regulations of the seal design

Under the regulations of Article 44.2 of Law on Enterprises 2014, before using the seal, the enterprise must send the seal design to the business registration authority in order for the business registration authority to post it on the National Business Registration Portal.

But the new Law on Enterprises doesn’t regulate that enterprises must send the seal design to the Business registration authority.
Whereby, this Law also adds that: seals include the seals that are made at the seal engraving facility or digital signatures according to the laws on electronic transactions and digital signatures. Moreover, Enterprises are entitled to decide the type, quantities, form and content of the seals of enterprises, branches, representative offices and other units of such enterprises.

7. Definition of State Enterprises

One of the important changes is about State Enterprises, the amended Law has had a change on the definition of State Enterprises, which has regulated that State Enterprises include enterprises that the State owns 50% or more of chapter capital or the total number of voting shares, instead of 100% of the charter capital currently. In details, Article 88 of the amended Law has regulated the different levels of holding the chapter capital as follow:
“1. State enterprises are organized and managed under the form of limited liability companies and joint stock companies, including:
a) Enterprises that the State holds 100% of chapter capital;
b) Enterprises that the State holds 50% or more of chapter capital or the total number of voting shares, except for enterprises regulated in point a, Clause 1 of this Article;
2. Enterprises that the State holds 100% of chapter capital under point a, Clause 1 of this Article include:
a) A one-member limited liability company in which the State holds 100% of its charter capital, is the parent company of a state economic group, the parent company of a state corporation, the parent company in the group of the parent company – the subsidiary company.
b) A one-member limited liability company is an independent company that the State holds 100% of its charter capital.
3. Enterprises that the State holds 50% or more of chapter capital or the total number of voting shares under point b, Clause 1 of this Article include:
a) A limited liability company with 2 or more members or a joint stock company in which the State holds 50% or more of charter capital or the total number of voting shares is the parent company of a state economic group, the parent company of a state corporation, the parent company in the group of the parent company – the subsidiary company.
b) A limited liability company with 2 or more members or a joint stock company is an independent company that the State holds 50% or more of charter capital or the total number of voting shares.”

8. The regulations of enterprise suspension notification  

Under the regulations of Law on Enterprises 2014, enterprises shall send a written notification about time and duration of suspension and time of resumption to business registration authority at least 15 days before the date of suspension or resumption. This regulation is applied in case enterprises the enterprise resumes its business before the notified date. (Article 200 Law on Enterprises 2014).
Meanwhile, Article 206.1 of Law on Enterprises 2020 states that: enterprises shall only send written notification at least 03 working days before notified suspension or resumption day.
Gattaca Law is a professional law organization that provides services relating to enterprises. If Clients have any problems in enterprise management related to changes of Law on enterprises 2020, you can contact with us to consult.

Here are some changes of Vietnam law on enterprise 2020 that Gattaca has summarized and sent to Clients.
Written by Phuong Trinh