How to Calculate the Voting Ratio in a JSC When a Founding Shareholder Transfers Shares to Another Person?

Must a joint-stock company have founding shareholders?

Whether a joint-stock company must have founding shareholders is prescribed in Clause 1, Article 120 of the Law on Enterprises 2020 as follows:

Ordinary shares of founding shareholders

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1. A newly established joint-stock company must have at least 03 founding shareholders. Joint-stock companies converted from state-owned enterprises or limited liability companies, or formed through division, spin-off, consolidation or merger of other joint-stock companies, are not required to have founding shareholders; in this case, the company Charter in the enterprise registration dossier must bear the signature of the legal representative or the ordinary shareholders of that company.

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Under the above regulations, a newly established joint-stock company must have at least 03 founding shareholders.

However, joint-stock companies converted from state-owned enterprises or limited liability companies, or formed through division, spin-off, consolidation or merger of other joint-stock companies, are not required to have founding shareholders.

How is the voting share ratio calculated in a joint-stock company where a founding shareholder has no voting rights?

Under Clause 3, Article 120 of the Law on Enterprises 2020, within 03 years from the date the company is issued the Enterprise Registration Certificate, founding shareholders shall have restricted rights to transfer their shares.

Specifically, to transfer ordinary shares to a person who is not a founding shareholder, the approval of the General Meeting of Shareholders is required.

In this case, the founding shareholder intending to transfer the ordinary shares has no voting rights on that share transfer.

Under Article 148 of the Law on Enterprises 2020, as amended by Clause 5, Article 7 of the Law amending the Law on Public Investment, the Law on Investment under the Public-Private Partnership Model, the Law on Investment, the Law on Housing, the Law on Bidding, the Law on Electricity, the Law on Enterprises, the Law on Special Consumption Tax and the Law on Civil Judgment Enforcement 2022, the approval ratio for this matter will depend on the company Charter (which may be 65% or higher, or over 50% of total votes).

Where the company Charter has no provisions, the transfer of ordinary shares of a founding shareholder to another person shall be approved if over 50% of the total votes of all shareholders attending the meeting vote in favor.

Note: whether the ratio is 65% or higher or over 50% of total votes shall be specifically prescribed by the company Charter.

When calculating the voting ratio for approval, only shareholders attending the meeting and entitled to vote on this share transfer matter are counted.

Example: The General Meeting of Shareholders of a joint-stock company has 20 shareholders, of whom 1 founding shareholder wishes to transfer his ordinary shares to another person (who is not a founding shareholder), so this shareholder has no voting rights.

Therefore, the voting for approval is based on the percentage of total votes of the remaining 19 shareholders.

If 65% or higher, or over 50%, of the total votes of the 19 shareholders vote in favor, this matter is approved.

When founding shareholders change, must the joint-stock company notify the Business Registration Office?

Whether a joint-stock company must notify the Business Registration Office when founding shareholders change is prescribed in Clause 1, Article 31 of the Law on Enterprises 2020 as follows:

Notification of changes to enterprise registration contents

1. Enterprises must notify the Business Registration Office when changing one of the following contents:

a) Business lines;

b) Founding shareholders and shareholders being foreign investors for joint-stock companies, except for listed companies;

c) Other contents in the enterprise registration dossier.

2. Enterprises shall be responsible for notifying changes to enterprise registration contents within 10 days from the date of change.

Accordingly, when founding shareholders change, the joint-stock company must notify the Business Registration Office within 10 days from the date of change.