Rights and Obligations of Shareholders Holding Redeemable Preference Shares Under the Law

1. What are redeemable preference shares?

Clause 1, Article 118 of the Law on Enterprises 2020 regulates redeemable preference shares as follows:

“Article 118. Redeemable preference shares and rights of shareholders holding redeemable preference shares

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1. Redeemable preference shares are shares whose contributed capital is refunded by the company at the request of the holder or in accordance with the conditions stated on the redeemable preference share certificate and the company charter.

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Accordingly, redeemable preference shares are shares whose contributed capital is refunded by the company at the request of the holder or in accordance with the conditions stated on the redeemable preference share certificate and the company charter.

2. What rights do shareholders holding redeemable preference shares have?

Clauses 2 and 3, Article 118 of the Law on Enterprises 2020 provide as follows:

“Article 118. Redeemable preference shares and rights of shareholders holding redeemable preference shares

[…]

2. Shareholders holding redeemable preference shares have the same rights as ordinary shareholders, except as prescribed in Clause 3 of this Article.

3. Shareholders holding redeemable preference shares do not have the right to vote, attend the General Meeting of Shareholders, or nominate persons to the Board of Directors and the Board of Supervisors, except as prescribed in Clause 5, Article 114 and Clause 6, Article 148 of this Law.”

At the same time, Article 115 of the Law on Enterprises 2020 regulates the rights of ordinary shareholders as follows:

– Ordinary shareholders have the following rights:

• To attend and speak at the General Meeting of Shareholders and exercise voting rights directly or through authorized representatives or other forms as prescribed by the company charter or law. Each ordinary share carries one vote;
• To receive dividends at the level decided by the General Meeting of Shareholders;
• To have priority in purchasing new shares in proportion to each shareholder’s ordinary share ownership ratio in the company;
• To freely transfer their shares to others, except as prescribed in Clause 3, Article 120, Clause 1, Article 127 of this Law and other relevant laws;
• To review, look up, and extract information on names and contact addresses in the list of voting shareholders; to request correction of their inaccurate information;
• To review, look up, extract, or copy the company charter, minutes of General Meetings of Shareholders, and resolutions of the General Meeting of Shareholders;
• Upon dissolution or bankruptcy of the company, to receive a portion of the remaining assets in proportion to their share ownership ratio in the company.

– Shareholders or groups of shareholders holding 05% or more of the total ordinary shares, or a smaller ratio as prescribed in the company charter, have the following rights:

• To review, look up, and extract minutes books and resolutions and decisions of the Board of Directors, mid-year and annual financial reports, reports of the Board of Supervisors, contracts and transactions subject to approval by the Board of Directors, and other documents, except documents related to the company’s trade secrets and business secrets;
• To request the convening of the General Meeting of Shareholders in the cases prescribed in Clause 3 of this Article;
• To request the Board of Supervisors to inspect specific matters related to the management and operation of the company when deemed necessary. The request must be in writing and must include the following contents: full name, contact address, nationality, legal document number of the individual shareholder; name, enterprise code or legal document number of the organization, head office address for organizational shareholders; the number of shares and time of share registration of each shareholder, the total number of shares of the group of shareholders and the ownership ratio in the company’s total shares; the matter to be inspected and the purpose of inspection;
• Other rights as prescribed by this Law and the company charter.

– Shareholders or groups of shareholders prescribed in Clause 2 of this Article have the right to request the convening of the General Meeting of Shareholders in the following cases:

• The Board of Directors seriously violates shareholders’ rights, managers’ obligations, or makes decisions exceeding its delegated authority;
• Other cases as prescribed in the company charter.

– A request to convene the General Meeting of Shareholders prescribed in Clause 3 of this Article must be in writing and must include the following contents: full name, contact address, nationality, legal document number of the individual shareholder; name, enterprise code or legal document number of the organization, head office address for organizational shareholders; the number of shares and time of share registration of each shareholder, the total number of shares of the group of shareholders and the ownership ratio in the company’s total shares, the basis and reasons for requesting the convening of the General Meeting of Shareholders. The request must be accompanied by documents and evidence of the Board of Directors’ violations, the severity of violations, or decisions exceeding its authority.

– Shareholders or groups of shareholders holding 10% or more of the total ordinary shares, or a smaller ratio as prescribed in the company charter, have the right to nominate persons to the Board of Directors and the Board of Supervisors. Where the company charter does not provide otherwise, the nomination of persons to the Board of Directors and the Board of Supervisors shall be carried out as follows:

• Ordinary shareholders forming a group to nominate persons to the Board of Directors and the Board of Supervisors must notify the attending shareholders of the group meeting before the opening of the General Meeting of Shareholders;
• Based on the number of members of the Board of Directors and the Board of Supervisors, the shareholders or groups of shareholders prescribed in this Clause have the right to nominate one or several persons as candidates for the Board of Directors and the Board of Supervisors as decided by the General Meeting of Shareholders. Where the number of candidates nominated by the shareholders or groups of shareholders is lower than the number of candidates they are entitled to nominate as decided by the General Meeting of Shareholders, the remaining candidates shall be nominated by the Board of Directors, the Board of Supervisors, and other shareholders.

– Other rights as prescribed by this Law and the company charter.

Accordingly, shareholders holding redeemable preference shares have the rights stated above.

3. May shareholders holding redeemable preference shares nominate persons to the Board of Supervisors of a Joint Stock Company?

Clause 3, Article 118 of the Law on Enterprises 2020 provides as follows:

“Article 118. Redeemable preference shares and rights of shareholders holding redeemable preference shares

[…]

3. Shareholders holding redeemable preference shares do not have the right to vote, attend the General Meeting of Shareholders, or nominate persons to the Board of Directors and the Board of Supervisors, except as prescribed in Clause 5, Article 114 and Clause 6, Article 148 of this Law.”

Accordingly, shareholders holding redeemable preference shares may not nominate persons to the Board of Supervisors of a Joint Stock Company.