Can Dividend-Preference Shares Be Converted into Ordinary Shares?

Dividend-preference shares cannot be converted into ordinary shares, unless the company charter provides otherwise and permits such conversion.

1. What are dividends?

Under Clause 5, Article 4 of the Law on Enterprises 2020 (as amended by Law No. 76/2025/QH15, effective from 01/07/2025): “Dividends are after-tax profits paid for each share in cash or in other assets.”

2. What are dividend-preference shares?

Under Clause 1, Article 117 of the Law on Enterprises 2020: “Dividend-preference shares are shares on which dividends are paid at a higher rate than the dividends of ordinary shares or at a stable annual rate. Annual dividends comprise fixed dividends and bonus dividends.”

3. Can dividend-preference shares be converted?

Under Article 117 of the Law on Enterprises 2020, shareholders holding dividend-preference shares have no voting rights and may not attend the General Meeting of Shareholders (except in the cases specified in Clause 6, Article 148). The Law does not provide for the conversion of dividend-preference shares into ordinary shares, unlike voting-preference shares.

Therefore, as a general rule, dividend-preference shares cannot be converted into ordinary shares, unless the company charter so permits and the conversion is approved by the General Meeting of Shareholders in accordance with the prescribed procedures.

4. May dividend-preference shareholders nominate members to the Board of Directors?

No. Because shareholders holding dividend-preference shares have no voting rights, they have no right to nominate members to the Board of Directors or the Board of Supervisors, except in the cases specified in Clause 6, Article 148 of the Law on Enterprises 2020.

5. Rights of dividend-preference shareholders upon the company’s dissolution or bankruptcy

Under Point b, Clause 2, Article 117 of the Law on Enterprises 2020, shareholders holding dividend-preference shares are entitled to receive the remaining assets in proportion to their shareholding ratio after the company has paid all its debts and redeemed the redeemable preference shares upon the company’s dissolution or bankruptcy.

Notes on application

The issuance and conversion of preference shares affect the interests of multiple groups of shareholders and must strictly comply with the Law on Enterprises and the company charter.

Common risks to note

• Confusing the rights of dividend-preference shareholders with those of voting-preference shareholders;
• Converting shares when the company charter does not permit it;
• Failing to follow the General Meeting of Shareholders procedures when changing the share structure.

How can ANT Legal help?

ANT Legal advises on plans for the issuance and conversion of preference shares in line with the company charter. For advice, please contact an ANT Legal lawyer.

Related articles

• Who has the right to appoint the director of a joint-stock company?
• What is the minimum charter capital of a single-member limited liability company?