Can dividend preference shares be converted into common shares? Is it possible or not?

Are shareholders holding dividend preference shares allowed to nominate people to the Board of Directors of a joint stock company? Can dividend preference shares be converted into common shares?

1. What is dividend?

Pursuant to Clause 5, Article 4 of the Law on Enterprises 2020, it is explained as follows:

“Article 4. Interpretation of terms

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5. Dividends are net profits paid for each share in cash or other assets.

[…]”

Accordingly, dividends are net profits paid for each share in cash or other assets.

2. What are dividend preference shares?

Pursuant to Clause 1, Article 117 of the Law on Enterprises 2020, regulations on dividend preference shares are as follows:

“Article 117. Dividend preference shares and rights of shareholders owning dividend preference shares

1. Dividend preference shares are shares that are paid dividends at a higher rate than the dividend rate of common shares or a stable annual rate. Annual dividends include fixed dividends and bonus dividends. Fixed dividends do not depend on the company’s business results. The specific fixed dividend level and method of determining bonus dividends are clearly stated in the shares of dividend preference shares.

[…]”

Accordingly, dividend preference shares are shares that are paid dividends at a higher rate than the dividend rate of common shares or a stable annual rate. Dividends distributed annually include:

– Fixed dividends;

– Bonus dividends.

3. What rights do shareholders who own dividend preference shares have?

Pursuant to Clause 2, Article 117 of the Law on Enterprises 2020, regulations on the rights of shareholders owning dividend preference shares are as follows:

“Article 117. Dividend preference shares and rights of shareholders owning dividend preference shares

[…]

2. Shareholders who own dividend preference shares have the following rights:

a) Receive dividends as prescribed in Clause 1 of this Article;

b) Receive the remaining assets corresponding to the percentage of share ownership in the company after the company has paid all debts, and preference shares are refundable when the company dissolves or goes bankrupt;

c) Other rights as common shareholders, except for the cases specified in Clause 3 of this Article.

3. Shareholders who own dividend preference shares do not have the right to vote, attend the General Meeting of Shareholders, or nominate people to the Board of Directors and Supervisory Board, except for the cases specified in Clause 6, Article 148 of this Law.”

Accordingly, the rights of shareholders owning dividend preference shares include:

+ Receive dividends at a higher rate than the dividend rate of common shares or a stable annual rate;

+ Receive the remaining assets corresponding to the share ownership ratio in the company after the company has paid all debts, and preference shares are refundable when the company dissolves or goes bankrupt;

+ Other rights like common shareholders.

4. Can dividend preference shares be converted into common shares?

Pursuant to Clause 5, Article 114 of the Law on Enterprises 2020, it is specifically stipulated as follows:

“Article 114. Types of shares

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5. Common shares cannot be converted into preferred shares. Preferred shares can be converted into common shares according to the resolution of the General Meeting of Shareholders.

[…]”

Thus, the number of dividend preference shares can be converted into common shares according to the resolution of the General Meeting of Shareholders.

5. Do shareholders who own dividend preference shares have the right to nominate people and the Board of Directors?

Pursuant to Clause 3, Article 117 of the Law on Enterprises 2020, the specific provisions are as follows:

“Article 117. Dividend preference shares and rights of shareholders owning dividend preference shares

[…]

3. Shareholders who own dividend preference shares do not have the right to vote, attend the General Meeting of Shareholders, or nominate people to the Board of Directors and Supervisory Board, except for the cases specified in Clause 6, Article 148 of this Law.”

Accordingly, you are a shareholder holding preferred dividend shares, so you do not have the right to vote or nominate people to the Board of Directors of the Joint Stock Company. Except for the case in Clause 6, Article 148 of the Law on Enterprises 2020, specifically as follows:

“Article 148. Conditions for a resolution of the General Meeting of Shareholders to be passed

[…]

6. A resolution of the General Meeting of Shareholders on content that adversely changes the rights and obligations of shareholders owning preferred shares may only be passed if it is approved by the number of preferred shareholders of the same type attending the meeting who own 75% or more of the total number of preferred shares of that type or approved by preferred shareholders of the same type owning 75% or more of the total number of preferred shares of that type in the case of passing a resolution in the form of soliciting written opinions. version.”

Accordingly, although shareholders owning dividend preferred shares do not have the right to nominate people to the Board of Directors of the Company, if voting or nominating people to the Board of Directors of the company makes changes that adversely change the rights and obligations of shareholders owning preferred shares, it will only be approved if it is approved or approved by the number of preferred shareholders of the same type attending the meeting who own 75% or more of the total number of preferred shares of that type. Preferred shareholders of the same type owning 75% or more of the total number of preferred shares of that type agree in case of passing the resolution in the form of written opinions.