If a Preference Shareholder Dies, Does the Testamentary Heir Automatically Become a Shareholder?

How are preference shareholders classified?

Article 114 of the Law on Enterprises 2020 provides for the classes of shares as follows:

Classes of shares

Related services

Corporate Legal Advisory

If your company needs to review governance authority, resolutions, charter documents or internal dispute risk, ANT Legal can help assess the file and suggest appropriate next steps.

Explore this service Message on Zalo Copy WeChat Send consultation request

Website information is for general reference only and does not replace legal advice for a specific matter.

1. A joint-stock company must have ordinary shares. A holder of ordinary shares is an ordinary shareholder.

2. In addition to ordinary shares, a joint-stock company may have preference shares. A holder of preference shares is called a preference shareholder. Preference shares include the following classes:

a) Dividend preference shares;

b) Redeemable preference shares;

c) Voting preference shares;

d) Other preference shares as prescribed in the company charter and securities law.

Under this provision, a holder of preference shares is called a preference shareholder. Accordingly, there are the following preference shareholders:

– Holders of dividend preference shares;

– Holders of redeemable preference shares;

– Holders of voting preference shares;

– Holders of other preference shares as prescribed in the company charter and securities law.

When may a resolution of the General Meeting of Shareholders that adversely changes the rights of preference shareholders be adopted?

The conditions for a resolution of the General Meeting of Shareholders to be adopted are prescribed in Clause 6, Article 148 of the Law on Enterprises 2020 as follows:

Conditions for a resolution of the General Meeting of Shareholders to be adopted

…

5. A resolution of the General Meeting of Shareholders must be notified to shareholders entitled to attend the General Meeting of Shareholders within 15 days from the date of adoption; where the company has an electronic information page, sending the resolution may be replaced by posting it on the company’s electronic information page.

6. A resolution of the General Meeting of Shareholders on a matter that adversely changes the rights and obligations of holders of preference shares may only be adopted if approved by the preference shareholders of the same class attending the meeting holding 75% or more of the total number of preference shares of that class, or by the preference shareholders of the same class holding 75% or more of the total number of preference shares of that class in case of adoption by written consultation.

Under this provision, a resolution of the General Meeting of Shareholders on a matter that adversely changes the rights of preference shareholders may only be adopted if approved by the preference shareholders of the same class attending the meeting holding 75% or more of the total number of preference shares of that class, or by the preference shareholders of the same class holding 75% or more of the total number of preference shares of that class in case of adoption by written consultation.

If a preference shareholder dies, does the testamentary heir of that shareholder automatically become a shareholder of the company?

Share transfer is regulated in Article 127 of the Law on Enterprises 2020 as follows:

Share transfer

…

2. A transfer shall be effected by contract or by a transaction on the securities market. Where the transfer is by contract, the transfer documents must be signed by the transferor and the transferee or their authorized representatives. Where the transaction is on the securities market, the order and procedures for the transfer shall comply with securities law.

3. Where a shareholder being an individual dies, the testamentary heir or heir at law of that shareholder shall become a shareholder of the company.

4. Where a shareholder being an individual dies with no heir, the heir refuses the inheritance, or is deprived of the right to inherit, the shares of that shareholder shall be dealt with in accordance with civil law.

5. A shareholder may donate part or all of its shares in the company to another individual or organization, or use shares to pay debts. The individual or organization receiving the donated shares or the shares used to pay debts shall become a shareholder of the company.

6. An individual or organization receiving shares in the cases prescribed in this Article shall become a shareholder of the company only from the time their information prescribed in Clause 2, Article 122 of this Law is fully recorded in the shareholder register.

7. The company must register the change of shareholders in the shareholder register at the request of the relevant shareholder within 24 hours from receipt of the request in accordance with the company charter.

Thus, if a preference shareholder dies, the testamentary heir of that shareholder shall automatically become a shareholder of the company. Where a shareholder being an individual dies with no heir, the heir refuses the inheritance, or is deprived of the right to inherit, the shares of that shareholder shall be dealt with in accordance with civil law.