Is a Shareholder Lock-Up Agreement Lawful? Capital Reduction & Preemptive Rights

May shareholders of a joint-stock company enter into an internal agreement not to sell their shares for a certain period? Are ordinary shareholders of a joint-stock company entitled to priority in purchasing newly issued shares?

1. May shareholders of a joint-stock company enter into an internal agreement not to sell their shares for a certain period?

Under Clause 1, Article 127 of the Law on Enterprises 2020, shares are freely transferable, except for the restrictions on ordinary shares of founding shareholders under Clause 3, Article 120 of this Law and cases where the company charter restricts share transfers.

Transfer of shares

1. Shares are freely transferable, except as provided in Clause 3, Article 120 of this Law and where the company charter restricts the transfer of shares. Where the company charter restricts the transfer of shares, such restrictions are effective only when clearly stated on the share certificates of the corresponding shares.

…

As for an internal agreement among shareholders of a joint-stock company not to sell shares for a certain period, where it does not violate any prohibition of the Law, the shareholders participating in the agreement voluntarily waive their own rights without coercion, and it does not infringe upon public interests or the interests of any third party, the agreement may be performed.

2. In which cases may a joint-stock company reduce its charter capital?

The cases in which a joint-stock company may reduce its charter capital are prescribed in Clause 5, Article 112 of the Law on Enterprises 2020 as follows:

Capital of a joint-stock company

1. The charter capital of a joint-stock company is the total par value of all classes of shares sold. The charter capital of a joint-stock company upon enterprise registration is the total par value of all classes of shares registered for purchase and recorded in the company charter.

2. Sold shares are shares authorized to be offered that have been fully paid for by shareholders to the company. Upon enterprise registration, sold shares are the total number of all classes of shares registered for purchase.

3. Shares authorized to be offered by a joint-stock company are the total number of all classes of shares that the General Meeting of Shareholders decides to offer to raise capital. Upon enterprise registration, shares authorized to be offered by a joint-stock company are the total number of all classes of shares the company will offer to raise capital, including shares registered for purchase and shares not yet registered for purchase.

4. Unsold shares are shares authorized to be offered that have not been paid for to the company. Upon enterprise registration, unsold shares are the total number of all classes of shares not registered for purchase.

5. A company may reduce its charter capital in the following cases:

a) Pursuant to a decision of the General Meeting of Shareholders, the company returns part of the contributed capital to shareholders in proportion to their share ownership in the company, provided the company has conducted business continuously for 02 years or more from the date of enterprise registration and ensures full payment of debts and other asset obligations after such return to shareholders;

b) The company repurchases sold shares as prescribed in Articles 132 and 133 of this Law;

c) The charter capital has not been fully and timely paid by shareholders as prescribed in Article 113 of this Law.

Accordingly, a joint-stock company may reduce its charter capital in the following cases:

• Pursuant to a decision of the General Meeting of Shareholders, the company returns part of the contributed capital to shareholders in proportion to their share ownership in the company, provided the company has conducted business continuously for 02 years or more from the date of enterprise registration and ensures full payment of debts and other asset obligations after such return to shareholders;
• The company repurchases sold shares as prescribed in Articles 132 and 133 of this Law;
• The charter capital has not been fully and timely paid by shareholders as prescribed.

3. Are ordinary shareholders of a joint-stock company entitled to priority in purchasing newly issued shares?

Whether ordinary shareholders of a joint-stock company are entitled to priority in purchasing newly issued shares is prescribed in Point c, Clause 1, Article 115 of the Law on Enterprises 2020 as follows:

Rights of ordinary shareholders

1. Ordinary shareholders have the following rights:

a) To attend and speak at meetings of the General Meeting of Shareholders and exercise voting rights directly or through authorized representatives or in other forms prescribed by the company charter or law. Each ordinary share carries one vote;

b) To receive dividends at the rate decided by the General Meeting of Shareholders;

c) To have priority in purchasing new shares in proportion to each shareholder’s ordinary share ownership ratio in the company;

d) To freely transfer their shares to others, except as provided in Clause 3, Article 120 and Clause 1, Article 127 of this Law and other relevant laws;

đ) To review, look up and extract information on names and contact addresses in the list of shareholders entitled to vote; to request correction of their inaccurate information;

e) To review, look up, extract or copy the company charter, minutes of meetings of the General Meeting of Shareholders and resolutions of the General Meeting of Shareholders;

g) 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.

Thus, ordinary shareholders of a joint-stock company are entitled to priority in purchasing new shares in proportion to each shareholder’s ordinary share ownership ratio in the company.

Notes on applying current legal provisions

This article belongs to the Enterprise & M&A Knowledge group and is presented for reference, helping readers understand the legal issue at an overview level before preparing dossiers or conducting transactions.

Legal provisions may change depending on timing, locality, dossier type and specific circumstances. Where it is necessary to determine the exact legal basis applicable to your dossier, you should contact an ANT Legal lawyer at 0966.475.966 for review and advice before proceeding.

Common risks to note

• Applying legal texts that have been amended, supplemented or replaced.
• Preparing incomplete dossiers, documents or evidence.
• Misunderstanding the applicable conditions, procedures, time limits or competent authority.
• Signing, filing or conducting transactions without fully assessing legal risks.

How can ANT Legal help?

ANT Legal assists in reviewing specific situations, checking dossiers, identifying the applicable legal basis, advising on handling plans, and representing you in working with individuals, organizations or competent authorities when necessary.

For quick advice, you may contact a lawyer at 0966.475.966.

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