Types of Shares in a Joint Stock Company Under the Law

What types of shares does a joint stock company have? What are the characteristics of each type of share?

1. What is a joint stock company?

Article 111 of the Law on Enterprises 2020 on joint stock companies provides as follows:

“Article 111. Joint stock companies

1. A joint stock company is an enterprise in which:

a) The charter capital is divided into equal parts called shares;

b) Shareholders may be organizations or individuals; the minimum number of shareholders is 03 and there is no limit on the maximum number;

c) Shareholders are liable for the debts and other asset obligations of the enterprise only to the extent of their contributed capital;

d) Shareholders have the right to freely transfer their shares to others, except as provided in Clause 3 of Article 120 and Clause 1 of Article 127 of this Law.

2. A joint stock company has legal person status from the date it is granted the Enterprise Registration Certificate.

3. A joint stock company has the right to issue shares, bonds and other securities of the company.”

Pursuant to legal provisions, the shares of a joint stock company are understood as equal parts divided from the company’s charter capital. Organizations and individuals owning shares of the company are called shareholders. Shareholders are liable for the debts and other asset obligations of the joint stock company only to the extent of their contributed capital. Shareholders have the right to freely transfer their shares to others, except in cases prescribed by law.

2. What types of shares does a joint stock company have?

Article 114 of the Law on Enterprises 2020 on the types of shares of a joint stock company provides as follows:

“Article 114. Types of shares

1. A joint stock company must have ordinary shares. Holders of ordinary shares are ordinary shareholders.

2. In addition to ordinary shares, a joint stock company may have preference shares. Holders of preference shares are preference shareholders. Preference shares include the following types:

a) Dividend preference shares;

b) Redeemable preference shares;

c) Voting preference shares;

d) Other preference shares as provided in the company charter and securities laws.

3. Persons entitled to purchase dividend preference shares, redeemable preference shares and other preference shares shall be as provided in the company charter or decided by the General Meeting of Shareholders.

4. Each share of the same class gives its holder equal rights, obligations and interests.

5. Ordinary shares may not be converted into preference shares. Preference shares may be converted into ordinary shares pursuant to a resolution of the General Meeting of Shareholders.

6. Ordinary shares used as underlying assets for issuing non-voting depository receipts are called underlying ordinary shares. Non-voting depository receipts have economic interests and obligations corresponding to the underlying ordinary shares, except for voting rights.

7. The Government shall provide regulations on non-voting depository receipts.”

Accordingly, a joint stock company has the following types of shares:

– Ordinary shares: this is a type of share that a joint stock company is required to have.

– Preference shares, including: dividend preference shares; redeemable preference shares; voting preference shares; and other preference shares as provided in the company charter and securities laws.

3. What are the characteristics of each type of share of a joint stock company?

Voting preference shares are regulated in Article 116 of the Law on Enterprises 2020 as follows:

“Article 116. Voting preference shares and rights of shareholders holding voting preference shares

1. Voting preference shares are ordinary shares that carry more votes than other ordinary shares; the number of votes of a voting preference share shall be as provided in the company charter. Only organizations authorized by the Government and founding shareholders are entitled to hold voting preference shares. The voting preference of founding shareholders is valid for 03 years from the date the company is granted the Enterprise Registration Certificate. The voting rights and duration of the voting preference for voting preference shares held by organizations authorized by the Government shall be as provided in the company charter. After the voting preference period expires, voting preference shares are converted into ordinary shares.

2. Shareholders holding voting preference shares have the following rights:

a) To vote on matters within the competence of the General Meeting of Shareholders with the number of votes as provided in Clause 1 of this Article;

b) Other rights as ordinary shareholders, except as provided in Clause 3 of this Article.

3. Shareholders holding voting preference shares may not transfer such shares to others, except for transfers pursuant to legally effective court judgments or decisions, or by inheritance.

4. The Government shall provide detailed regulations on this Article.”

Dividend preference shares are regulated in Article 117 of the Law on Enterprises 2020 as follows:

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

1. Dividend preference shares are shares on which dividends are paid at a higher rate than dividends on ordinary shares or at a stable annual rate. Annual dividends consist of fixed dividends and bonus dividends. Fixed dividends do not depend on the business results of the company. The specific fixed dividend rate and the method of determining bonus dividends are clearly stated in the share certificates of the dividend preference shares.

2. Shareholders holding dividend preference shares have the following rights:

a) To receive dividends as provided in Clause 1 of this Article;

b) To receive a portion of the remaining assets corresponding to their shareholding ratio in the company after the company has paid all debts and redeemed redeemable preference shares upon the company’s dissolution or bankruptcy;

c) Other rights as ordinary shareholders, except as provided in Clause 3 of this Article.

3. Shareholders holding dividend preference shares do not have the right to vote, attend General Meetings of Shareholders, or nominate persons to the Board of Directors and the Supervisory Board, except as provided in Clause 6 of Article 148 of this Law.”

Redeemable preference shares are regulated in Article 118 of the Law on Enterprises 2020 as follows:

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

1. Redeemable preference shares are shares for which the company redeems the contributed capital at the request of the holder or under the conditions stated in the share certificates of the redeemable preference shares and the company charter.

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

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