HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

BUSINESS LAW
Dispute of capital asset in shareholding company

Tutor: Mrs. Ho Thi Thuy Hang

Tutorial class: Tut 1
Group members:
1. Trinh Thi Mai Hong : 1604010034
2. Truong Nguyen Ha My: 1604010065
3. Pham Thi Anh : 1604010006
4. Vu Hai Anh : 1604010009
5. Mai Thi Hoai : 1604010136

Hanoi, December 17, 2018

 ABSTRACT

In terms of running bussiness, there are many types of companies and the most commonly well-
known as a joint stock company. A shareholding company is business entity in which being
established by organizations or individuals that own company’s stock calling shareholders.
Every shareholder possesses company stock in portion, proofed by their shares(certificates of
ownership). In the present economy , the foundation of joint-stock companies increasingly
occupies an important part in the business. This work brings many business benefits but
companies also face a number of controversial problems inside. This report will discuss about
diputes about charter capital in establishing shareholding company in Vietnam and different
matters influence on joint-stock company.

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 Table of contents
I. Introduction ...................................................................................................... 3
II. Discussion of findings ...................................................................................... 3
1. Definition and characteristics of joint stock companies ............................. 3
2. Capital of joint-stock companies ................................................................ 4
3. Changing charter capital ............................................................................. 4
4. Share transfer .............................................................................................. 6
III. Finding and analyze current situation ............................................................... 7
3.1. Current situation 1 ..................................................................................... 7
3.2.Current situation 2 ...................................................................................... 8
IV. Recommendations and conclusion ................................................................... 11

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I. Introduction

Today, with the development of Vietnam's economy, the establishment of a joint stock company
occupies a significant market share. However, the company can not be avoided many issues both
outside and inside in the beginning. Especially for the new joint stock company which normally
face up with problems associating with contributed capital.

According to Article 110, a shareholding company is an enterprise in which charter capital is

divided into equal portions called share and organizations or individuals in this company owing
shareholders. The minimum number of shareholders is three and there is no restriction on the
maximum number. These shareholders are liable for debts and other property obligations of the
enterprise only within their amounts of contributed to enterprise and shareholders may freely
transfer their shares to other person except the cases specificed in Clause 3, Article 119 and
Clause 1, Article 126.

II. Discussion of Findings

1. Definition and characteristics of joint stock companies

Shareholding Company is an enterprise type which is founded in compliance with Enterprise Law
and will be given legal status from the date of issuance of the Business registration certificate.

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• Charter capital shall be divided into equal portions called shares;

• Shareholder may be organizations, individuals; the minimum number of shareholders shall be

three and there shall be no restriction on the maximum number;

• Shareholder shall be liable for the debt and other property obligations of the enterprise within
his contributed capital to the enterprise;

• Shareholder may freely transfer their shares to others, except in the cases stipulated in clause 3
of Article 119 and clause 1 of Article 126 of Enterprise Law.

• Ordinary shareholders must pay for the ordered shares fully and punctually. They must not
withdraw capital contributed by ordinary shares in any shape or form, unless such shares are
repurchased by the company or other persons. In case a shareholder withdraws part of or all of
the share capital contributed against this Clause, such shareholder and people with related
interests in the company are jointly responsible for the debts and other liabilities of the company
up to the value of withdrawn shares and the damage caused.

2. Capital of joint-stock companies

Charter capital of a joint-stock company is to total face value of sold shares. Charter capital of a
joint-stock company on the business registration date is total face value of registered shares of
various types. Charter capital is specified in the company’s charter.

• Sold shares are the amount of authorized shares that have been paid-off by shareholders to
the company. On the enterprise registration date, sold shares are the total amount of
registered shares.
• Authorized shares are the total amount of shares of various types that the General Meeting
of Shareholders decides to offer to raise capital. The amount of authorized shares on the
business registration date is the total amount of shares of various types that will be sold by
the company to raise capital, including registered shares and unregistered shares.
• Unsold shares are authorized shares that have not been paid-off. On the enterprise
registration date, unsold shares are the total amount of shares that are not registered by
shareholders.
3. Changing charter capital
The company may changes its charter capital in the following cases:
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a) According to a decision of the General Meeting of Shareholders, the company returns part of
the stakes to shareholders in proportion to their holding, provided that the company has continued
its business operation for more than 02 years from the business registration date, and that all
debts and liabilities can be paid after the return.

b) Charter capital is not contributed fully and punctually by members within 90 days from the
issuance date of the Certificate of Business registration, unless a shorter time limit is prescribed
by the company’s charter or the share registration contract. The Board of Directors shall
supervise and urge shareholders to pay for the registered shares fully and punctually.

If a shareholder fails to pay or fails to pay completely for the ordered shares, the following
regulations shall apply:

- The shareholders that fails to pay for the registered shares is obviously no longer a shareholder
of the company and must not transfer the call option to another person;

- The shareholder that pays for part of the registered shares shall have the right to vote, receive
dividends, and other rights corresponding to the paid shares; must not transfer the call option of
the unpaid shares to another person;

- The unpaid shares shall be considered unsold shares, which may be offered by the Board of
Directors;

- The company shall register an adjustment to charter capital to the total face value of shares paid
fully and change of founding shareholders within 30 days from the deadline for paying for
registered shares.

c) The company repurchases issued shares as follows:

- Any shareholder who votes against the Resolution on the company’s restructuring or changes to
the shareholders’ rights and obligations prescribed in the company’s charter shall be entitled to
request the company to repurchase his/her shares.

- The company shall repurchase shares at the request of shareholders at market prices or prices
determined in accordance with the company’s charter within 90 days from the day on which the
request is received. If an agreement on the price is not reached, both parties may request a
professional valuation organization to carry out the valuation.
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If repurchased shares are paid against regulations, the shareholders shall return the company the
money or assets received; in case a shareholder is not able to return them, all members of the
Board of Directors shall be jointly responsible for the debts and liabilities up to the value of
money or assets that are not returned by shareholders.

4. Share transfer

- Within 03 years from the issuance date of the Certificate of Business registration, founding
shareholders may transfer their shares to other founding shareholders; they may transfer their
ordinary shares to people other than founding shareholders if approved by the General Meeting of
Shareholders. In this case, the transferring shareholders do not have the right to vote on the
transfer of such shares.

- The transfer shall be made into a common contract or via a transaction on the securities market.
Where the transfer is made into a contract, transfer documents must bear the signatures of the
transferor and the transferee (or their representatives). Where transfer is made via a transaction on
the securities market, the procedures and recording of ownership shall comply with regulations of
law on securities.

- If a shareholder being an individual dies, his/her inheritor according to the will or according to
law shall become a shareholder of the company.

- If the dead shareholder does not have an inheritor, or the inheritor renounces the inheritance, or
the inheritor has the right to inherit deprived, such shares be settled in accordance with
regulations of law on civil affairs.

- Every shareholder is entitled to give part of or all of their shares in the company to other people
or use their shares to pay debts. In such cases, the recipients of shares shall become shareholders
of the company.

- Where a shareholder transfers a number of shares, the hold shares shall be annulled, and the
company shall issue new shares to record the amount of shares transferred and the remaining
amount of shares.

- Recipients of shares in the cases shall only become the company’s shareholders from the day on
which their information are fully recorded in the shareholder register.

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III. Findings and analyze current situations

3.1. Current situation 1

A special example of this complication was selected on website thegioiluat.vn. This case
occurred in July 2005. Therefore, we applied Enterprise Law 2004 to solve and applied the
Enterprise Law 2014 to point out the difference in the enactment between 2 laws.

The economic case No. 75/2007/KDTM-ST dated on 7/5/2006 and was reviewed on 07/03/2007
at the course of appeal of the People’s Court at 124 Nam Ki Khoi Nghia street, Ho Chi Minh
city. The litigants of this dispute including plaintiff Mr. Truong Trong Truong Son, resided on
174/21 Le Quoc Hung, Ward12, District 4, Ho Chi Minh city and respondent Mr.Pham The
Thanh,resided on 152/13 Ly Chinh Thang, ward 7, district 3, Ho Chi Minh city.

The situation was depicted by DB Gas joint Stock Company as follow:

On July 15, 2005, Pham The Thanh was the Chairman of the Management Board cum Director of
DB Gas Joint Stock Company had signed a contract to transfer all the 8,500 share for Truong
Trong Truong Son for the price of the transfer was 1.5 billion dong and already received this
amount from Mr. Son. However, after that, Mr. Thanh did not carry out procedures for changing
the Chairman of the Board of Directors. Therefore, Mr. Son made a petition to request Mr. Thanh
to pay back the transfer of shares received 1.5 billion said above.

At the court on 07/03/2007, the plaintiff Mr. Truong Trong Truong asked Mr. Pham The Thanh
to refund 1.5 billion dong of the share transfer received immediately after the court's legally
effective judgment and agree to reimburse the company all the related document received from
Mr. Thanh right after being paid back money. However, Mr. Pham The Thanh did not accept the
request of the plaintiff because the contract of transfer shares between the two parties was only
signed contract (signing without content). Therefore, he asked Mr. Son to return the documents
received from the company.

Case analysis:

Based on the evidence provided by the plaintiff, a copy of the Share Transfer Agreement dated 15
July 2005, which has been certified by the lawful representative of the defendant at the hearing,
has sufficient basis to determine between Mr. Pham The Thanh and Mr. Trong Truong Son

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agreed to transfer the 8,500 shares of Mr. Pham The Thanh in the Company to the Gas Gas for
Truong Trong Truong Son with the transfer price of 1.5 billion and the transferor Mr. Pham The
Thanh has received the above transfer amount.

However, based on the testimony of the litigants at the trial, the transfer of the above shares
between Mr. Thanh and Mr. Son is not approved by the General Assembly of shareholders of DB
Gas Joint Stock Company according to the regulations. Clause 1, Article 58 of the 1999 Law on
Enterprises (effective at the time the parties sign the share transfer contracts, the Company has
not been granted a business registration certificate for 3 years yet). On the other hand, the
Company has not registered to change the content of business registration (about the transfer of
shares of Pham The Thanh , one of the three founding shareholders of the company) according to
Clause 1, Article 19 of the 1999 Law on Enterprises.

From the above analysis, the plaintiff's claim that Pham The Thanh must be repaid 1.5 billion
dong worth of shares is legally valid and should be accepted.

Applying Clause 1 of Article 58 of the 1999 Law on Enterprises. The first instance court decided:

Accepting the request of the plaintiff, forcing Mr. Pham The Manh to repay Truong Trong
Truong Son with the amount of VND 1,500,000,000 (one billion five hundred million).

According to Enterprise Law 2014, Article 126, Clause 2, the transfer must be carried out under
contracts by normal contract or securities market. If the transfer is carried out under a contract,
transfer papers shall be signed by the transferor and transferee. Also found in this article, in
clause 5, shareholders have right to donate some or all of their shares in the company to the
others; and the right to use shares for debts payment. Therefore, the done or recipient of the debt
repayment with share shall become the shareholder of the company. Applying this to the
complication above, we can see that Mr. Truong Trong Truong Son was transferred share from
Mr. Pham The Manh so that He has right to become a shareholder of the company, in specific, he
had right to become the Chairman of the Db gas Joint Stock Company

3.2.Current situation 2

The second case happened in May, 2007 from enternews.vn. Tho, Phong and Hau are founding
shareholders of Tan Phong Vegetable and Fruits Joint Stock Company, which was granted the
business registration certificate at the end of 2006 with charter capital of VND450 million. Mr.
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Phong was assigned to be the director and also the legal representative. In addition, other contents
of the charter as prescribed by law.
In 2007, the company changed its founding shareholders and contributed capital. Specifically,
Hau committed to contribute 150 million in cash but because of financial difficulties, he could
not contribute. The company, then, had made procedures for Mr. Binh (an individual outside the
company) to replace Mr. Hau to contribute 150 million as committed. Additionally, Binh
invested another amount of 300 million, which was received by the company's director, Mr.
Phong, with the receipt.
Tan Phong Company suffered losses continuously, therefore, in May 2007, Mr. Binh filed a
lawsuit against the company, requesting to withdraw the capital from the company. According to
the petition and testimony in court, Mr. Binh confirmed that he previously contributed the total
amount of 450 million and asked Tan Phong company to return him total amount of 330 million,
of which:
• Withdrawing all the capital he contributed to the company is 150 million. However, since
the company’s consistent losses, he agreed to bear the loss of 20 million for 3 months and
company had to pay back him 130 million.
• Additional capital contribution is 300 million. Previously, he had received some machines
valued at 100 million (with a handover between him and the company). Therefore, Tan
Phong must pay him 200 million.
As for Tan Phong, Mr.Phong said that the company suffered a loss of VND155 million, while
three shareholders contributed to the company 150 million each, so shared the same ownership
ratio. Therefore, Binh had to suffer a loss of 50 million dong, not only 20 million as he proposed.
What’s more, the withdrawal of Mr. Binh must comply with the provisions of the Charter and in
accordance with the law and Mr. Phong has confirmed not to meet the Board of Directors
decision to withdraw the capital.
There are some problems needed to be considered in this situation:
• The distribution of losses between shareholders
• Contributing more capital contribution than commitments
• Direct withdrawal requirements
Firstly, as for the distribution of losses between shareholders, according to the provisions of Point
c, Clause 1, Article 110 of the Law on Enterprises, the shareholders shall be responsible for the
debts and other property obligations of the enterprise only within their amount of the capital

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contributed to the enterprises. It is understood that, regardless of the company's debt to a third
party, shareholders are limited only to the extent of the capital they contribute to the company.
Therefore, this regulation will be meaningful in case the company is in danger of bankruptcy,
when the lenders require pay back the debt but the total assets of the company are not enough to
pay the obligations.
Meanwhile, the context of the case is different. Accordingly, the company's assets are 450
million. The company lost 155 million. With much larger assets than the obligation, obviously
this situation does not affect the interests of the creditor. But when a shareholder wants to
withdraw capital from the company, the problem is the distribution of losses among shareholders.
From this point of view, it is impossible to apply the provisions of Point c, Clause 1, Article 110
to adjust for the division of losses.

According to the regulation of Civil Code 2015, it can be seen that Mr.Binh is one of the
shareholders owning one third of the total shares of Tan Phong. Accordingly, he was entitled to
profit on the basis of this ratio, but also suffered a third of the losses suffered by the company.
Thus, Binh's argument that he only had to pay 20 million of Tan Phong's total loss of 155 million
is completely unfounded.
Second issue is about contributing more capital contribution than commitments. Tan Phong
admitted receiving 450 million from Mr. Binh (with the receipt). It is necessary to determine
what the nature of that 450 million is. As principle, each share is 10 thousand par value. When
transferring, shareholders of company have the right to transfer by face value, higher or lower
than their rights.
According to the commitment between Mr. Binh and the remaining shareholders of Tan Phong,
Mr. Binh will replace Mr. Hau with a contribution of VND 150 million which Mr. Hau has not
contributed, and there is absolutely no basis that Mr. Binh must buy shares of Tan Phong with
higher price than the face value. The amount in excess of VND 150 million which was confirmed
by the company’s representative is to serve the business activities of the company and the
company has not issued additional shares. Therefore, this amount of 300 million is the debt of
Tan Phong Company with Mr. Binh. In other words, in the case, the fact that Mr. Binh delivered
to Tan Phong total of 450 million, is understood as the sum of two items:
• The first : the amount to buy one-third of shares of Tan Phong (150 million)
• The second : loan to Tan Phong for production purposes (300 million)

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When contributing capital to the company, shareholders are bound by law and regulations.
Accordingly, Article 115 of the Enterprise Law 2014 stipulates that shareholders are not allowed
to withdraw the capital contributed by ordinary shares from the company in any form, unless
their shares are redeemed by the company or other persons. Thus, Binh's request to withdraw
funds from Tan Phong is an illegal act.
IV. Recommendation and conclusion

Recommendations

First of all, if the number of shareholders in a shareholding company is too large, the operation,
management and organization will be very complicating. Besides, many of them might be
divided into contradictory interests. As a result, this causes disunity in the direction of restraining
the whole development of the company. Therefore, it is necessary to build a strong and secured
institutional system of the company as soon as possible.

In terms of Law understanding, it can be clearly seen that the ability to understand fully the
Vietnamese Enterprise Law is still somehow limited. Consequently, the aibility to solve the
dispute on the capital asset of shareholding companies depends on how well the shareholders are
aware of Law relating to it. Therefore, the lawful consultant plays a very important role in this
situation. Additionally, the investors and shareholders also need to learn in order to raise the
awareness of shareholding companies in Vietnam under Enterprise Law to protect their own
rights and solve other disputes occuring.

The establishment and management of joint stock companies is not only costly but also more
complex than other types of companies according to strict control of the law, especially in
accounting and taxation. Due to this, investors must consider carefully which kind of business is
the best suitable before making investment into shareholding companies.

Furthermore, the improvement of the legal regime, especially the corporate law from the
government is also essential. In the global economic integration, many foreign investors are
attracted to invest in the form of a joint stock company in Vietnam, therefore, a good legal system
will help protecting the benefits for both domestic and foreign investors.

Conclusion

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In the above report, we have conducted the research on the dispute on capital asset of
shareholding companies in Vietnam under Enterprise Law with the aim of giving basic
knowledge and legal methods to solve the dispute on such situations under Vietnamese Enterprise
Law as well as point out some new noticeable aspects that shareholders need to care about to
protect their rights as well as possible.

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 REFERENCES

1. Ho Thuy Hang (2014) Business Law Reference Book

2. The gioi luat (2007) “Tranh chấp vầ hợp đồng chuyển nhượng cổ phần”
https://thegioiluat.vn/an-le/ban-an-so-75-2007-kdtm-st-tranh-chap-ve-hop-dong-chuyen-
nhuong-co-phan-317/
3. Enternews (2018) “Tranh chấp quản trị, rút vốn khỏi công ty”
http://enternews.vn/tranh-chap-quan-tri-02-rut-von-khoi-cong-ty-131673.html

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