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KEY POINTS OF THE NEW LAW ON ENTERPRISES 2020

On 17 June 2020, the National Assembly of Vietnam passed the Law on Enterprises (“Law on Enterprises 2020” or “LoE 2020”) which takes effect from 1 January 2021. In this article, Lawlink Vietnam Law will let you in on some major changes under the LoE 2020 compare to the current Law on Enterprises.


1. Removing the obligation of notification on use of seal specimen

Article 43 of the LoE 2020 remove the provision: “Before using the seal, the enterprise must send the seal specimen to the business registration authority for posting on the National Business Registration Portal.”


2. Supplementing subjects ineligible for establishment of enterprises

Article 17 of the LoE 2020 supplements many subjects that are not allowed to establish and manage enterprises as follows:

- Persons with cognitive difficulties or difficulties with behavioural control;

- Officers, non-commissioned officers, career servicemen and national defence workers and employees in agencies and units of the People’s Army of Vietnam, except for persons appointed to be authorized representatives to manage the State capital contribution portions in enterprises or to be managers in State owned enterprises;

- Organizations being commercial legal entities which are prohibited from conducting business or operating in certain sectors pursuant to the Criminal Code.


3. Shortening the period for prior notice of temporary business suspension

Article 206 of the LoE 2020 regulates that: “An enterprise must notify the Business Registration Office in writing no later than three working days before the date of temporary suspension of its business or resumption of its business prior to the notified time-limit.” Whereas this period is 15 days under the LoE 2014.


4. Supplementing additional requirements regarding the establishment application dossier of limited liability companies and joint-stock companies

The LoE 2020 adds that the applications for establishment of limited liability companies (Article 21) and joint-stock companies (Article 22) must include copies of personal legal documents of legal representatives, similar to members of limited liability companies and founding shareholders of joint-stock companies.


5. Supplementing the provision of non-voting depository certificate

This is the first time “non-voting depository certificate” is defined in Vietnamese law. Accordingly, ordinary shares used as underlying assets to issue non-voting depository certificates are called underlying ordinary shares. Non-voting depository certificates have financial benefits and obligations similar to the underlying ordinary shares, except for voting rights (Article 114 LoE 2020).


6. Clarifying regulation on dissolution due to revocation of enterprise registration certificates

Article 207 LoE 2020 stipulates that an enterprise shall be dissolved in the case of the Enterprise Registration Certificate is revoked unless otherwise stipulated in the Law on Tax Management.


7. Amending the definition of 'Stated-owned Enterprise' (SOE)

Under Article 4.11 LoE 2020, SOE will include enterprises in which the State holds more than 50% of the charter capital or voting shares as prescribed in Article 88 of LoE 2020. Whereas, the LoE 2014 defines SOE as an enterprise in which 100% of the charter capital is held by the State.


8. Establishing Inspection Committee in SOE

On the basis of the scale of the company, the agency representing the owner shall make a decision establishing an Inspection Committee which comprises one to five inspectors, including the head of the Inspection Committee according to Article 103 LoE 2020. Nonetheless, under LoE 2014, SOE has to assign only 01 Inspector or establish an Inspection Committee of 03-05 individuals.


9. Amending the settlement of capital contribution in some special cases

Compared to regulations of LoE 2014, the settlement of capital contribution in some special cases is changed under Article 53 of LoE 2020 as follows:

- In the case where a member has his or her capacity for civil acts restricted or lost or has cognitive difficulties or difficulties with behavioural control, the rights and obligations of such member in the company shall be exercised by his or her representative instead of guardians as prescribed by LoE 2014.

- Where a member makes a gift of a part or all of its capital contribution portion in the company to another person, the recipient of the gift shall become a member of the company in accordance with the following provisions:

a) Where the recipient of the gift is an heir at law in accordance with the Civil Code, such recipient shall automatically become a member of the company;

b) Where the recipient of the gift is not the entity stipulated in sub-clause (a) above, such recipient shall become a member of the company only upon approval of the Members’ Council.

In addition, Article 53 LoE 2020 also regulates some provisions:

- Firstly, if the member of a company being an individual is subject to temporary imprisonment, serves a prison sentence, or is subject to administrative measures in a compulsory drug rehabilitation establishment or compulsory educational establishment, then such member may authorize another person to perform some or all of his or her rights and obligations in the company.

- Secondly, if the member of a company being an individual is prohibited by a court from practicing or doing certain work, or the member of a company being a commercial legal entity is prohibited by a court from conducting business or operating in certain sectors within the scope of business lines of the company, such member must not practice or do the prohibited work in such company or the company must temporarily suspend or terminate business of the relevant industries and trades pursuant to the decision of the court.


10. Increasing shareholders’ power

As per the LoE 2020, the shareholder or group of shareholders holding at least 5% of the ordinary shares (or a smaller ratio specified in the company's charter) shall have rights as provided in Clause 2 Article 115. These rights include a) To sight, consult and make an extract of the book of minutes and resolutions or decisions of the Board of Management, mid-year and annual financial statements, reports of the Inspection Committee, and contracts and transactions which must be passed by the Board of Management and other data except for data relating to commercial secrets or business secrets of the company; b) To request the convening of a General Meeting of Shareholders (GMS); c) To request the Inspection Committee to inspect each issue relating to the management and administration of the operation of the company where it is considered necessary; d) Other rights as provided for by the Law on Enterprises and the company's charter. Under the LoE 2014, these rights are applied only to a shareholder or group of shareholders holding at least 10% of the ordinary shares for a consecutive period of at least 06 months or a smaller percentage stipulated in the company's charter.

All shareholders of the company, not required to hold shares for a consecutive period of at least 01 year, are entitled to request the Court to suspend or invalidate the resolution or decision of the Board of Management in case such resolution or decision is against the law or resolutions of the GMS or the company’s charter (Article 153.4 LoE 2020).


11. Allowing the conversion of sole proprietorships into a limited liability companies, joint-stock companies, or partnership

Article 205 LoE 2020 allows a sole proprietorship to be converted into three types of enterprises, including a limited liability company, joint-stock company, or partnership if specific conditions are satisfied according to the law. However, according to LoE 2014, a sole proprietorship can be converted only into a limited liability company.


12. Notification on changes to information about enterprise's manager

The LoE 2014 stipulates that enterprises must notify the licensing authorities of the changes to the name, address, nationality, ID number, passport number, or other ID papers of the following persons within 05 days from the day on which such changes are made:

1. Members of the Board of Management of joint-stock company;

2. Members of the Inspection Committee or inspectors;

3. The Director or General Director.

Under the LoE 2020, enterprises are no longer required to notify the licensing authorities any of the above changes about information of enterprise’s manager.


13. Supplementing the obligations of shareholders

Shareholders are obligated to protect the confidentiality of information provided by the company in accordance with the company's charter and the law; only use the provided information to perform and protect their lawful rights and interests; and not to spread or share information provided by the company to any other organization or individual (Article 119 LoE 2020).


14. Supplementing the responsibilities of joint-stock company’s managers

Article 165 LoE 2020 stipulates that members of Board of Management, Director/General Director, or managers that violates Clause 1 of Article 165 LoE 2020 shall be personally or jointly responsible for the loss, return the benefits received and compensate damages to the company and the third parties.

15. Supplementing the termination of general partner status

The LoE 2020 supplements two cases in which a general partner status will be terminated: (i) having his or her capacity for civil acts restricted or lost or having cognitive difficulties or difficulties with behavioral control; (ii) Serving a prison sentence or being prohibited by a court from practicing or doing certain work (Article 185).


16. Supplementing the exercising rights of the sole proprietorship’s owner in special cases

Article 193 LoE 2020 stipulates the implementation of the owner's rights in some special cases, as follows:

1. If the owner of a private enterprise is subject to temporary imprisonment, serves a prison sentence or is subject to administrative measures at a compulsory drug rehabilitation establishment or compulsory educational establishment, then he or she shall authorize another person to exercise his or her rights and discharge his or her obligations.

2. Where the owner of a private enterprise dies, then his or her heir or one of the heirs in accordance with the will or in accordance with law shall be the owner of the private enterprise as agreed by such heirs. If the heirs are unable to reach agreement, then they must register to convert the company or dissolve the private enterprise.

3. If the owner of a private enterprise dies without an heir, or if the heir refuses to accept the inheritance or is deprived of the right to inherit, then assets of the private enterprise shall be dealt with in accordance with the civil law.

4. If the owner of a private enterprise has his or her capacity for civil acts restricted or lost or has cognitive difficulties or difficulties with behavioral control, then the rights and obligations of such owner are exercised via his or her representative.

5. If the owner of a private enterprise is prohibited by a court from practicing or doing certain work within the scope of business lines of the enterprise, the owner of the private enterprise must temporarily suspend or terminate business in the relevant industries or trades pursuant to a decision of the court or assign the private enterprise to another individual or organization.


17. Supplementing the rights of GMS

Article 138 of LoE 2020 adds some rights of GMS, including (i) deciding the budget or the total remuneration, bonuses and other benefits of the Board of Management and of the Inspection Committee; (ii) the internal management rules, and the operational rules of the Board of Management and of the Inspection Committee; (iii) approving the list of independent auditing companies, and to decide on an independent auditor to conduct inspection of activities of the company, and to remove the independent auditor when considered necessary.


Updated by Le Thi Thuy Duong (Ms.)-Paralegal, LLVN.

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