Topic state owned enterprises (SOEs) legal nature, characteristics, and specific legal issues to pay attention to when operating

Legal nature of State – owned company State – owned company includes companies which are held about 50% of charter capical or voting shares by the State.. State-owned companies shall be

VIETNAM NATIONAL UNIVERSITY

SCHOOL OF LAW

FINAL ASSINGMENT COMMERCIAL LAW 1

Topic: State-owned enterprises (SOEs): legal nature, characteristics,

and specific legal issues to pay attention to when operating

Professor: Phan Thị Thanh Thuỷ Student: Hoàng Thị Vân Anh Date of birth: 20/03/2001 Student ID: 19062003 Class: K64CLC

Ha Noi – 2021

Table of Contents

INTRODUCTION 2

I Legal nature of State – owned company 2

II Characteristics of state – owned company 5

1 About the owner 5

2 About the field of operation 7

3 About the form of existence 7

4 About legal status and assets liability 8

III Specific legal issues to pay attention to when operating 8

CONCLUSION 11

REFERENCES 11

INTRODUCTION

In this developing society nowadays, the economy of Viet Nam has increased quiet rapidly In this time, we have such a lot of kind of company like limited liability company, sole proprietorship, joint – stock company, social enterprise… beside state – owned company However, State – owned company has always been one of the most important kinds of company, it plays an unreplaced role in Viet Nam’s economy and politics Stste – owned company is used to pursue social, political and economic objectives

In this assingment, I will discuss about the State – owned company, which includes legal nature, characteristics and specific legal issues to pay attention to when operating

I Legal nature of State – owned company

State – owned company includes companies which are held about 50% of charter capical or voting shares by the State In the world, the understanding about SOEs is different The United Nations defines State – owned company that is a

company which is wholly or partially owned by a government and the government controls the process in giving decision of the company in some ways While the World Bank says that state – owned company is economic entities owned by the government, the majority of whose income is generated through the sale of goods and services1 Although it has many different defintions about state – owned company, the international organizations and many countries in the world has agreed one same point is that: State – owned company is a production and bussiness establishment in which the state owns all or most of the capital in this enterprise This company is state – owned or mostly state – owned, so that the government can have an impact which is kind of dominant, direct or indirect on the company In many countries, the state invests in SOEs for various purposes State – owned company may be established in signigicant and essential sectors of economy and in some sectors which sole proprietorships do not want to invest or are unable to invest State – owned company may also be established for the purpose of ensuring the stable development of economy and keeping the large profits for the state to solve socio – economic problems

In Viet Nam, the definition of State – owned company has regulated in Article

88, 89 Enterprise Law 2020:

“ Aricle 88 State – owned companies

1 State-owned companies shall be limited liability companies or joint stock companies, including;

a) Wholly state-owned enterprises (100% of charter capital of which is held

by the State)

1World Bank Group, World Bank Group support for the Reform of State-owned Enterprises,

2007-2018: An IEG Evaluation, December 20 2018.

b) Partially state-owned enterprises (over 50% of charter capital or voting shares is held by the State, except the enterprises specified in Point a Clause 1 of this Article)

2 Wholly state-owned enterprises specified in Point a Clause 1 of this

Sarticle include:

a) Single-member limited liability companies 100% of charter capital of which is held by the State that are parent companies of state-owned corporations or parent companies in groups of parent company – subsidiary companies;

b) Independent single-member limited liability companies 100% of charter capital of which is held by the State

3 Partially state-ownd specified in Ponit b Clause 1 of this Article include:

a) Multiple-member limited liability companies and joint stock companies over 50% of charter capital or voting shares of which is held by the State that are parent companies of state-owned corporations or parent companies in groups of parent company – subsidiary companies;

b) Independent multiple-member limited liability companies and joint stock companies over 50% of charter capital or voting shares of which is held by the State

4 The Government shall elaborate this Article.”2

In Viet Nam, state-owned company is a part of the state economy and is always determined to play a key role in the national economy Nevertheless, the concept of state-owned company in legal documents in our country has changed over time From the early years of the Democratic Republic of Vietnam, state-owned company has been legally recognized During this time, state-state-owned enterprise is called as national enterprise After that, the economic units of the state-owned enterprise, state-owned farms, state-owned forestry farms, shops and

National Assembly (2020), Enterprise Law, Number: 59/2020/QH14.

state-owned companies From the end of 1991, the new concept of state-owned company was officially uses in the Regulation on the establishment and dissolution

of state-owned enterprises which is promulgated together with Decree No.388-HDBT of the Council of Ministers on 20/11/1991 Since then, the term “State-owned company” is used to describe the ownership charateristics of the enterprise, not to refer to the legal form of the enterprise Accordingly, a state-owned enterprise is an economic organization which is owned by the State The State owns the entire charter capital, shares, contributed capital and are organized in the form of a state-owned company, join stock company, limited liability company With the goal of creating a legal framework that applies uniformly to all types

of enterprises regardless of ownership form and to renew the governance mechanism of state-owned company according to market principles, international practices and Enterprise Law 2020 Accordingly, state-owned enterprise is an enterprise in which the state owns more than 50% of the charter capital and exists

in various forms such as: one-member limited liabilty company, two-member limited liabilty company or more, joint stock company The establishment, operation, organization, management, reorganization and dissolution of state enterprises must comply with Enterprise Law

II Characteristics of state – owned company

Overall, state – owned company has some characteristics such as:

1 About the owner

The State is the owner of the entire charter capital of the company As the sole investor in the enterprise, the State has full aithority to decide on issues related to the existence and operation of each state – owned company:

Firstly, deciding on the formation, reorganization and dispositing of enterprise such as establishment, division, separation, consolidation, merger, transfer all or part of capital to other organizations or individuals, enterprise dissolution

Secondly, deciding on goals, development, strategies, production and business plans, financial investments of the company

Thirdly, deciding on organizational and managing model of the enterprise; deciding to dissolve or reorganize the company; approving the operating charter, amend and supplement the charter; deciding on the appoinment, dismission, reward and discipline of enterprise managers (the Chairman and members of the Member’ Council or the company’s President, Controller, General Director or Director)

Fourthly, deciding on the basic criteria to evaluate the operation of the enterprise

Fifthly, inspecting and supervising the implementation of the assigned goals and tasks of the company

In order to ensure unified management of state – owned company and improve the operational efficiency of the SOE sector, the State as an owner must fulfill the following responsibilities for the entire sector, including:

Firstly, organizing the elaboration and approving the development planning for the state-owned company sector, including the new establishment, arrangement and restructuring of state-owned enterprise in each industry, field and locality in the whole economy of the country

Secondly, regulating the finance, the salary, remuneration, bonus and pther benefits of the state owner’s representative and other titles inder the decision-making authority of the State

To practice the rights of the State in state-owned company, the Government is the unified agency in managing and practicing the function of the state ownership The Government assigns and decentralizes the Prime Minister, Ministries and provincial-level People’s Committees to exercise the rights, responsibilities and obligations of state owners towards state-owned enterprises Decentralized state

agencies practice the rights and obligations of state owner towards state-owned companies and do not directly interfere in production and business activities of stare-owned company, make sure the separation of functions of the State agency as the governing administrative agency and as the state’s owner representative agency

2 About the field of operation

To ensure the correction of key roles, objectives and functions of SOEs in the national economy, the scope of state capital investment to establish state-owned company in Vietnam has been limited to the following four sectors and fields (According to Law on Management and Use of state capital invested in production and business in enterprises in 2014 and Decree No.91/2015/ND-CP on 13/10/2015

of the Government on state capital invested in enterprises and management and use

of capital and assets at enterprises)

Firstly, providing essential public products and services, ensuring social security

Secondly, operating in the field which directly serves national defense and security according to the Government’s regulations on organization, management and operation of defense and security enterprises

Thirdly, operating in the field of natural monopoly

Lastly, operating in high-tech application activities, large investment, creating

a rapid development for other industries, fields and economy

Therefore, at this time, the law has affirmed that state-owned enterprise can only be established and operated at key stages in some industries and fields with the aim of ensuring the interests of the community, the national security, territorial integrity and business in the field of high-tech application, large investmnet that other economic parts are unwilling or unable to provide

3 About the form of existence

State - owned enterprise exists in many various forms depending on the percentage of capital held by the State

In case a state-owned enreprise holds 100% of the capital: These companies will include a one-member limited liability company that is the parent company of

a state-owned economic group, the parent company of a state-owned corporation, the parent company of parent companies - subsidiaries or a one-member limited liability company is an independent company (Point a, Clause 2, Article 88 Enterprise Law 2020)

Beside that, in case a state-owned enterprise holds more than 50% of the charter capital or shares, it is regualted at Ponint b, Clause 1, Article 88 of Enterprise Law 2020 These enterprises can be: limited liability company with two

or more members, a joint stock company that is a parent company of an economic group, a parent company of a state corporation or a parent company in a group of parent companies – subsidiaries

4 About legal status and assets liability

State-owned enterprises have legal status from the date of issuance of business registration certificates As an subject with independent legal status, own property, SOEs are solely responsible with their own assets for all debts and other financial obligations of the enterprise The State, as an investor in an enterprise, has the responsibility and authority of the investor Thus, the State is only responsible for the debts and obligations of the enterprise within the charter capital

of the enterprise

III Specific legal issues to pay attention to when operating

When esblishing and operating state – owned enterprise, it has some legal issues that are necessary to focus on In state – owned enterprise, the finances often rely on government subsidies, shares are not freely tradable which makes difficult

to raise capital SOEs also must also follow strict regulations for operations to raise

capital and financial statements must be audited Moreover, liability for business debts is also an important issues for state-owned company

State-owned enterprise raises the capital following to Article 23 Law on Management and Use of state capital invested in production and business in enterprise in 2014:

Enterprises are entitled to borrow capital from credit institutions and financial institutions; loans from organizations and individuals outside the enterprise, from employees; issue corporate bonds and other forms of raising capital as prescribed

by law3

However, it still many obstacles when rasing capital in state-owned enterprise,

it often comes from diversifying forms of capital mobilization The form of raising capital by borrowing from banks has shown many disadvantges, it requires state-owned enterprise to diversify forms of capital mobilization However, in order to diversify forms od capital mobilization, first of all, there must be capital sources and legal mechanisms to regualte and guide capital activities from these sources Currently, raising capital from other sources than bank credit is facing difficulties

In Vietnam, some state-owned enterprises such as Viettel, EVN, PVN,… have their own solutions in raising capital For example, Viettel Telecom – one of the biggest enterprises, it is also the largest tax player

Following to Decree 08/2018/ND-CP about the organization and operation charter of the parent company – Military Industry and Telecommunications Group, issued by the Government on January 5, 2018, specifically stipulates Viettel’s rights in financial activities According to this Decree, Viettel can raise capital for

3 Nation Assembly (2014), Law on Management and Use of state capital invested in production and business in enterprise, Number: 69/2014/QH13.

business in the form of bond issuance, borrow capital from dosmetic anf foreign credit institutions and individuals and other form of capital mobilization

One more thing that we should pay attention when run a atate-owned enterprise is about auditing the financial statements In 2020, State Audit pointed out some mistakes in the management of State-owned enterprise through the process of auditing For example, State Audit said some companies such as: Hanoi Housing Development and Investment (Handico); Hanoi Construction Corporation (Hancorp); Vietnam Oil Corporation – JSC (PVOIL)4… Most these companies still have errors in accounting, declaring obligations to the State budget Therefore, through the audit, it is necessary to adjust assets, capital sources, revenue, expenses and propose to increase State budget revenue

Furthermore, state-owmed enterprises also have liability for business debts It

is regulated in Clause 1 Article 27 Law on Management and Use of state capital invested in production and business in enterprise in 2014:

Firstly, SOEs need to formulate, promulgate and implement regulations on management of payables The Regulation on management of payables must specify the responsibilities of collectives and individuals in monitoring, comparing and confirming and paying debts Next, they have liability to monitor payables by each debt object; classify debt regularly; develop debt payment plans; balance cash flows to ensure debt payment; pay debts on time as commitment

Especially, state-owned enterprises must also manage the debts as following: The Members’ Council or the company’s president, the general director or the director are responsible for regularly reviewing, assessing and analyzing the

4Anh Tuyet (2021), Kiem toan Nha nuoc chi ra nhung “lo hong” trong quan ly doanh nghiep

Nha nuoc, Tap chi dien tu cua Hoi Khoa Hoc Kinh te Viet Nam https://vneconomy.vn/kiem-toan-nha-nuoc-chi-ra-nhung-lo-hong-trong-quan-ly-doanh-nghiep- nha-nuoc.htm , access

9/1/2021.