The purpose of these agreements is to unify issues regarding business control and to protect the rights and interests of all parties involved in the agreements.3 Such agreements are know
Reasons for writing
Vietnam's business market is thriving, with nearly 1 million enterprises actively operating Additionally, the country has seen significant growth in foreign investment, reaching USD 31.15 billion by the end of the reporting period.
In 2021, Vietnam experienced a surge in business and investment activities, resulting in an increase in Mergers and Acquisitions (M&A) transactions This growth has heightened the demand for agreements among shareholders, owners, and foreign investors collaborating with existing stakeholders These agreements aim to clarify business control issues and safeguard the rights and interests of all parties involved Collectively known as “shareholders’ agreements,” these documents include founders’ agreements, shareholders’ agreements, and capital contribution agreements.
1 As of the end of 2021, Vietnam has had nearly 860,000 active businesses By the end of 2022, the total number of businesses joining and rejoining the market reached 208.3 thousand
-https://thanhnien.vn/viet-nam-se-co-15-trieu-doanh-nghiep-
1851508912.htm#:~:text=T%C3%ADnh%20%C4%91%E1%BA%BFn%20h%E1%BA%BFt%20n%C4%83 m%202021,ng%C6%B0%E1%BB%9Di%20d%C3%A2n%20c%C3%B3%201%20DN, accessed on 7 April
- https://www.mpi.gov.vn/Pages/tinbai.aspx?idTinV398&idcmI, accessed on 7 April 2023
2 https://ipcs.mpi.gov.vn/thu-hut-fdi-nam-2021-du-bao-nam-2022/, accessed on 7 April 2023
Thỏa thuận cổ đông và Điều lệ doanh nghiệp đều đóng vai trò quan trọng trong việc quản lý và điều hành công ty Tuy nhiên, thỏa thuận cổ đông thường mang lại giá trị vượt trội hơn, vì nó có thể điều chỉnh các vấn đề cụ thể giữa các cổ đông mà Điều lệ doanh nghiệp không thể đề cập chi tiết Việc hiểu rõ sự khác biệt giữa hai tài liệu này giúp cổ đông bảo vệ quyền lợi và duy trì sự ổn định trong quan hệ hợp tác Do đó, việc xây dựng một thỏa thuận cổ đông rõ ràng và hợp lý là rất cần thiết để đảm bảo sự phát triển bền vững của doanh nghiệp.
Huỳnh Công Tâm từ Russin & Vecchi (Việt Nam) đã trình bày về "Thỏa thuận cổ đông" trong bài viết của mình, nhấn mạnh thực tiễn và sự cần thiết của loại thỏa thuận này Bài viết có thể được truy cập tại địa chỉ https://russinvecchi.com.vn/publication/thoa-thuan-co-dong-thuc-tien-va-su-can-thiet/, và đã được xem vào ngày 7 tháng 4.
Shareholders' agreements have a longstanding presence in Vietnam, dating back to the introduction of joint venture contracts following the country's opening to foreign investment in 1986 The topic gained further attention in 2009 through Nguyen Quoc Vinh's article "Thỏa thuận cổ đông: một nội dung mới cho pháp luật doanh nghiệp Việt Nam," which highlighted the significance of these agreements and proposed amendments to the Law on Enterprises.
2014 6 However, until now they have yet to be regulated by any legislation, even with the existence of the Law on Enterprises 2020 and the Law on Investment 2020 This
4 - This is a type of contract signed between a foreign investor and a Vietnamese enterprise, which is a mandatory document for a foreign investor to enter the Vietnamese market
See: Article 2.6 Law on Foreign Investment in Vietnam 1987 as amended and supplemented in 1990 and 1992
- Some researchers and lawyers believe that the essence of this contract is a shareholders’ agreement:
Trần Phan Hoài Phương (2021), Pháp luật về thỏa thuận cổ đông, Master's Thesis in Economic Law
Trần Thị Ngân trong bài viết "Một số vấn đề pháp lý về thỏa thuận góp vốn có yếu tố nước ngoài" đăng trên Tạp chí Nghề Luật (Số 04/2021, trang 47-53) đã phân tích các khía cạnh pháp lý liên quan đến thỏa thuận góp vốn có yếu tố nước ngoài Bài viết cung cấp cái nhìn sâu sắc về các quy định pháp luật hiện hành và những thách thức mà doanh nghiệp có vốn đầu tư nước ngoài phải đối mặt Để tìm hiểu thêm, bạn có thể truy cập tài liệu tại địa chỉ https://sti.vista.gov.vn/tw/Lists/TaiLieuKHCN/Attachments/317508/CVv358S42021047.pdf, truy cập ngày 07 tháng 04 năm 2023.
Trương Hữu Ngữ (2023), Pháp lý M&A căn bản, Nxb Công Thương, p.231 - 265
Bài viết của Nguyễn Quốc Vinh, “Thỏa thuận cổ đông - thực tiễn và pháp luật trên thế giới và đề xuất cho Việt Nam”, được đăng trên Tạp chí Nghiên cứu lập pháp số 21(157) vào tháng 11 năm 2009, phân tích các khía cạnh pháp lý và thực tiễn của thỏa thuận cổ đông trên toàn cầu Tác giả cũng đưa ra những đề xuất thiết thực nhằm cải thiện khung pháp lý cho thỏa thuận cổ đông tại Việt Nam, góp phần nâng cao tính minh bạch và hiệu quả trong quản trị doanh nghiệp Bài viết có thể được truy cập tại địa chỉ http://www.lapphap.vn/Pages/tintuc/tinchitiet.aspx?tintucid!1097, và đã được xem vào ngày 07 tháng 4 năm 2023.
The proposed amendments to the Business Law, presented by Mr Tran Thanh Tung of Phuoc Partners Law Firm during the VCCI HCMC seminar on March 11, 2014, aim to enhance the legal framework for businesses in Vietnam Key suggestions include simplifying administrative procedures, improving transparency, and fostering a more conducive environment for investment and entrepreneurship These changes are intended to boost economic growth and align Vietnam's business regulations with international standards, ultimately benefiting both local and foreign investors.
The Drafting Committee of the Law on Enterprises 2014 has concluded that a shareholder's agreement can be viewed as a contract, allowing parties the freedom to establish such agreements as long as they comply with existing business laws Consequently, the committee has decided that it is unnecessary to specifically regulate shareholder agreements within the Law on Enterprises 2014.
Trương Nhật Quang (2016) discusses the challenges in drafting, implementing, and resolving disputes related to shareholder agreements, highlighting the gaps in Vietnamese law While previous research focused on summarizing shareholder agreements and providing general solutions based on international legal frameworks, this thesis delves into the legal complexities faced in practice By analyzing relevant regulations from European countries and the United States, the author offers tailored legal recommendations for improving the framework in Vietnam.
The article titled "Shareholders’ Agreements - Legal Aspects Around the World and Recommendations for Vietnam" aims to elucidate the legal significance of shareholders’ agreements and emphasizes the importance of integrating regulatory provisions for such agreements into Vietnamese law.
Literature review
In the world, there are numerous studies related to shareholders’ agreements, including some significant researches, as follows:
(i) “Shareholders agreement: Comparative and legal analysis of the legislation and legal doctrine of Ukraine, European Union (EU) countries and USA” by authors Yuriy Zhornokui, Olha Burlaka and Valentyna Zhornokui 7
The study examined shareholder agreement regulations across Ukraine, the United States, Russia, and several Western European nations, including Germany, Italy, Switzerland, and France It revealed three distinct approaches to shareholder agreements: those solely between shareholders, those involving both shareholders and the company, and those that include shareholders, the company, and additional parties.
The article by Yuriy Zhornokui, Olha Burlaka, and Valentyna Zhornokui (2018) provides a comparative legal analysis of shareholders' agreements in Ukraine, EU countries, and the USA, published in the Baltic Journal of Economic Studies It outlines the essential requirements for the content and form of these agreements, emphasizing their significance for ensuring validity Additionally, the article discusses potential penalties for violations of shareholders' agreements, highlighting the legal implications for third parties involved.
(ii) “Agreeing and impacting: The effect of the Shareholder’ Agreement on firms’ market value” by authors André Leonardo Pruner da Silva, Jeferson Lana, and Rosilene Marcon 8
A study reveals that shareholders' agreements significantly influence the market value of public companies in Brazil The authors categorize these agreements into two main types: those that impose restrictions on share transfers and those that establish voting agreements Through experimental studies, the research highlights the positive impact of shareholders' agreements on the value of listed companies, emphasizing their role in safeguarding the rights of minority shareholders, who often hold a majority stake in public companies.
(iii) “An analysis of Shareholder Agreements” by authors Gilles Chemla, Michel A Habib and Alexander Ljungqvist 9
The article examines the economic implications of key provisions in shareholders' agreements related to joint ventures and venture capital transactions, specifically highlighting the roles of put and call options, tag-along rights, and drag-along rights.
(iv) “Shareholder’s Agreements in Close Corporations and their enforcement in the United States of America” by Ricardo Molano-León 10
8 Silva, A L P da, Lana, J., & Marcon, R (2018), “Agreeing and impacting: The effect of the Shareholder’ Agreement on firms’ market value”, Brazilian Business Review, 15(1), p.88–104
9 Gilles Chemla, Michel A Habib & Alexander Ljungqvist, “An analysis of Shareholder Agreements”, Journal of the European Economic Association Vol 5, No 1 (Mar., 2007), p 93-121
10 Ricardo Molano-León, “Shareholder’s Agreements in Close Corporations and their enforcement in the United States of America”, Vniversitas Bogotá (Colombia) N° 117: julio-diciembre de 2008, p.219-252
Shareholders’ agreements play a crucial role in safeguarding the rights of minority shareholders and ensuring a balanced power dynamic among shareholders with equal authority in closely held companies in the United States These agreements primarily address voting rights and management roles within the organization Furthermore, for shareholders’ agreements to be enforceable, they must meet specific conditions, such as requiring unanimous consent from all shareholders on certain critical issues and not infringing upon the interests of third parties who are not part of the agreement.
(v) “Shareholders’ agreement as a tool to mitigate corporate conflicts of interests” by Paulius Miliauskas 11
Shareholders' agreements serve as essential tools for reducing conflicts of interest in corporate governance This article examines the perspectives on such agreements in Lithuania, Belgium, and the United Kingdom The author asserts that a true shareholders' agreement must involve shareholder participation and pertain to corporate governance Rather than providing a broad analysis, the focus is narrowed to the effectiveness of specific types of agreements in listed and public companies, including Voting agreements, Transfer of voting rights agreements, Securities lending agreements, and Relationship agreements, approached from a comparative legal standpoint.
In Vietnam, some relevant studies on shareholders’ agreements are as follows:
(vi) “Thỏa thuận cổ đông: một nội dung mới cho pháp luật doanh nghiệp Việt Nam” by Nguyễn Quốc Vinh 12
11 Miliauskas, P (2013), “Shareholders’ agreement as a tool to mitigate corporate conflicts of interests”, Int J Private Law, Vol 6, No 2, p.109–131
In this article, the author presented a new content related to Vietnamese law in
In 2009, the author examined the concept of shareholder's agreements and members' agreements within Vietnam's investment and business landscape, highlighting common cases despite the topic's relative unfamiliarity Instead of detailing specific content, the author provided a general overview and identified challenges in resolving disputes related to these agreements, noting gaps in Vietnamese law To offer potential solutions, the author referenced regulations from countries such as Russia, India, the United Kingdom, and Michigan, suggesting applicable approaches for Vietnam to consider.
(vii) “Pháp luật về doanh nghiệp – Các vấn đề pháp lý cơ bản” by Trương Nhật Quang 13
The author explores the role of shareholder agreements, highlighting their effects on shareholders, company management, and share transfers These agreements are argued to challenge the principle of equal treatment among shareholders Additionally, the author shares a personal evaluation of how shareholder agreements relate to company charters Drawing from professional experience, the content aims to provide insights into shareholder agreements without suggesting any changes to Vietnam's legal framework.
(viii) “Quy định về thỏa thuận cổ đông trong pháp luật Anh và kinh nghiệm cho Việt Nam” by authors Trần Thị Thúy Vy and Lê Trần Đức Huy 14
In their 2018 submission for the University-level Scientific Research Competition at the Ho Chi Minh City University of Law, Trần Thị Thúy Vy and Lê Trần Đức Huy explore the regulations surrounding shareholder agreements in English law and offer insights for Vietnam Their research highlights the importance of understanding these legal frameworks to enhance corporate governance and protect shareholder rights in Vietnam.
The authors examined shareholder agreements through the lens of comparative law, particularly emphasizing UK law Their analysis led to two key recommendations: firstly, to acknowledge shareholders' right to freely enter into agreements that voluntarily restrict their fundamental rights; and secondly, to disallow board members, directors, general directors, and managers from being involved in shareholder agreements.
(ix) “Quy định về thỏa thuận cổ đông của một số nước trên thế giới” by authors Nguyễn Thị Phương Thảo and Bùi Nguyễn Trà My 15
Current business practices in Vietnam reveal that many shareholder and founder agreements are often signed without adhering to regulatory provisions A study was conducted analyzing legal frameworks in countries like the United States, Germany, France, and Switzerland, examining various cases and practical scenarios related to shareholder agreements This research identified key factors influencing the validity of these agreements The article aims to clarify three main aspects: the definition of shareholder agreements, their validity, and the essential need for regulatory provisions governing these agreements within Vietnamese business law.
(x) “Một số vấn đề pháp lý về thỏa thuận góp vốn có yếu tố nước ngoài” by Trần Thị Ngân 16
This article analyzes capital contribution agreements, which are essential shareholder agreements for parties involved in foreign-invested enterprises It outlines the definition and typical structure of these agreements, explores their relationship with the company's charter, and discusses the mechanisms for resolving related disputes.
15 Nguyễn Thị Phương Thảo and Bùi Nguyễn Trà My (2020), Tạp chí Luật học, No 2 (237), p 54-67, https://vjol.info.vn/index.php/tclh/article/view/51975/48976, accessed on 7 April 2023
(xi) “Một số vấn đề pháp lý liên quan đến thỏa thuận cổ đông và kiến nghị hoàn thiện” by authors Nguyễn Vũ Phương and Phạm Thanh Cao 17
This article explores the key aspects of a shareholder's agreement, including its structure, its relationship with enterprise law, corporate charters, and internal documents It emphasizes the binding nature of the agreement on stakeholders who are also involved in management roles within the company Furthermore, the article suggests various legal improvements to strengthen Vietnamese law in this area.
(xii) “Pháp luật về thỏa thuận cổ đông” by Trần Phan Hoài Phương 18
The essence of a shareholder’s agreement is fundamentally a contract, necessitating the application of contract principles This analysis examines shareholder agreements in joint-stock companies by comparing the provisions of the Law on Enterprises 2020 with those of the United Kingdom and the United States The author offers recommendations to enhance the legal framework for shareholder agreements, particularly addressing scenarios involving corporate managers as participants in these agreements.
(xiii) “Pháp lý M&A căn bản” by Trương Hữu Ngữ 19
Chapter VIII focuses on Shareholders’ Agreements and Charters, highlighting key elements of these agreements, particularly recurring provisions Important topics covered include the management and operations of the company, regulations surrounding share transfers, restrictions on share transfers, and strategies to resolve deadlocks.
Aims, Object, and range of study
Aims of the study
This thesis aims to enhance the legal framework governing shareholder agreements in Vietnam, focusing on safeguarding the rights of shareholders, owners, investors, and related parties It has two primary objectives: first, to offer a comprehensive overview of shareholder agreements both in Vietnam and globally; and second, to suggest improvements to Vietnam's legal framework by drawing on comparative legal analysis and practical experiences from international shareholder agreements.
The object of study
Current Vietnamese laws do not address shareholder agreements, leading this thesis to focus on their practical application in Vietnam and other countries, rather than analyzing Vietnamese legal regulations Additionally, as shareholder agreements are primarily utilized in non-public companies, the thesis specifically examines these agreements within that context.
Rage of study
The author asserts that a shareholders' agreement functions as a contract and is governed by civil law This thesis focuses on the period from 2006 to the present, marking the effective date of the Vietnam Civil Code 2005.
The article emphasizes the practical application of shareholder agreements both domestically and internationally, highlighting regulatory changes in various EU countries, including Russia, the United Kingdom, Switzerland, Belgium, Lithuania, and the United States.
Methodology
Method of legal writing analysis:
This article utilizes legal writing analysis to examine Vietnamese regulations on shareholder agreements, while also comparing these provisions with those from other countries.
A shareholders’ agreement qualifies as a contract only when it fulfills all legal requirements for contract validity, being voluntarily entered into by the parties and adhering to civil law regulations While it meets the conditions of a standard contract, it is distinct due to its focus on internal management matters of the company, making it subject to specific legal restrictions imposed by business laws.
To clarify, the author designates 2006 as a key milestone to define the timeframe for this thesis, intentionally excluding the examination of the Civil Code of 2005.
This article examines the shareholder agreement regulations in various countries, particularly within the EU and the United States, to offer recommendations for developing a legal framework in Vietnam The proposed framework aims to align with Vietnam's practical, economic, and social contexts.
Contribution to the knowledge
In today's landscape of business development and investment, it is essential to explore legal solutions that enhance shareholder agreements to safeguard the rights of stakeholders, including shareholders, owners, and investors This thesis aims to deliver comprehensive insights into the necessity of regulating shareholder agreements through legal frameworks while proposing enhancements to maximize their effectiveness By aligning these agreements with legal standards, we can ensure a fair balance of interests for all parties involved, including those who do not participate directly.
Thesis chapters
The report is structured into two chapters as follows:
Chapter 1: An overview of shareholders’ agreements
Chapter 2: International experiences in governing shareholder’s agreements through legal means and recommendations for Vietnam
AN OVERVIEW OF SHAREHOLDERS’ AGREEMENTS
An overview of shareholders’ agreements
In business operations, it is standard for shareholders of joint stock companies or members of limited liability companies to establish a shareholders' or members' agreement, collectively referred to as "shareholders."
A shareholder's agreement can be established either during the formation of a company or after it has started operations While Vietnamese law does not explicitly prohibit these agreements, it also lacks specific regulations addressing them Legal experts view a shareholder's agreement as a contract essential to corporate governance, which falls under the purview of civil, corporate, and investment laws.
Bùi Nguyễn Trà My, ibid
Trần Phan Hoài Phương, ibid
When a target investor is part of a shareholders' agreement in Vietnam, it may be subject to investment laws that impose specific conditions and market access restrictions for foreign investors These regulations can include limitations on foreign ownership and stipulations regarding the legal representatives of the company Consequently, such restrictions may influence the terms established in shareholders' agreements.
To define a shareholders' agreement, it is essential to consider three key aspects: (i) the parties involved, (ii) the agreement's content, and (iii) its intended purpose, as outlined in the laws of countries like the United States, Belgium, and Lithuania, along with insights from various researchers and practitioners.
Regarding the parties of shareholders’ agreements :
A shareholder's agreement is a contract formed by the consensus of the involved parties, typically among the shareholders of a company This document outlines the relationships and responsibilities among all or some shareholders, ensuring clarity in corporate governance Additionally, the agreement can include the company itself, establishing principles and regulations that define the rights and obligations of shareholders.
26 Crawford, W E., & P O Gratias (1983), “Shareholders’ Agreements – A need for greater flexibility”, Can Tax J.,31, p 257
When a company enters into a shareholders' agreement, all future shareholders, regardless of their participation in the agreement, will be obligated to adhere to its terms.
- Phạm Hoài Huấn (2016), “Tranh chấp điển hình trong quản trị doanh nghiệp”, Nxb Chính trị quốc gia sự thật, Hà Nội, p.108
- Telenet Group Holding NV, Declaration of Interest dated 24 October 2005, http://media.corporate- ir.net/media_files/irol/24/241896/corpgov/oct242005.pdf, accessed 6 April 2023:
The shareholders' agreement established that specific decisions made by the board of directors and the shareholders' general meeting necessitate a qualified majority Additionally, the company adhered to this agreement by incorporating its provisions into the corporate governance charter.
A shareholders’ agreement is defined as a contract signed by shareholders and hired managers, such as directors or legal representatives, that pertains to the company's operations This agreement may require managerial decisions to receive shareholder approval in specific situations Additionally, when new shareholders, whether foreign or domestic, or third parties like banks or mortgagees are involved, they can also participate in the shareholders’ agreement alongside existing shareholders and the company Ultimately, for a contract to qualify as a shareholders’ agreement, it must include at least one shareholder's participation.
Regarding the terms of shareholders’ agreemen t:
A shareholders' agreement addresses key aspects of company management, share transfer restrictions, and specific provisions not typically found in corporate charters or documents It often includes details on company formation, charter capital, shareholder contributions, ownership ratios, organizational structure, and management Additionally, the agreement may outline special provisions such as new share issuance, share transfer limitations, unique shareholder rights, dividend distribution, deadlock situations, reserved clauses, conflict resolution mechanisms, minority shareholder veto rights, and the election process for the board of directors.
In Vietnam, it is uncommon for a company to become a party to a shareholders' agreement by owning shares of its own stock, thus becoming a shareholder in itself.
30 Yuriy Zhornokui, Olha Burlaka & Valentyna Zhornokui, ibid
A comprehensive shareholders' agreement may include various clauses or be outlined in separate agreements, such as transfer of share agreements, voting agreements, and securities lending agreements These agreements typically address key issues such as the company's structure, shareholders' rights and duties, restrictions on share capital increases, pre-emptive rights, and mechanisms for resolving deadlock situations.
Regarding purpose of shareholders’ agreement :
Shareholders' agreements serve essential purposes, including the protection of minority shareholders' rights to enhance group interests and ensuring the confidentiality of the agreement among the involved parties.
32 Nguyễn Thị Phương Thảo, Bùi Nguyễn Trà My, ibid
In the UK, it is typical for majority shareholders and companies to create relationship agreements that maintain the independence of the company's management, safeguarding it from the influence of the majority shareholder.
A relationship agreement serves as a safeguard for minority shareholders, ensuring that the majority shareholder does not exploit their position or prioritize personal interests over the welfare of the company and its stakeholders.
According to Article 2.89 of the Civil Code of the Republic of Lithuania, shareholders have the ability to transfer their voting rights associated with their shares without needing to transfer ownership rights, allowing for flexibility in decision-making among company shareholders or to third parties.
Common terms of shareholder’s agreements
1.2.1 Terms on management of business 52
The provisions pertaining to the management and operation of the company are as follows: (i) shareholders participate in the management of the company by
49 See Article 24 of Law on Enterprises 2020
50 Huỳnh Công Tâm - Russin & Vecchi (Vietnam), ibid
- Huỳnh Công Tâm - Russin & Vecchi (Vietnam), ibid
Shareholders play a crucial role in corporate governance by appointing management personnel, including members of the board of directors and key executives They exercise voting rights collectively on significant matters, such as board selections, and can utilize veto rights to block decisions on reserved matters, often held by minority shareholders Additionally, shareholders have the right to access company information and books beyond legal requirements, enhancing their oversight and control over the company's operations These provisions collectively strengthen the shareholders' influence and authority within the organization.
1.2.2 Right of First Refusal and Right of First Offer 54
The rights of first refusal enable non-selling shareholders to maintain control over the introduction of new shareholders while ensuring liquidity for those looking to sell This provision allows non-selling shareholders the opportunity to accept or decline an offer from a selling shareholder after the latter has negotiated with a third party Essentially, once a selling shareholder has an agreement with a third party, they must offer the same terms to the non-selling shareholders, giving them the chance to purchase the shares before they are sold externally.
54 - Alex Kyriakoulis, “Navigating a shareholders agreement: ROFR or ROFO?”, https://www.hfw.com/Navigating-a-shareholders-agreement-ROFR-or-ROFO, accessed on 9 April 2023
- Trương Hữu Ngữ, ibid shareholders decline to purchase the shares, the selling shareholder may then sell to an outside investor
The first offer right allows non-selling shareholders the opportunity to purchase shares before a selling shareholder seeks external investors This process ensures that shares are first offered to existing shareholders at an agreed-upon price If the non-selling shareholders choose not to buy, the selling shareholder can then approach outside investors, but must offer the shares at a price that is equal to or higher than what was initially presented to the non-selling shareholders.
1.2.3 Put Option and Call Option 55
A Put Option grants shareholders the right to sell their shares at a predetermined price upon the occurrence of a specified event in the shareholders' agreement When this condition is met, the shareholder with the Put Option must notify the obligated party to complete the share transfer at the agreed price Conversely, a Call Option allows a shareholder to purchase shares from another shareholder at a predetermined price when a specific event outlined in the shareholders' agreement takes place This option also requires the selling shareholder to transfer their shares to the company or other shareholders under the agreed terms.
55 - Gilles Chemla, Michel A Habib và Alexander Ljungqvist, ibid
- Apolat Legal, “Thỏa thuận cổ đông trong giao dịch M&A (phần 2)”, https://apolatlegal.com/vi/thoa-thuan- co-dong-trong-giao-dich-ma-phan-2/, accessed on 9 April 2023
1.2.4 Tag-along and Drag-along 56
Tag-along rights enable minority shareholders to sell their shares to an outside investor alongside a major shareholder, ensuring they receive the same price and conditions This means that if a major shareholder sells a portion of their shares, minority shareholders can proportionately sell theirs as well, contingent on the investor's commitment to buy from both parties Conversely, drag-along rights allow a major shareholder to mandate that minority shareholders also sell their shares to the same investor under the same terms when a sale occurs In essence, while tag-along rights protect minority shareholders' interests during a sale, drag-along rights empower major shareholders to streamline the selling process by including minority shareholders.
The Tag-along provision is designed to safeguard minority shareholders from being forced to remain in the company following significant sales, especially in high-risk transactions This protection is crucial for shareholders with small stakes, as selling their shares can be challenging Conversely, the Drag-along clause allows an outside investor to acquire either the entire company or a substantial portion of its shares, granting them managerial control This provision can effectively marginalize minority shareholders, facilitating the completion of transactions between major shareholders and investors.
A deadlock occurs when shareholders cannot reach an agreement on a significant company issue within the validity period of their shareholder agreement, leading to an inability to pass a resolution.
56 - Gilles Chemla, Michel A Habib và Alexander Ljungqvist, ibid
- Apolat Legal, “Thỏa thuận cổ đông trong giao dịch M&A (phần 2)”, ibid
A deadlock typically arises when a company's shares are evenly divided between two parties at a 50/50 ratio, resulting in neither party having control This scenario can lead to operational suspensions and hinder the company's growth, making it essential to establish deadlock provisions These provisions should outline the circumstances that constitute a deadlock and the mechanisms for resolution, which may include options such as Put and Call Options, Russian roulette, Texas shoot-out, or arbitration for dispute resolution.
Reserved provisions in joint ventures, particularly those with equal ownership or minority shareholders, are crucial for governance They typically cover significant matters such as charter amendments, high-value contracts, asset sales, and substantial changes like name or registered address alterations If these reserved provisions are not properly addressed, it can lead to a deadlock, hindering the company's operations and decision-making.
In Chapter 1, the author outlines the fundamental aspects of a shareholders’ agreement, which involves shareholders, the company, and potentially non-company parties, focusing on business management and the interests of all participants The chapter emphasizes the essential terms of the agreement and its effectiveness, providing a clear understanding of this important legal document This analysis enriches the reader's comprehension of shareholders’ agreements and their implications for business operations.
58 - Aaron Kok, “Navigating a shareholders agreement: the key to surviving a deadlock”, https://www.hfw.com/Navigating-a-shareholders-agreement-The-key-to-surviving-a-deadlock, accessed on 9 April 2023
- Nguyễn Thị Phương Thảo, Bùi Nguyễn Trà My, ibid
The necessity of shareholders' agreements in practice, along with the need for regulatory coverage in Vietnamese law, is underscored in the work of Trương Hữu Ngữ This theoretical framework sets the stage for the author to delve into more practical discussions in Chapter 2.
CHAPTER 2: INTERNATIONAL EXPERIENCES IN GOVERNING SHAREHOLDER’S AGREEMENTS THROUGH LEGAL MEANS
Legal situations related to shareholders’ agreements
Given the absence of regulatory frameworks for shareholder agreements within Vietnam's legal system, this section aims to elucidate potential legal scenarios that may emerge in practice, thereby emphasizing the deficiencies stemming from this gap.
2.1.1 Matters regarding the right to freely transfer shares
Shareholders involved in a shareholders' agreement can impose restrictions on share transfers for a designated period, applicable to both founding and non-founding shareholders They may prioritize existing shareholders for share sales before considering third-party buyers and can establish rights to sell shares when other shareholders do For instance, a provision might state that no founding shareholder can transfer shares without the written consent of a designated majority shareholder, unless that shareholder is no longer part of the company Additionally, founding shareholders may only transfer up to 5% of their shares at the time of signing the agreement to any individual, with any such transfer being subject to a right of first refusal.
The provision mentioned above violates the principle of free transferability of shares, exceeding the 3-year scope for shareholding restrictions of founding
The terms of shareholder agreements outlined in this section are based on practical agreements requested by clients at my workplace, reflecting assumptions aligned with the Law on Enterprises 2020 These provisions restrict the percentage of shares that founding shareholders can transfer and enforce a first refusal right, ensuring that any transfer complies with specific conditions Established prior to the company’s formation, these agreements aim to maintain stability and enable shareholders to manage ownership effectively post-establishment.
When the parties signed the shareholders' agreement, they were aware that its provisions limited their legal right to transfer shares Despite this restriction, they proceeded to sign the agreement, likely motivated by personal benefits or other non-coercive reasons.
To mitigate legal risks during a transfer event, it is crucial for all parties to adhere to the agreement However, issues may arise if one party, acting in bad faith, opts to disregard their commitments and transfer their shares without following stipulated procedures, such as first refusal or first offer rights For instance, a shareholder may choose to sell their shares to a third party for a higher price, bypassing necessary approvals and leaving remaining shareholders, including A, without any control over the transaction This breach of contract can lead to significant complications and disputes among the shareholders.
The remaining shareholders, including shareholder A, have initiated arbitration against a selling shareholder for breaching the agreement, seeking penalties as outlined in the contract In response, the selling shareholder contends that the company had been established for over a certain period at the time of the sale.
The original agreement, which restricted a shareholder's right to freely transfer shares, was deemed contrary to the provisions of the Law on Enterprises The shareholder contended that the agreement lacked regulation under Vietnamese law, rendering it non-binding Conversely, A maintained that the agreement was formed through the voluntary consent of all parties involved, asserting that the violating party forfeited their right to independently decide on their shares Furthermore, the agreement was based on the principle of freedom to engage in actions not prohibited by law.
The right to freely transfer shares can create challenges for minority shareholders, especially when they are compelled to sell under Drag-along agreements but are reluctant to do so when the time comes If a minority shareholder opts not to exercise the Drag-along, it can hinder the majority shareholder's ability to sell their shares, particularly if an investor seeks to acquire the entire company This situation may result in financial losses for the majority shareholder, who might pursue legal action for compensation, while the minority shareholder may argue their position as the weaker party in the contract or invoke their right to freely transfer shares.
The challenges outlined will complicate the dispute settlement process, leading to prolonged resolutions This is primarily due to the absence of regulations governing shareholders' agreements and the limited restrictions on share transfers, which are only addressed for founding shareholders under Article 120 of the Law on Enterprises.
2.1.2 The binding effect of shareholder’s agreements
A shareholders' agreement generally holds less legal weight than a company's charter, with the charter typically taking precedence in case of conflict However, parties involved in the shareholders' agreement can mutually decide that their agreement will prevail in such instances This arrangement may complicate government oversight of the enterprise, as shareholders could potentially operate outside the charter's stipulations.
By including specific provisions in the shareholders' agreement that influence the overall management and operations of the enterprise, parties may effectively circumvent legal requirements that would otherwise necessitate approval in the company charter This practice can lead to potential injustices for external parties, such as banks, mortgagees, or future shareholders, who are not privy to the confidential details of the shareholders' agreement, unlike the publicly accessible company charter.
The binding effect of a shareholder's agreement is crucial during share transfer events, particularly when an existing shareholder exits and a new shareholder joins the company This situation emphasizes the importance of understanding how such agreements impact the parties involved in the transfer of shares.
Future shareholders, even if not part of the shareholders' agreement at its inception, are still subject to its terms According to the provision, share transfers will not be registered under the name of a transferee who has not signed the agreement unless an accession agreement is executed By signing this agreement, the transferee becomes bound by the shareholders' agreement, inheriting all rights and obligations associated with the shares If a buyer acquires shares without prior knowledge of the shareholders' agreement and finds its terms unfavorable, they may choose not to execute the agreement.
The enforceability of a shareholder's agreement is primarily contingent upon the involvement of the company's managers, who hold the exclusive authority to register shares for shareholders Disputes may arise when individuals who were not original parties to the agreement seek to assert their rights, yet such situations are not explicitly governed by existing contract or enterprise laws.
Selling shareholders must adhere to the terms of the shareholder's agreement even after divesting their shares The agreement stipulates that shareholders can transfer their shares to a legal entity they wholly own, but they remain bound by the original agreement If a selling shareholder transfers their shares to a legal entity they own and subsequently sells that entity to an outside investor, they may argue that they should no longer be obligated by the shareholder's agreement However, allowing such a loophole could lead to potential breaches of commitment and harm to other parties involved.
International experiences in governing shareholders’ agreements
Shareholder agreements are generally considered contracts, but their regulation varies by country In Lithuania, these agreements are governed by civil and contract law Conversely, the United Kingdom lacks specific regulations for shareholder agreements, relying instead on a combination of contract law, case law, and company law In the United States, regulation is determined by individual state company laws This highlights the diverse approaches to monitoring shareholder agreements across different jurisdictions.
2.2.1 Regarding the shareholder’s agreement containing provisions limiting the freedom to transfer shares
Restrictions on share transfers are a common feature in shareholder contracts globally, including in Vietnam Many countries' laws permit shareholders' agreements that limit share transfers For instance, Russia's Law No 312-FZ acknowledges such agreements, allowing shareholders to mutually agree on the exercise of their rights, including transfer restrictions Similarly, the United States Model Business Corporation Act 2016, Section 6.27, permits charters and shareholder agreements to impose limitations on share transfers Consequently, parties to these agreements are bound by their commitments and cannot claim the right to freely transfer shares to breach those obligations.
2.2.2 Regarding the validity of shareholder’s agreements
In cases where there are discrepancies between the charter and the shareholders' agreement, countries vary in their approach to determining the validity of the shareholders' agreement This variation is influenced by the respective roles of contract law, civil law—which governs shareholders' agreements—and business law, which outlines the rights and powers of the company, shareholders, and other corporate authorities within each jurisdiction.
In Belgium, the validity of a shareholders' agreement is contingent upon several conditions; specifically, the agreement is rendered void if it contravenes the company's charter or interests, if shareholders agree to vote based on instructions from the company or its subsidiaries, or if they commit to approving proposals from internal bodies like the Board of Directors or Audit Committee This restriction on participation by these bodies in voting on company matters is designed to prevent them from exercising rights that are exclusively reserved for shareholders.
In Germany and Switzerland, it is generally understood that third parties are not bound by the shareholders' agreement, meaning they have no obligations under it Conversely, the United States takes a different stance, often rejecting the notion that third parties are obligated by such agreements.
The Belgian Court has determined that proving a shareholders' agreement is in the company's interest is not necessary for its validity, as such evidence can be challenging to gather Instead, it is sufficient to demonstrate that the agreement does not harm the company as a whole Furthermore, the validity of the shareholders' agreement is upheld if it does not infringe upon the rights of non-parties who are unaware of its existence.
2.2.3 Regarding the forms of shareholders’ agreements
Legal perspectives on shareholder agreements vary across Europe In Switzerland and Germany, oral agreements are permissible, while Russian law mandates that such agreements be documented in writing and signed to be valid Conversely, in the United Kingdom, although oral agreements are allowed, they are rarely practical The UK law further stipulates that when legal entities are involved, the agreement must be executed in one of two forms: either a simple written form signed by an authorized representative or a deed form, which requires sealing and signatures from the involved parties, along with a deed-form power of attorney.
Recommendations for legal framework of Vietnam
2.3.1 The Law governing shareholders’ agreements
The author advocates for the inclusion of shareholder agreements within Vietnam's corporate law, despite the Drafting Committee of the Law on Enterprises 2014 not accepting this proposal Regulating these agreements in the Law on Enterprises is essential, as they are closely linked to enterprise management and the law's subjects This approach aims to unify management practices and ensure alignment with existing legal provisions Key aspects to be addressed include defining shareholder agreements, outlining the forms of effective agreements, specifying essential terms, and clarifying the validity of these agreements in relation to the company’s charter.
The author argues against restricting the entities eligible to enter shareholder agreements, as such limitations could hinder business participation and investment opportunities for individuals or organizations involved in proposed transactions Instead, it is suggested that a shareholder agreement should be recognized as valid if at least one shareholder is actively participating.
The company's involvement in a confidential agreement may lead to unfairness for future shareholders To address this issue, it is recommended that the existence of such shareholder agreements be documented in the company's charter or disclosed to prospective shareholders Furthermore, to guarantee equal rights for all shareholders, any agreement involving the company, existing shareholders, and external parties such as investors or banks must permit the participation of all current shareholders.
The author advocates for laws mandating that shareholders' agreements be documented in writing to ensure their effectiveness This recommendation stems from concerns regarding the ease of contract breaches and the challenges in proving the existence of such agreements through verbal or non-verbal means Given that shareholders' agreements often involve significant transaction values and impacts, having a formal written document enhances trust among parties and solidifies commitments Additionally, written agreements facilitate a more efficient dispute resolution process by providing clear evidence of the contract's existence.
The validity of a shareholder’s agreement is not automatically compromised if a provision conflicts with the Law on Enterprises or other laws, as these agreements aim to optimize the interests of the involved parties To safeguard against potential damages to the company or non-participating shareholders, it is advisable to include a clause stating that any provision causing harm in violation of applicable laws shall be invalidated This ensures that the interests of the company and the rights of non-participating shareholders are prioritized In cases where the shareholders’ agreement contains conflicting provisions that do not violate prohibited laws or adversely affect non-participating parties, the agreement should take precedence over the company’s charter.
The author argues that provisions on share transfer restrictions in shareholder agreements should be legally recognized due to their common use in practice Acknowledging these provisions would clarify legal interpretations and help resolve disputes related to share transfers, rather than complicating the rights to freely transfer shares or self-determine asset management.
Concluding remarks
This chapter explores the practical validity of shareholder agreements, highlighting scenarios where such agreements fail to produce legal effects for the parties involved The author aims to identify these cases and propose remedies, drawing on regulations from various EU countries and the United States Recommendations for enhancing Vietnam's legal framework include establishing clear provisions on shareholder agreements, defining the entities involved, specifying the required form, and clarifying their legal implications.
In the context of robust business growth and investment, the demand for shareholder agreements is rising as a means to improve corporate management and empower stakeholders To support this trend, Vietnam must enhance its legal framework governing shareholder agreements alongside implementing corporate and investment incentives Proper regulation of these agreements aims not to hinder their formation but to facilitate effective business management and resolve related disputes efficiently.
This thesis successfully meets its primary objectives by providing a comprehensive overview of shareholders’ agreements both in Vietnam and globally, while also offering recommendations for enhancing Vietnam's legal framework governing these agreements Through an evaluation and comparison of international laws and practical experiences, the author aims to improve the effectiveness of implementing shareholders’ agreements in Vietnam The proposed legal enhancements are intended to strengthen the regulatory environment and facilitate better management of shareholder relationships.
1 Law on Foreign Investment in Vietnam 1987 No 4-HDNN8 dated 29 December
1987 as amended and supplemented in 1990 and 1992
2 Civil Code 2015 No 91/2015/QH13 issued by The National Assembly dated 24 November 2015
3 Law on Enterprises 2014 No 68/2014/QH133 issued by The National Assembly dated 26 November 2014
4 Law on Enterprises 2020 No 59/2020/QH14 issued by The National Assembly dated 17 June 2020 as amended and supplemented in 2022
5 Law No 312-FZ amending and supplementing Part One of the Civil Code and some other laws of Russia
6 Model Business Corporation Act 2016 of the United States
7 Civil Code of the Republic of Lithuania
8 Wetboek van Vennootschappen of Kingdom of Belgium
9 Companies Act 2006 of the United Kingdom
1 Phạm Hoài Huấn (2016), “Tranh chấp điển hình trong quản trị doanh nghiệp”, Nxb Chính trị quốc gia sự thật, Hà Nội
2 Trần Thị Ngân, “Một số vấn đề pháp lý về thỏa thuận góp vốn có yếu tố nước ngoài”, Tạp chí Nghề Luật, No 04/2021, p.47-53, https://sti.vista.gov.vn/tw/Lists/TaiLieuKHCN/Attachments/317508/CVv358S42021047.pdf, accessed on 7 April 2023
3 Trương Hữu Ngữ (2023), Pháp lý M&A căn bản, Nxb Công Thương
4 Trần Phan Hoài Phương (2021), Pháp luật về thỏa thuận cổ đông, Master's Thesis in Economic Law
5 Trương Nhật Quang (2016), Pháp luật về doanh nghiệp – Các vấn đề pháp lý cơ bản, Nxb Dân trí
6 Nguyễn Thị Phương Thảo and Bùi Nguyễn Trà My (2020), Tạp chí Luật học, No
2 (237), p 54-67, https://vjol.info.vn/index.php/tclh/article/view/51975/48976, accessed on 7 April 2023
7 Nguyễn Quốc Vinh, “Thỏa thuận cổ đông - thực tiễn và pháp luật trên thế giới và đề xuất cho Việt Nam”, Tạp chí Nghiên cứu lập pháp No 21(157), in November
2009, http://www.lapphap.vn/Pages/tintuc/tinchitiet.aspx?tintucid!1097, accessed on 7 April 2023
8 Trần Thị Thúy Vy and Lê Trần Đức Huy (2018) “Quy định về thỏa thuận cổ đông trong pháp luật Anh và kinh nghiệm cho Việt Nam”, Submission for the University- level Scientific Research Competition for students at the Ho Chi Minh City University of Law for the academic year 2017 – 2018
1 Crawford, W E., & P O Gratias (1983), “Shareholders’ Agreements – A need for greater flexibility”, Can Tax J.,31
2 Gilles Chemla, Michel A Habib & Alexander Ljungqvist, “An analysis of Shareholder Agreements”, Journal of the European Economic Association Vol 5,
3 Miliauskas, P (2013), “Shareholders’ agreement as a tool to mitigate corporate conflicts of interests”, Int J Private Law, Vol 6, No 2
4 Ricardo Molano-León, “Shareholder’s Agreements in Close Corporations and their enforcement in the United States of America”, Vniversitas Bogotá (Colombia) N° 117: julio-diciembre de 2008
5 Silva, A L P da, Lana, J., & Marcon, R (2018), “Agreeing and impacting: The effect of the Shareholder’ Agreement on firms’ market value”, Brazilian Business Review, 15(1)
6 Yuriy Zhornokui, Olha Burlaka & Valentyna Zhornokui (2018), “Shareholders agreement: Comparative and legal analysis of the legislation and legal doctrine of Ukraine, EU countries and USA”, Baltic Journal of Economic Studies, Vol.4, No.2
III Resources from the Internet
1 https://thanhnien.vn/viet-nam-se-co-15-trieu-doanh-nghiep- 1851508912.htm#:~:text=T%C3%ADnh%20%C4%91%E1%BA%BFn%20h%E1
%BA%BFt%20n%C4%83m%202021,ng%C6%B0%E1%BB%9Di%20d%C3%A2 n%20c%C3%B3%201%20DN, accessed on 7 April 2023
2 https://www.mpi.gov.vn/Pages/tinbai.aspx?idTinV398&idcmI, accessed on 7 April 2023
3 https://ipcs.mpi.gov.vn/thu-hut-fdi-nam-2021-du-bao-nam-2022/, accessed on 7 April 2023
4 Apolat Legal, “Giá trị của thỏa thuận cổ đông so với Điều lệ doanh nghiệp”, https://apolatlegal.com/vi/gia-tri-cua-thoa-thuan-co-dong-so-voi-dieu-le-doanh- nghiep/, accessed on 7 April 2023
5 Huỳnh Công Tâm - Russin & Vecchi (Vietnam), “Thỏa thuận cổ đông… thực tiễn và sự cần thiết”, https://russinvecchi.com.vn/publication/thoa-thuan-co-dong-thuc- tien-va-su-can-thiet/, accessed on 7 April 2023.