In the five years since the Law on Enterprises was enacted, regulators have yet to provide a formal definition of charter capital, which has been interpreted in the meantime as being synonymous with share capital. A joint stock company often registers to increase charter capital immediately after its shareholders vote to issue additional shares. In fact, a decision to issue additional shares does not inevitably require an increase in charter capital. Rather, it only reflects the company's subjective intention, while the final impact on the equity of a company depends on whether the shares are sold.

In order to redress the problem of phantom capital that tends to arise in such cases, Decree No 102 introduces three new concepts related to a joint stock company's capital: "issuable shares," "issued shares" and "charter capital".

"Issuable shares" are defined as shares that have been authorised for issue by a General Shareholders Meeting. "Issued shares" are those which have been acquired (and paid for) by shareholders, while "charter capital" is defined as the total nominal value of issued shares.

At the time of that the company is formed and registers its establishment, charter capital is equal to the total value of shares that founding shareholders and common shareholders have committed to buy in the new company. This means that if shareholders have registered to buy all issuable shares, charter capital would be equal to the total nominal value of issuable shares. In case they have committed only to buy a portion of issuable shares, charter capital would be the total nominal value of subscribed shares. In such cases, the company may further offer the remaining shares for three years after obtaining the business registration certificate. Buyers of subscribed shares, meanwhile, are required to pay for the shares within 90 days of issuance of the certificate.

Until now, it has been commonly accepted that entities that jointly establish a joint stock company become the company's founding shareholders and are therefore barred from transfering shares during the first three years. Decree No 102 opens up the possibility, upon mutual agreement among the parties, that a joint stock company needs only a minimum of three founding shareholders upon its establishment, while other initial shareholders may not necessarily be designated as founders. Non-founding initial shareholders would no longer be subject to share-transfer restrictions.

The share transfer restrictions applicable to founding shareholders, furthermore, would be limited only to those shares to which the founding shareholders have subscribed at the time of business registration. In other words, founding shareholders would be free to transfer additional shares acquired after the initial establishment of the company.

Corporate governance

The new decree also makes changes to rules on shareholders and legal representatives.

Current law requires a company to document decisions of a board of directors with minutes of a board meeting signed by all members who attended the meeting. Problems have arisen when a non-cooperative member has refused to sign the minutes. Decree No 102 provides that, in case a member refuses to sign the minutes, the signature on the roll certifying his/her attendance will be considered his/her signature on the meeting minutes.

The new regulation also addresses problems of shareholders who refuse to sign a change to the company's shareholders list. The former requirement that all shareholders sign the approved change has been changed to allow the business registry to accept changes with missing signatures, allowing time for the shareholder whose signature is missing to file a written objection.

Another significant provision of Decree No 102 is that a shareholder or group of shareholders holding at least 1 per cent of the total common shares may file a petition with a court to commence a lawsuit against a business executive who has failed to properly perform obligations or has abused position or power for self-seeking purposes, causing damage to the lawful interests of the company. However, this shareholder or group of shareholders may only initiate a lawsuit after the company's Control Board has rejected their request for legal action.

Decree No 102 also makes provisions for the failure of a company's legal representative to assign power of attorney upon the representative's absence. The lawful representative is required to reside in Viet Nam and, if absent from Viet Nam for more than 30 days, must make a written power of attorney for another person to perform his/her duties. Without such a power of attorney, the Board of Directors must appoint another person to act as the company's lawful representative.

Decree No 102 took effect on November 11 and includes some parallel provisions applicable to limited liability companies and other business forms.

by Phan Duc Hieu, Business Environment and Competitiveness Division, Central Institute for Economic Management