HANOI UNIVERSITY

Faculty of Management and Tourism

****************

BUSINESS LAW

LAWS ON MINORITY
SHAREHOLDERS PROTECTION

Tutor: Ms. Ho Thuy Hang

Group members: Tut 3 AC12
Nguyen Thi Hai Linh

ID: 1204010055

Vu Hong Ngoc

ID: 1204010068

Duong Thuy Linh

ID: 1204010051

Hoang Thi Thuy Quyen

ID: 1204010080

Doan Thu Trang

ID: 1204010104

Hanoi, December 5th 2014

Laws on minority shareholders protection

TABLE OF CONTENTS
I. Introduction............................................................................................ 1
II. Current regulations on protection of minority shareholders...............
1. The right of minority shareholders regarding the general meeting..................
1.1. Calling for a general meeting.........................................................................
1.2. Attending and voting at the general meeting..................................................
1.3. Apply the condition of Shareholder's Meeting................................................
2. The right to appoint director...............................................................................
3. The ability to control major transactions............................................................
4. The right to request the company to buy back shares........................................
5. The ability to access companys information......................................................
6. Pre-emptive right..................................................................................................

III. Current situations and shortcoming regulations ...............................

1. Current situation of minority shareholder protection.......................................
1.1. Situation of violating shareholders basic rights............................................
1.1.1. Right to attend and vote in Shareholders Meeting is restricted........................
1.1.2. Right about information of shareholders...........................................................

1.2. State shareholders abuse of power in shareholding companies.....................

1.3.Violation of minority shareholders right in reality.......................................
1.4. Conflicts in the way of carrying out shareholders right................................

2. Shortcoming regulations......................................................................................

IV. Recommendation and conclusion..........................................................

1. Recommendation..................................................................................................
2. Conclusion.............................................................................................................

REFERENCES.............................................................................................

Laws on minority shareholders protection

I. Introduction

Laws on minority shareholders protection

I. Current regulations on protection of minority shareholders

Definition of minority shareholder
Minority shareholders are shareholders who have minority stakes in a company that is
controlled by a majority shareholder.
The majority shareholder is most commonly the company's parent but may also be an
individual or a group of connected shareholders. This is more common with smaller
companies and in emerging markets.
Reasons why company must protect them
Theoretically, the investor protection issue can be viewed from a narrow (firm-level) or a
broad (country level) perspectives. From the former perspective, minority shareholders
need to be protected because of the potential for oppression both by managerial power and
the majority rule. From the latter perspective, minority shareholder protection is a significant
factor that can encourage investment and support the development of financial markets and
economic growth. The corporate world today subdivides into rival systems of dispersed and
concentrated ownership. In this system, shareholders generally take a "hands-off"
approach with companies they own and maintain their distance and give executives a free
hand to manage

1. The right of minority shareholders regarding the general meeting

1.1. Calling for a general meeting
In theory, ultimate control over a companys business lies with the membersin a general
meeting. In practice, however, the residual powers of the membership are extremely limited
and general meetings are to a large extent controlled by directors. Be that as it may, the
shareholders meeting remains the main vehicle for shareholders who wish to influence the
course of corporate business.
In normal cases, the annual general meeting is the only yearly occasion when the general
body of shareholders is given the opportunity to consider, criticise and comment upon
important affairs of the company and where shareholders can voteon the directors'
recommendation as to dividends, to approve or disapprove the directors' remuneration, and, if
thought desirable, to remove and replace all or any of them.

Laws on minority shareholders protection

Article 79 of the Enterprises Act 2005 also provides for some specific cases where minority
shareholders have the right to request the convening of an Extraordinary general meeting:
-The Board of Management commits a serious breach of the rights of shareholders or the
obligations of managers or makes a decision which falls outside its delegated authority;
-The term of the Board of Management has been expired for more than six months and a new
Board of Management has not been elected to replace it;
-Other cases stipulated in the charter of the company.

Laws on minority shareholders protection

1.2. Attending and voting at the general meeting

Shareholder participation is an essential precondition for effective corporate governance.
Participation in general meetings helps shareholders, directly or indirectly, take dicisions and
manifest their wishes so as to direct the company in a way which best benefits them and
protects their interests.
Article 79 Enterprises Act 2005 also provides that odinary shareholders have the right to
attend and to vote at the general meeting as provided by law. The Regulations on Corporate
Governance also expressly prohibits public listed companies from any restriction on the
shareholders right to attend the general meeting.

1.3. Apply the condition of Shareholder's Meeting

The General Shareholders Meeting is recognized as the absolute institution representing the
Company and its decisions, adopted in compliance with the dispositions of these Statutes and
concerning all shareholders including those who are absent, abstinent or in disagreement.
The shareholders present, in a General Meeting that has been duly notified, can determine by
majority all issues that concern the General Meeting .
The Shareholders General Meeting is made up of all shareholders holding a minimum of one
hundred shares, either present or represented by proxy. The owners of less than one hundred
shares may form a group to reach the aforementioned number. The group will be represented,
either by one of the group or, by another shareholder who possesses in his own right the
number of shares necessary to take part in the General Meeting.

2. The right to appoint director

The shareholders exert indirect control over the companys management through their power
to elect the directors. Where directors are appointed at the general meeting, a member holding
51 per cent of the voting shares is able to elect the whole of the board. As to the right to
nominate candidates for election to the board, it is also determined by the Company's articles
of association. Shareholders who wish to nominate candidates for election have to notify in
advance the company of their intention to propose that person for appointment. In addition,
they must adhere to the dates and follow the procedures set out in the articles.

3. The ability to control major transactions

Laws on minority shareholders protection

Although the board governs the managerment of company, shareholders till reserve some
powers at general meeting. Specificly, the law allow shareholders to participate in approving
important decisions of the company.
The Article 120.2 of Business Law 2005 states that contract and transactions in equivalent to
less than 50% of total value of asset recorded in the lastest financial report of the company or
smaller percentage as stipulated in company charter will be approved by the Board of
Management. However, for the transaction agreement that has the value of 50% or more of
the total assets ,recorded in the lastest financial report unless another ratio is stipulated in the
company charter, decision on investment must be approve by shareholder at the general
meeting(Article 96.1 point c, Business law 2005). The Board of Management will be in
charge of submitting daft contracts or explain the main content of intended transactions
during the meeting This law prevents the manager to abuse their power and act for their own
interest which is discourage the benefit of shareholders. As mentioned above, minority
shareholders also have the right to attend the Meeting as well as vote for their own opinion
except the one have related benefits( Article 120.3, Business law 2005).

Laws on minority shareholders protection

4. The right to request the company to buy back shares

According to the Business Law 2005 stipulated in the Article 90.1, a sharehoder will be
entitled to request the company to buy back his own shares if such shareholder votes against
decisions of the Shareholderss Meeting in relation to the construction of the company ar
alteration of the rights, obligations of the shareholders that is stipulated in the company
charter. Reconstruction or alteration of the right and obligation have significant negative
impact on minority shareholder. Therefore, the law accepted give them some protection
against the pressure of managers and majority parties. This law also states that the company
must buy back shares at market price or a price as calculated by principle in the company
charter within 90 from the date of receiving such request. If the price fail to be agreed,
shareholder can have other alternatives like sell to other persons or companies.To carry out
this right, sharehoders must sent the request which must be in writing form within 10 days
from the date of adoptin decision.

5. The ability to access companys information

A crucial condition for minority shareholders is the guarantee of a high degree of
transparency It is obvious that financial transparency and adequate information disclosure are
of ultimate importance in all countries. This is helpful for shareholders to monitor the
company, to make their investment decision, and to exercise their control over the company
through other means. Unfornately, major shareholders who alsway want to takeover the
company and expand their influence, often find way to cover the information for their own
profit. As for the controlling shareholders, by virtue of their control, they have way of
obtaining information, including, for example, from their representatives on the board of
directors. Directors and officers are presumed to be well aware ofcorporate information.
Minority shareholders do not have these advantages. So, in order to develop a strong stock
market, the laws and related institutions of a country must ensure that minority shareholders
receive good information about the value of a companys business and have confidence that
the companys insiders do not cheat investors out of most the value of their investments.
Under Vietnam Business law 2005, shareholder or group of shareholders holding more than
10% of total ordinary shares for atleast 6 month or a smaller ratio as specified in the company
charter have the rights to review companys record, periodical and annual financial report in
the standard of form and reports of the Board of Supervision.

Laws on minority shareholders protection

6. Pre-emptive right
A pre-emptive right is the privilege of existing shareholders to purchase a new offering of
shares before the general pubic. This right aims at preserving the ownership stake of existing
shareholder.
Under the Article 79.1 which indicates the rights of an ordinary shareholder regardless of the
percentage of share owned, shareholders reserve the right to be given priority in subscribing
for new shares offered for sale in proportion to the number of ordinary shares each
shareholder holds in the company. In addition, Article 78.5 of Business Law 2005 also states
that same type of share will be given the same rights, interests and obligations.

Laws on minority shareholders protection

III. Current situations and shortcoming regulations

1. Current situations of minority shareholders protection
Vietnamese corporate law, in comparison with more international jurisdictions, has fewer
codified protections of minority shareholders rights. Pure financial investors who hold
minority stakes need to always be aware of instances of self-dealing, dilution of shareholder
interests, transactions among related third parties, and other fiduciary duty violations by the
majority shareholders and management. Protecting minority shareholders, under aspect of
both theory and practice, currently still shows a lot of shortcoming, which discourages
investors, seriously affects business environment and effectiveness of raising funds for
economic growth. According to recent assessment of Deutsche Bank, if the stock markets in
countries like Malaysia, Singapore or Hong Kong get mark 10 for shareholder protection, the
number in Vietnam is just 2. Meanwhile, Report of Business environment 2010 with the topic
Reform to overcome financial difficulties by International Finance Organization (IFO) and
World Bank (WB) metioned to the issue of protecting investors, especially minority
shareholders, and indicated that the rank of Vietnamese business environment continued to
decrease and stood at 93 this year.
Current situation of protecting minority shareholder in shareholding companies is particularly
expressed as follow:

1.1. Situation of violating shareholders basic rights

Shareholders right in shareholding companies was stipulated clearly in Enterprise Law, but
in fact, situation of violating shareholders rights still occurs regularly.
1.1.1. Right to attend and vote in Shareholders Meeting is restricted
Enterprise Law clearly provides that all ordinary shareholders have the right to participate
and discuss in all Shareholders Meeting and vote directly or via proxy; an ordinary share will
be conferred one vote (Article 79.1.a, Enterprise Law 2005).
However, in reality, most of shareholding companies do not follow this article fully. Reasons
that the corporations give are not based on particular legal grounds, just general ideas to
justify their violations like narrow organizing space which is not enough for all shareholders
in the company.
1.1.2. Right about information of shareholders
A majority of shareholders do not have access to important information of the company or
not sufficient or lack of accuracy and loyalty. Minority shareholders almost do not receive
announcement about decisions of Shareholders Meeting, summary of financial statement and
notice about dividend payment.

1.2. State shareholders abuse of power in shareholding companies

Laws on minority shareholders protection

When being State corporation, State owners behavior is far away different from the use of
ownership of the State with the role of shareholder in shareholding company after conversion
process.

1.3. Violation of minority shareholders right in reality

In fact, the progress of building legal corridor to protect minority shareholder seems to
happen slowly. If each shareholder is regraded as a part of ownership in the corporation,
minority shareholders are owners not having right to raise their voice, therefore, there is no
essential respect for them.
Minority shareholders also invest finance in corporation. Nevertheless, their rights have not
been completely secured, which makes them suffer a lot of loss from majority shareholers
creating pressure.

1.4. Conflicts in the way of carrying out shareholders right

Shareholders lack of awareness is also one of the reasons leading to long-term confilcts
inside the company. Once Board of Management violates regulations and do not complete
their missions, shareholders who do not have alternative rights for their BOM and write
denounment paper requiring interference of the State as the company shows the sign of
violating financial management regime, shareholders do not request Board of Supervisions
solution but for inspection and control of the State organs.

2. Shortcoming regulations
As we have seen above there are several protections offered to the
minority shareholders. However, these provisions are not adequate in the
sense of the word as they have many loopholes that put the minority
shareholders at a disadvantage.
First, minority shareholders cannot supervise the management because
they have no powers to call for a general meeting of shareholder as well
as their inability to raise motions at such meetings. The right to vote can
be exercised at the shareholders meeting that have bee convened legally,
otherwise, any resolution arising from irregular meetings will not be
bidding on the company, the management or any other shareholder. It
divide the meetings into regular (closely held companies) and annual
(public held companies), and interim meetings. The power to convene a
shareholders meeting therefore lies solely on the hands of the
management. There is no way that the minority shareholders can
participate in this decision.
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Laws on minority shareholders protection

Secondly, minority shareholders operate in a delicate situation because of

the rule of absolute majority. Article 79 (shareholding company) grant
broad powers to the shareholders general meetings, since they are
authoritative in providing directions.. The majority rule is the one that
gives powers to the shareholders to exercise their rights at a general
meeting. In most of company, the powers of the shareholders to supervise
the management are mainly controlled by the majority shareholders.
Majority shareholders can express their wishes with through voting, unlike
the minority shareholders. One share equals one vote. If you have 90% of
the shares in a company, you have 90% of the votes. This rule also applies
to the shareholders general meeting, ranging from selecting directors or
passing of important issues.
Thirdly, in circumstances where the positive resolution mechanisms have
failed to protect the minority shareholders, it is quite impossible for to
raise personal suits for compensation. In addition, it is also not possible to
bring derivative action. In circumstances where the directors or majority
shareholders are doing things that are technically legal but which harm
the minority shareholders in one way, the minority shareholders can do
nothing. Once more, we encounter another situation that specifically
works to the disadvantage of the minority shareholders. Article 80 gives
the minority shareholders a right to raise direct suits. It states that a
director or supervisor shall be liable to damages in case where his actions
violate the law.

REFERENCES
http://text.123doc.vn/document/260569-nhu-ng-ba-t-ca-p-trong-vie-c-ba-o-ve-co-dongthie-u-so-va-mo-t-so-kie-n-nghi.htm
http://luanvan.net.vn/luan-van/khoa-luan-bao-ve-co-dong-thieu-so-30656/

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Laws on minority shareholders protection

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