In the course of business operations, several reasons including financial requirements or the need to welcome new shareholders, make the issue of transferring shares a matter of concern for shareholders and businesses. Further, not all shares are automatically allowed to be transferred. Depending on each case, the transfer of shares will be governed by different regulations.
Share transfer means the transfer of capital contribution by a shareholder in a joint-stock company to another shareholder without changing the charter capital structure. In fact, this is a common activity that is regularly performed at joint stock companies. To know how this activity is done to ensure compliance with the provisions of the Law on Enterprises 2020, please read this article.
What is the right way to transfer shares?
According to Clause 3, Article 127 of the Law on Enterprises, shares are freely transferable, except in the cases specified in Clause 3, Article 120 of the Law on Enterprises or if the company’s charter restricts the transfer of shares. Thus, the Law on Enterprises allows shareholders to freely transfer shares, except for the restrictions specified in Clause 3, Article 120 and in the Company’s Charter (if any), specifically:
- In case of transfer of common shares of founding shareholders, within 03 years from the date on which Enterprise Registration Certificate of the company was granted, the common shares of founding shareholders are freely transferable to other founding shareholders and may only be transferred to a person who is not a founding shareholder if such activity is approved by the General Meeting of Shareholders.
- In case the company’s charter imposes restrictions on the transfer of shares, these provisions will only take effect when such provisions are clearly stated in the respective shares.
In addition, the Law on Enterprises also lays down the rules pertaining to the change of shareholders in some special cases without the element of trading, as follows:
- In case an individual shareholder dies, the heir according to the will or law of that shareholder becomes a shareholder of the company.
- In case an individual shareholder dies without a heir or the heir refuses to receive the inheritance or is deprived of the right to inherit, the shares of such shareholder shall be settled in accordance with the civil law.
- Shareholders have the right to donate a part or all their shares in the company to other individuals or organizations and use shares to pay off debt. Individuals and organizations that received debt repayment by shares will become shareholders of the company.
Form of transfer: The transfer is done by a contract or a transaction on the stock market, as follows:
- In case of transfer by contract, the transfer papers must be signed by the transferor and the transferee or their authorized representatives.
- In case of transfer by a transaction on the stock market, the order and procedures for transfer shall comply with the provisions of the law on securities.
After receiving shares by one of the above methods, individuals and organizations receiving shares only become new shareholders of the company from the time their information is fully recorded in the register of shareholders of the company. At the same time, the company must register the change of shareholders in the register of shareholders upon the request of the relevant shareholder, within 24 hours from the date of receipt of the request as prescribed in the company’s charter.
Thus, the above provisions show that the Law on Enterprises does not regulate and interfere too much in the transfer of shares between shareholders, but rather gives shareholders the right to freely transfer shares with only certain limitations.
Notifying the business registration office:
Another issue that companies may also encounter is when there is a transfer of shares leading to a change of shareholders in the company. In such a case, does the company need to notify the business registration office or not?
Regarding this issue, according to the provisions of the Law on Enterprises, this is an activity that falls within the internal business of the company. So it is not necessary to notify the change of shareholders to the Business Registration Authority, unless there is a change in foreign shareholders as prescribed in Clause 3, Article 31 of the Law on Enterprises. In this case, the joint-stock company must notify in writing the business registration office where the company’s head office is located, within 10 days from the date of change to the shareholders who are foreign investors, in the register of shareholders of the company. This is because foreign investors, when buying shares in companies, must meet the investment conditions pertaining to foreign investors in accordance with the provisions of the Law on Investment. In case the transfer of shares leads to an increase in the percentage of foreign investors owning shares in the company, the investor who is the new shareholder must be approved to buy shares by the Investment Registration Authority prior to carrying out procedures for such changes in the foreign shareholders in a joint-stock company.
In addition, companies should also note that the transfer of shares is subject to separate regulations on capital transfer of the bank where the company has a capital account. Depending on the internal regulations of each bank, the procedure and components of the required documents may vary. In fact, when transferring shares, shareholders participating in the transfer must contact the bank with which the capital account is linked, to find out and carry out the corresponding procedures, in accordance with the bank’s regulations.
Understanding the above regulations will help companies ensure that the transfer of shares is carried out in accordance with the provisions of the law. It also helps in ensuring that the business activities of the company continue to take place without facing any disruption or hindrance.
Authored on: 22/06/2021
The article is based on the current law at the time recorded above and may no longer be relevant at the time readers access this article due to changes in applicable law and specific cases that the reader wants to apply. Therefore, the article is for reference only.