WHAT IS A JOINT-STOCK COMPANY?

A joint-stock company is a type of legal entity with limited liability, established and existing independently from its owners. The company’s capital is divided into equal portions called shares, which are issued to mobilize investment capital from investors.

1. What is a Joint-Stock Company?

Pursuant to Clause 1, Article 111 of the 2020 Law on Enterprises, a joint-stock company is an enterprise in which:

• The charter capital is divided into multiple equal portions called shares;

• Shareholders may be organizations or individuals; the minimum number of shareholders is three (03), with no limitation on the maximum number;

• Shareholders are only liable for the company’s debts and other asset obligations to the extent of the capital they have contributed to the enterprise;

• Shareholders have the right to freely transfer their shares to others, except in cases specified in Clause 3, Article 120 and Clause 1, Article 127 of this Law.

2. Characteristics of a Joint-Stock Company

• A joint-stock company is a capital-based company. This means that at the time of establishment, the primary concern is the contributed capital rather than the identity of the contributors, resulting in an open capital structure.

• The charter capital of a joint-stock company is divided into equal portions called shares. This constitutes the most fundamental characteristic of a joint-stock company.

• A joint-stock company may have a very large number of members, as the law only prescribes the minimum number of shareholders and does not limit the maximum number.

• A joint-stock company allows for the free transfer of contributed capital, which is represented in the form of shares. Shareholders may freely transfer their shares in accordance with applicable legal provisions. Such transfers may be conducted in the ordinary manner or through transactions on the securities market.

• A joint-stock company has legal entity status, and its shareholders are liable for the company’s debts only to the extent of the capital they have contributed.

• A joint-stock company may issue various types of securities to the market for the purpose of publicly raising capital.

3. Advantages and Disadvantages of a Joint-Stock Company

3.1. Advantages of a Joint-Stock Company

• The law does not limit the number of shareholders in a joint-stock company.

• A joint-stock company has limited liability, meaning that in case of risks, shareholders are only liable to the extent of the capital they have contributed.

• A joint-stock company has the right to issue shares and bonds and list them on the stock exchange.

• A joint-stock company can transfer capital to members both inside and outside the company.

• A joint-stock company has the highest capital-raising capacity among all types of business entities.

• A joint-stock company has simple procedures for transferring shares.

3.2. Disadvantages of a Joint-Stock Company

• It may be difficult to gain the trust of partners, as shareholders are liable only for the portion of capital they have contributed.

• The organizational structure of a joint-stock company is complex.

• Since there is no limit on the number of shareholders, if the number of shareholders is very large, management and administration become more difficult compared to other types of enterprises, and conflicts of interest among shareholders may arise.

• Shareholders are required to pay personal income tax of 0.1% of the value of shares transferred when buying or selling shares.

• The confidentiality in business and financial matters is limited, as the joint-stock company must publicly disclose information and report to shareholders during annual meetings.

4. Organizational Structure of a Joint-Stock Company

Pursuant to Article 137 of the 2020 Law on Enterprises, except where the Securities Law provides otherwise, a joint-stock company has the right to choose its management organization and operate according to one of the following two models:

1. General Meeting of Shareholders, Board of Directors, Supervisory Board, and Director or General Director. In the case where the joint-stock company has fewer than 11 shareholders and the shareholders who are organizations own less than 50% of the total shares of the company, the Supervisory Board is not required.

2. General Meeting of Shareholders, Board of Directors, and Director or General Director. In this case, at least 20% of the Board of Directors must be independent members, and there must be an Audit Committee under the Board of Directors. The organizational structure, functions, and responsibilities of the Audit Committee are stipulated in the company charter or the operational regulations of the Audit Committee issued by the Board of Directors.

Both models share the General Meeting of Shareholders, Board of Directors, and Director or General Director. The functions and positions of these bodies are as follows:

4.1. General Meeting of Shareholders:

The General Meeting of Shareholders comprises all shareholders with voting rights (including ordinary and preferred voting shareholders) and is the highest decision-making body of the joint-stock company. The General Meeting of Shareholders meets annually for a regular meeting. In addition to the annual meeting, the General Meeting may hold extraordinary meetings. The meeting venue is determined by the chairperson and must be located within the territory of Vietnam.

4.2. Board of Directors:

The Board of Directors is the management body of the joint-stock company and has full authority to act on behalf of the company in deciding all matters relating to the company’s objectives and interests, except those under the authority of the General Meeting of Shareholders. The Board must have at least 3 members and no more than 11 members.

The term of office of a Board member shall not exceed 5 years and may be re-elected for an unlimited number of terms. An individual may serve as an independent Board member of one company for no more than two consecutive terms.

The company charter specifies the number, rights, obligations, and the organization and coordination of independent members of the Board of Directors.

4.3. Supervisory Board:

For a joint-stock company with more than 11 individual shareholders or with organizational shareholders owning more than 50% of the total shares, a Supervisory Board is required.

The Supervisory Board shall have 3 to 5 members, unless otherwise provided in the company charter. The term of office shall not exceed 5 years, and members may be re-elected for an unlimited number of terms. More than half of the Supervisory Board members must reside in Vietnam. The Head of the Supervisory Board must be a professional accountant or auditor and work full-time at the company, unless the company charter provides for a higher standard.

4.4. Director or General Director:

The Director or General Director is responsible for daily business operations of the company; is supervised by the Board of Directors; and is accountable to the Board of Directors and the law for exercising assigned rights and obligations.

The term of office of the Director or General Director shall not exceed 5 years, and they may be reappointed for an unlimited number of terms.

If the company charter does not stipulate that the Chairperson of the Board of Directors is the legal representative of the company, the Director or General Director shall serve as the legal representative of the company. The term of office is limited to 5 years and may be reappointed for an unlimited number of terms.