Corporate law in Vietnam was originally based on the French commercial law system. However, since Vietnam's independence in 1945, it has largely been influenced by the ruling Communist Party. Currently, the main sources of corporate law are the Law on Enterprises,Law on Enterprises the Law on SecuritiesLaw on Securities and the Law on Investment.Law on Investment
History of corporate law and sources of law in Vietnam
The post-independence period (1945–1986) Corporate law in Vietnam is largely influenced by French laws due to its colonial past. After the 1954 Geneva Conference, Vietnam separated into two zones: the North and the South. In 1980, after the North took control of the South, the country adopted a centrally-planned economy, with officials discouraging private commerce.Library of Congress, F. R. (1987). Vietnam Country Study. Retrieved August, 2011, from http://lcweb2.loc.gov/frd/cs/vntoc.html
Doi Moi (post-1986) In 1986, the government initiated economic reforms (Doi Moi) to the corporate sector to reinvigorate the ailing economy. These policies aimed to reverse most of policies that led to economic crises in the 1970s and 1980s following the Vietnam War. Development of the private sector was encouraged and the economy was liberalized in hopes of increasing the potential for economic development. In 1987, the Law on Foreign Investment was passed, allowing foreign investors into the country.Asian Development Bank. (2011). Economy of Vietnam - An Overview. Retrieved August, 2011, from 44th Annual Meeting, Board of Governors, Asian Development Bank:
In 1990, the Law on Private Enterprises and Companies Law were introduced to boost economic development. They were subsequently superseded by the Law on Enterprises (LOE) in 1999, which introduced Partnerships in addition to Limited Liability Companies and Shareholding Companies. Within three years of implementing the LOE, over 70,000 enterprises were registered as compared to just over 40,000 for the previous nine years.Bai, X. H. (2006). Vietnamese Company Law: The Development and Corporate Governance Issues. Bond Law Review, 25. Law on Investment (replacing Law on Foreign Investment) and a new LOE were enacted in 2005.Bai, X. H., & Walker, G. (2005). Transitional Adjustment Problems in Contemporary Vietnamese Company Law. Journal of International Banking Law and Regulation, 567-576. These statutes are expected to further strengthen Vietnam's economy and its potential for international economic integration.
Main sources of law in Vietnam The Constitution - Mainly seen as the ultimate Party policy documents. Nicholson, P. (2007). Borrowing Court Systems - The Experience of Socialist Vietnam. Martinus Nijhoff Publishers, at 47 4 different versions (1946, 1959, 1980, 1992)
Legislation - Originated from civil law passed down from the French.Nicholson, P. (2007). Borrowing Court Systems - The Experience of Socialist Vietnam. Martinus Nijhoff Publishers, Appendix 6
Forms of business enterprise
The LOE governs business enterprises in Vietnam. Enterprises in all economic sectors have to satisfy the stipulated conditions accounted for in Article 7(2). There are 4 forms of business enterprises.
Limited liability company (LLC)
An LLC is established by members' capital contribution to the company. As a LLC is a legal entity separate from the owners, the owner(s)'s liability for the firm's debts and obligations is limited to his capital contribution.Articles 38 and 63, Law of Enterprises 2005.
LLCs exist in two forms - one-member LLC, or multi-member LLC. The former is owned by an organisation/individual,Article 63, Law of Enterprises 2005. while the latter allows for two to fifty members.Article 38, Law of Enterprises 2005.
The management structure consists of a Members' Council (MC), Chairperson of the MC and Director. Where there are more than 11 members in LLC, an Inspection Committee (IC) must also be established.Article 46, Law on Enterprises 2005.
Shareholding Company (SC)
An SC is an entity with at least three shareholders,Article 77(1)(b), Law on Enterprises 2005. where ownership of the firm depends on the number of shares they hold. It is the only form of enterprise that can issue securities to raise capital.
Shareholders' liability is limited to their capital contribution;Article 77(1)(c), Law on Enterprises 2005. however, shareholders can be personally liable where the company is substantially undercapitalised on formation.
The management structure consists of a shareholders' meeting (SM), a board of management (BOM), a director and an IC.Article 95, Law on Enterprises 2005.
Partnership A partnership comprises at least two co-owners jointly conducting business under one common name,Article 130(1)(a), Law on Enterprises 2005. with at least one co-owner being an individual. In a partnership, there can be both limitedArticle 130(1)(c), Law on Enterprises 2005. and unlimited liabilityArticle 130(1)(b), Law on Enterprises 2005. partners.
The Partners' Council, consisting of all partners, is the highest body in the partnership with the right to resolve all business affairs, such as the admission of new partners.Article 135, Law on Enterprises 2005.
Private enterprises A private enterprise is a firm owned by an individual, who is its legal representativeArticle 143(4), Law on Enterprises 2005. The owner has total discretion in making business decisions,Article 143(1), Law on Enterprises 2005. and is liable for its operations to the extent of all his assets.Article 141(1), Law on Enterprises 2005. Each individual can only establish one private enterprise.Article 141(3), Law on Enterprises 2005.
Rules concerning ownership of businesses The government has rules to restrict certain lines of businesses,Article 7, Law on Enterprises 2005 and will periodically review business conditions and proceed with any changes accordingly.
The rights and obligations of business enterprises are provided for in Articles 8–10; but might differ slightly should the enterprise offer public services or products.
Limited liability company (LLC) Owners in LLCs have to contribute capital in full and on time. In one-member LLCs, the owner will be responsible for debts and other property obligations if he fails to do so.Article 65, Law on Enterprises 2005 Meanwhile, in multi-member LLCs, members are to contribute capital in the type of asset, and any change is subject to the consent of other members.Article 39(1) Law of Enterprises 2005
Owners in LLCs can assign a share of their capital contribution except where prohibited.Such prohibitions are laid down in Article 45(6). In one-member LLCs, this is the only way for the owner to withdraw capital.
Shareholding Company (SC) The government provides specific provisions on the forms of offering securities to the public.Article 11, Securities Law 2006 In offering securities, SCs are subject to conditions laid out in the Securities Law, such as the requirement for a paid-up charter capital at the time of offering of at least VND 10 billion in book value.Article 12, Securities Law 2006
Founding shareholders can assign their registered ordinary shares to each other if they hold 20% of ordinary shares for 3 years from the date of the Business Registration Certificate. Approval at the SM will allow a non-founding shareholder to purchase registered ordinary shares from a founding shareholder.
Partnerships If an unlimited-liability partner fails to contribute capital accordingly, other partners may be held liable to compensate the partnership for the damage. However, where the limited liability partner fails to contribute capital accordingly, the unpaid amount will become a debt owed by that partner to the partnership.
An unlimited liability partner can transfer his share of capital in the partnership to another person only with the consent of the other unlimited liability partners.
Private enterprises The owner must register his investment capital in the firm, and record changes in the investment capital in the accounts.
Rules concerning corporate governance
Regulation of governing bodies
Ownership The ownership powers of the enterprises are vested in the MC/Chairman for LLCsArticle 47(1), Law on Enterprises 2005Article 68(1), Law on Enterprises 2005 and in the SM and BOM for SCs.Article 96(1), Law on Enterprises 2005Article 108(1), Law on Enterprises 2005 They are the highest decision making bodies for each enterprise and are tasked with the passing of resolutions, amending the Company Charter and setting out the general direction of the Company, etc.Article 47(2), Law on Enterprises 2005Article 96(2), Law on Enterprises 2005Article 104(2), Law on Enterprises 2005 A resolution can only be passed with a minimum percentage approval.Article 52(2), Law on Enterprises 2005Article 68(6), Law on Enterprises 2005 Such a rule is put in place to ensure the interests of all shareholders are protected.
Executive The Director, appointed by the ownership institutions of the enterprise, has Executive powers and oversees the day-to-day running of the Company for SCsArticle 116 (2), Law on Enterprises 2005 and LLCs.Article 55(1), Law on Enterprises 2005Article 70(1), Law on Enterprises 2005 He is legally responsible for the implementation of delegated rights and obligations. Directors of LLCs cannot be affiliated to any member of the MC,Article 70(3), Law on Enterprises 2005 ensuring the separation of powers between the company's ownership and management.
However, for SCs, the LOE permits persons to take up dual roles as Director and chairman of the BOM.Article 111 (1), Law on Enterprises 2005 One survey found that 75% of chairmen of a BOM were also the Directors of their company. Furthermore, other members of the BOM are often majority shareholders and managers of the company. This highlights an indefinite differentiation between ownership and management.
Inspection The LOE prescribes the formation of a mandatory IC to monitor and check the ownership and executive powers.Article 71, Law on Enterprises 2005Article 121, Law on Enterprises 2005 Members of the IC must minimally possess professional qualifications or accounting/auditing work experience,Article 71(4), Law on Enterprises 2005 and cannot be related to members of the ownership or executive bodies. This ensures impartiality and prevents conflict of interests. However, in SCs, while members of the IC cannot hold any managerial positions in the company, they are allowed to own company shares or be a general employee of the Company.Article 122(2), Law on Enterprises 2005
Individual liability for corporate actions
Ownership Representatives Where the MC/Chairman of the LLC fails to convene a requested meeting within 15 days of the request, he must bear personal liability for any damage that may result to the company.Article 50(5), Law on Enterprises 2005
Executive The LOE prescribes that the Director of a LLC may be sued by shareholders should he fail to perform his obligations and duties.Article 41(1g), Law on Enterprises 2005 In contrast, in a SC, there are no such provisions to grant the shareholders power to bring an action against Directors who do not perform their duties. While the law lays out the fiduciary duties of the Directors, it does not provide a way to enforce these duties. This has led to the criticism that the interests of shareholders of SCs are not adequately protected.Le Minh, Toan and Walker, Gordon (2008) "Corporate Governance of Listed Companies in Vietnam," Bond Law Review: Vol. 20: Iss.2, Article 6.
Inspectors The IC is legally responsible for the implementation of its rights and duties. The LOE however does not specify the circumstances under which the IC will be deemed to have neglected its rights and duties and hence be legally liable.
Restrictions on transactions with owners/shareholders