LAW ON ENTERPRISES 2020: IMPORTANT CHANGES THAT WILL FACILITATE FOREIGN INVESTORS

Position: CEO

Unit name: Gattaca Law Firm (Gattaca Law)

At the 9th Session on June 17th 2019, the XIV National Assembly of the Socialist Republic of Vietnam passed the Law No. 59/2020/QH14 on Enterprises. The regulations in the Enterprise Law 2020 are considered to have many new points, creating favorable conditions for enterprises in the period of market entry in particular, and in the investment and business process in general.

Law on Enterprises 2020 deregulated the procedure for sending seal to the business registration authority , as well as enterprises are now allowed to use seals under the form of digital signatures . Furthermore, the new Law on Enterprises also establishes a mechanism for business registration via electronic network base with electronic application form (data under law regulations and shown in electronic documents). This form shall have the equal validity with business registration application form in writing.
Promoting capital market development in order to diversify the capital source for production and investment.

Law on Enterprises 2020 also regulate on the concept of “Chứng chỉ lưu ký không có quyền biểu quyết”. “Chứng chỉ lưu ký không có quyền biểu quyết” means Non-voting Depository Receipt in English, and its abbreviation is NVDR, which has been regulated in many places in the world. NVDR will help Vietnam business market attract more capital investment from the investors, but it will still guarantee the limits on capital ownership ratio of foreign investors. Whereby, Ordinary shares that can be used as the underlying asset to issue non-voting depository receipt are called underlying ordinary shares. Non-voting depository receipt possesses economic benefits and equal obligation with underlying ordinary shares, except for the right to vote.

The enhancements in regulations of Law on Enterprises 2014 have helped Vietnam getting out of the lowest position and continuously increase its rank on the Rankings created by World Bank WB in the field of corporate governance in nations. Remarkable corporate governance and good protection for shareholders’ rights and interests apparently made important contributions, which has let enterprises become secure business tools, by that promoting capital raising.

Law on Enterprises 2020 continued enhancing the protection for investors by expanding the scope, rights of shareholders in protecting their own legal rights and interests: Shareholders or group of shareholders only need at least 05% of ordinary shares (instead of 10% for 06 consecutive months as regulated in the current law) or an even smaller ratio to have the rights to: (i) Examine and inspect company’s documents (ii) Request convention of the General Meeting of Shareholders in certain cases, and (iii) Request the Control Board to inspect company’s operation.

The above changes will contribute in creating a favorable legal framework for foreign investors and promoting and encouraging investment activities in Vietnam./.