Law on Enterprises 2020: Changes for Business Owners

Law on Enterprises 2020 is the new company law that Vietnam will start to apply on 1 January. The National Assembly passed it on 17 June 2020. It is Law No. 59/2020/QH14, and it replaces Law No. 68/2014/QH13 from the day it takes effect. Business owners have about five weeks left to read it and plan. This note covers the changes that matter most to company owners.

A wider definition of a state-owned enterprise

The old law treated a state-owned enterprise as one where the State held 100 percent of charter capital. The new law is wider. Under Article 88, a state-owned enterprise must be a limited liability company or a joint stock company. It can be wholly state-owned, with 100 percent of charter capital held by the State. It can also be partly state-owned, where the State holds more than 50 percent of charter capital or voting shares.

This matters for private partners too. A single-member company owned by a state-owned enterprise must set up a Board of Controllers under Article 79. A firm that sells to, or is owned by, a company with a State majority should check which group it now falls into.

The Economic Committee chairman told the National Assembly that frequent changes to the definition had made uniform management hard. The new text aims to settle it.

Sources: Law No. 59/2020/QH14, English translation (Articles 4, 79, 88, 217); Vietstock, June 18, 2020.

Who may and may not set up a company

Article 17 lists people and bodies that may not found or manage an enterprise in Vietnam. The list includes officials and public employees, army and police officers (with some exceptions for people who manage State stakes), and managers of wholly state-owned enterprises. It also covers minors, people with limited legal capacity, and people who are under certain criminal restrictions.

The list names, among others, police workers and people who have difficulty controlling their behavior. An owner who plans to add a partner or a director should check each person against Article 17 first.

Sources: Law No. 59/2020/QH14, English translation (Article 17).

Legal representatives: one or several

A limited liability company or a joint stock company may now have more than one legal representative (Article 12). The charter must state how many there are, their titles and the rights and duties of each one.

If the charter does not split the duties, each representative acts for the whole company and shares liability for any damage to it. The law also requires at least one legal representative who lives in Vietnam. If that person leaves the country, he or she must give written authority to another Vietnam resident.

Owners who use more than one representative should write the limits into the charter before January.

Sources: Law No. 59/2020/QH14, English translation (Article 12).

Seals, registration and fewer notices

Article 43 says a company seal can be a physical stamp or a digital signature under the law on electronic transactions. The company decides the type, number and design of its seals. The old duty to notify the registration office of a seal sample is gone.

Registration also gets easier. Article 26 lets a founder file by post or online, as well as in person. Online filers can use a digital signature or a business registration account. The office has three working days to review a valid application.

Tilleke & Gibbins, a law firm, makes the same point in its September 2020 note: companies no longer have to tell the authority about their seal samples, and electronic signatures can stand in for them.

Sources: Law No. 59/2020/QH14, English translation (Articles 26 and 43); Tilleke & Gibbins, Vietnam's Updated Law on Investment and Law on Enterprises, September 2020.

Shareholder rights and household businesses

For joint stock companies, the new law lowers some thresholds. Tilleke & Gibbins reports that a holder of 5 percent of shares, down from 10 percent, may ask for a shareholders' meeting, and that the six-month holding rule is gone. Under Article 115, the same 5 percent holder may also see board minutes and financial statements. Under Article 166, a holder of 1 percent may bring a claim against board members or the general director. Under Article 148, an ordinary resolution passes when holders of more than 50 percent of the votes cast back it, unless the charter sets another ratio.

Non-public joint stock companies that sell bonds privately must follow Article 128. For example, privately placed convertible bonds go to strategic investors, and other private bonds go to professional securities investors.

Household businesses leave the Law on Enterprises. Article 217 says the Government will set their registration and operation rules separately. Vietstock reported that the Vietnam SME Association counts more than five million of them, so many owners will watch for those rules.

Sources: Tilleke & Gibbins, September 2020; Vietstock, June 18, 2020; Law No. 59/2020/QH14, English translation (Articles 115, 128, 148, 166, 217).

What owners should do before 1 January

Start with the charter. Check how many legal representatives you have and what each may do. Check whether a State holding above 50 percent now makes a partner a state-owned enterprise. Review shareholder rights if you run a joint stock company, and read the transition rules in Article 218, which let some existing managers serve out their terms.

The Government is expected to issue guiding decrees. Until they arrive, plan from the law itself and ask a licensed adviser about the points that affect your company.

Sources: Law No. 59/2020/QH14, English translation (Articles 12, 88, 217 and 218).