THE GOVERNMENT
-------
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom – Happiness
----------
No. 44/1998/ND-CP
Hanoi, June 29, 1998
 
DECREE
ON THE TRANSFORMATION OF STATE ENTERPRISES INTO JOINT-STOCK COMPANIES
THE GOVERNMENT
Pursuant to the Law on Organization of the Government of September 30, 1992;
Pursuant to the Law on State Enterprises of April 20, 1995;
At the proposal of the Minister of Finance,
DECREES:
Chapter I
GENERAL PROVISIONS

>> See also:  Legal consultancy service on equitization of company

Article 1.- Subject to the regulation of this Decree are enterprises mentioned in Article 1 of the Law on State Enterprises, where the State needs not to hold 100% investment capital, which shall be defined in the Appendix attached to this Decree.
Article 2.- The transformation of State enterprises into joint-stock companies (hereafter referred to as equitization for short) aims to achieve the following objectives:
1. Mobilizing capital from the entire society, including domestic and foreign individuals, economic organizations and social organizations for investment in renewing technologies, creating more jobs, developing enterprises, raising the competitiveness and restructuring State enterprises.
2. Creating conditions for laborers in enterprises to have shares and for the capital contributors to be the real masters; changing the mode of management to create a motive force for enterprises to enhance their business efficiency, increase the State's assets and the laborers' incomes and thus contributing to the national economic growth.
Article 3.-
1. Economic organizations, social organizations, Vietnamese citizens, overseas Vietnamese and foreigners residing in Vietnam shall all be entitled to buy shares in the equitized State enterprises.
2. The sale of shares to foreign organizations and individuals shall comply with the regulations of the Prime Minister.
Article 4.- The ownership right and all legitimate rights of organizations and individuals that buy shares in the equitized enterprises shall be protected by the State in accordance with the provisions of law.
Article 5.- Shares shall be publicized for sale at the equitized enterprises or through commercial banks, financial companies and stock exchange services and centers.
Article 6.- The equitized enterprises shall have to arrange and fully employ the existing number of their laborers. As for the laborers who voluntarily terminate their labor contracts, the current regulations shall apply.

>> See also:  Legal service on establishment of joint stock company

Article 7.- The equitization shall be conducted in one of the following forms:
1. Maintaining the existing value of the State's capital at the enterprise while issuing shares to attract more capital for the development of such enterprise;
2. Selling part of the existing value of the State's capital at the enterprise;
3. Separating a section of the enterprise that meets conditions for equitization; or
4. Selling the entire existing value of the State's capital at the enterprise in order to transform it into a joint-stock company.
Article 8.- The right to buy shares for the first time when equitization is carried out.
1. For an enterprise where the State holds prevailing or special shares:
a/ A legal person shall be entitled to buy not more than 10% of the total shares of the enterprise;
b/ An individual shall be entitled to buy not more than 5% of the total shares of the enterprise.
2. For an enterprise where the State does not hold prevailing or special shares:
a/ A legal person shall be entitled to buy not more than 20% of the total shares of the enterprise;
b/ An individual shall be entitled to buy not more than 10% of the total shares of the enterprise.
3. For an enterprise where the State does not hold any shares:
The number of shares to be bought by each legal person or individual shall not be limited but the minimum number of shareholders must be ensured in accordance with the provisions of the Law on Companies.
4. The amount of capital borrowed by the enterprise from laborers before the equitization shall be transformed into the company's shares, if so agreed upon by the laborers.
5. Subjects prescribed in Clause 2, Article 13 of the Ordinance Against Corruption shall be entitled to buy at preferential prices only a number of shares, not more than the average number of shares of the shareholders in the enterprise.
Article 9.- Use of the proceeds from the sale of shares belonging to the State's capital:
The proceeds from the sale of shares belonging to the State's capital at the enterprise, after deducting the equitization expenses, shall be used by the People's Committee of the province or city directly under the Central Government (for local enterprises), by the Ministry of Finance (for enterprises attached to the ministries and general departments), or by the Managing Board of a Corporation 91 (for member enterprises of the Corporation) for:
1. Training and retraining laborers to create new jobs for them.
2. Providing allowances for the redundant laborers.
3. Supplementing capital for State enterprises that need to be prioritized for consolidation and investing in State enterprises that have been equitized according to the ratified plan.
Article 10.- The Ministry of Finance shall perform the unified management of the print forms and the provision of share certificates in equitized enterprises; and ensure that the shareholders receive their shares within 30 days from the end of the issuance time-limit of the equitized enterprise.
Chapter II
PRINCIPLES FOR DETERMINING THE VALUE OF AN ENTERPRISE, PREFERENCES FOR THE EQUITIZED ENTERPRISE AND LABORERS THEREOF
Article 11.- Principles for determining the value of an enterprise:
1. The actual value of an enterprise is the price of all available assets of such enterprise at the time of equitization, which is acceptable to both the share buyer and seller. The actual value of the State's capital at the enterprise is the actual value of the enterprise after deducting all its payable debts.
2. Factors for determining the actual value of the enterprise:
a/ Data recorded in the accounting books of the enterprise at the time of equitization;
b/ The actual value of assets of the enterprise, determined on the basis of the current status of quality, technical properties and use demand of the asset buyer and the market prices at the time of equitization.
3. The business advantage of the enterprise in terms of its geographical location and product prestige (if any). Such advantage is reflected through the ratio of profit against the average business capital over the last three years before the equitization. The value of this advantage shall, at maximum, represent 30% of the actual value of the enterprise.
Article 12.- When determining the actual value of the enterprise, it is not necessary to hire independent auditors. For enterprises that fail to comply with the provisions of the legislation on accounting and statistics, the agency that decides the enterprise's value shall consider the hiring of an independent auditing organization for determination of such enterprise's value. The expense for hiring auditors shall be accounted for in the equitization costs.
Article 13.- The equitized enterprise shall enjoy the following preferences:
1. Since the transformation of a State enterprise into a joint-stock company is a new form of investment, such enterprise shall be entitled to preferential treatment in accordance with the provisions of the Law on Domestic Investment Promotion (amended).
Enterprises that fail to meet conditions for enjoying preferential treatment in accordance with the Law on Domestic Investment Promotion shall be entitled to the 50% reduction of profit tax (enterprise income tax) for two consecutive years from the time it switches to operations under the Law on Companies.
2. To be exempt from the registration fee on the transfer of assets under the management and use of the equitized State enterprise to the ownership of the joint-stock company.
3. To be entitled to continue borrowing capital from State commercial banks, financial companies and other credit institutions according to the mechanism and at the interest rates applicable to State enterprises.
4. To be entitled to continue the export and import of goods under the current regulations applicable to State enterprises before equitization.
5. To be allowed, before equitization, to distribute the residue of its reward and welfare funds (in cash) to the working laborers (who shall not have to pay income tax thereon) for the purchase of shares.
To be entitled to maintain and develop the welfare fund in kind, the cultural works, clubs, clinics and sanitoria in order to ensure the welfare of the laborers in the joint-stock company. These assets shall be placed under the ownership of the labor collective and managed by the joint-stock company with the participation of the trade union organization.
6. The actual reasonable and necessary expenses for transforming State enterprises into joint-stock companies shall be deducted from the proceeds from the sale of shares which belong to the State's capital at the level prescribed by the Ministry of Finance.
In cases where the equitization is conducted in accordance with Clause 1, Article 7 of this Decree, the State's existing capital at the enterprise shall be used to cover the expenses.
Article 14.- The laborers in the equitized enterprise shall enjoy the following preferences:
1. To be sold by the State a number of shares at the preferential prices, depending on each person's working seniority. For each year of working for the State, a laborer is entitled to buy 10 shares at maximum (the value of one share is 100,000 VND) with the 30% price reduction, as compared with other subjects. The total value of preferential shares sold to the laborers shall not exceed 20% of the value of the State's capital at the enterprise. For enterprises with self-accrued capital representing 40% of their value, the total value of preferential shares sold to laborers must not exceed 30% of the value of the State's capital at such enterprises.
In cases where the equitization is conducted in accordance with Clause 1, Article 7 of this Decree, the value of preferences for laborers shall be deducted from the State's existing capital at the enterprise.
Laborers holding the above-said shares shall have the right to transfer and bequeath those shares and other rights of shareholders in accordance with the provisions of law and the Statute on organization and operation of joint-stock companies.
2. Poor laborers in the enterprise, who are entitled to buy shares at preferential prices may delay their payment for the first three years to enjoy dividends and pay in installments in ten years at maximum without bearing any interests. The number of shares bought with deferred payment by the poor laborers shall not exceed 20% of the total shares sold by the State at preferential prices as prescribed in Clause 1 of this Article. The holders of deferred-payment shares shall not be allowed to transfer the shares as long as they have not fully paid the State.
3. 12 months after the transformation of a State enterprise into a joint-stock company, if the laborers loose their jobs due to the re-organization of the enterprise's business operation and/or the renewal of its technologies, they shall be entitled to the policies as prescribed in the current regulations of the Government.
Chapter III
ORGANIZATION OF IMPLEMENTATION
Article 15.- Competence to select and decide enterprises for equitization:
1. Basing themselves on the conditions prescribed in Article 1 of this Decree, the ministers, the heads of the ministerial-level agencies, the heads of the agencies attached to the Government (hereafter referred collectively to as the ministers), and the presidents of the People's Committees of the provinces and cities directly under the Central Government (hereafter collectively referred to as the presidents of the provincial People's Committees) shall select and decide the enterprises to be equitized.
2. The Managing Boards of the State Corporations established by decision of the Prime Minister (called Corporations 91 for short) shall draw up lists of their respective member enterprises selected for equitization and submit them to the Prime Minister for ratification before organizing the implementation thereof.
3. The Managing Boards of the State Corporations established by decision of ministers or presidents of the People's Committees of the provinces and cities directly under the Central Government (Corporations 90 for short) under the Prime Minister's authorization, shall draw up lists of their respective member enterprises selected for equitization and submit them to the ministers or the presidents of the provincial People's Committees for decision.
Article 16.- Competence to guide and decide the values of enterprises:
1. The Minister of Finance shall provide general guidance on methods of determining the values of to-be-equitized enterprises.
2. Competence to decide the values of enterprises:
a/ The Minister of Finance shall decide the values of enterprises that have, at the time of equitization, the State's capital of over 10 billion VND as recorded in their accounting books, after consulting the concerned branch-managing ministries, People's Committees of the provinces and cities directly under the Central Government and/or the Managing Boards of Corporations 91.
b/ Basing themselves on guidance of the Minister of Finance, the ministers, the presidents of the People's Committees of the provinces and cities directly under the Central Government and/or the Managing Boards of Corporations 91 shall decide the values of enterprises that have, at the time of equitization the State's capital of 10 billion VND or less as recorded in their accounting books.
Article 17.- Competence to ratify equitization plans and decide the transformation of State enterprises into joint-stock companies:
1. For enterprises having the State capital value of over 10 billion VND (according to the provisions of Clause 2, Article 16 of this Decree): the ministers, the presidents of the provincial People's Committees and the Managing Boards of Corporations 91 shall elaborate the equitization plans and submit them to the Prime Minister for ratification and decision on the transformation of such enterprises into joint-stock companies.
2. For enterprises having the State capital value of 10 billion VND or less, the ministers or the presidents of the provincial People's Committees shall ratify plans and decide on the transformation of such enterprises into joint-stock companies and direct the equitization on the basis of this Decree as well as on the inspection guidances of the relevant ministries.
All equitization documents of the ministries, provinces and Managing Boards of Corporations 91 must be sent to the Government Office, the Ministry of Finance and the Ministry of Planning and Investment for monitoring.
Article 18.- The competent agencies' decisions to transform State enterprises into joint-stock companies as prescribed in Article 17 of this Decree shall replace the permits for setting up joint-stock companies as mentioned in Article 16 of the Law on Companies.
Article 19.- Registration of business of a joint-stock company:
1. The enterprises, after being equitized, shall operate in accordance with the Law on Companies and register their business at the Planning and Investment Departments of the provinces or cities directly under the Central Government, where the enterprises' head offices are located.
2. Within seven days from the date of receiving the full dossiers of business registration, the Planning and Investment Departments shall issue business registration certificates to joint-stock companies.
3. A dossier of business registration shall include:
a/ The decision on the transformation of the State enterprise into a joint-stock company, issued by the competent level prescribed in Article 17 of this Decree.
b/ The statue on organization and operation of the joint-stock company already approved by the shareholders' congress.
c/ The report on the election of the Managing Board and the appointment of the executive Director.
d/ The business registration certificate (if any) of the State enterprise before equitization.
Business permits granted by specialized branch-managing ministries, if they are still valid, shall not have to be changed.
Article 20.- Manager of the State's capital at a joint-stock company:
1. For cases where entire independent enterprises are transformed into joint-stock companies:
The concerned ministers, the presidents of the provincial People's Committees or the Managing Boards of Corporations 91 shall consult with the Ministry of Finance on the appointment of a person to directly manage the State's capital at the joint-stock companies.
2. For cases where sections of independent enterprises (State corporations, independent enterprises with or without Managing Boards) are transformed into joint-stock companies:
The Managing Boards of the State enterprises which have Managing Boards or the Directors of the independent State enterprises which have no Managing Boards shall appoint persons to directly manage the State's capital at the joint-stock companies established through the equitization of sections of their respective enterprises.
3. The person directly managing the State's capital at a joint-stock company shall exercise his/her rights and fulfill his/her obligations as prescribed in Articles 50 and 54 of the Law on State Enterprises.
4. The profit earned from the State's capital at a joint-stock company shall belong to the State and be remitted to:
a/ The State budget, with regard to cases mentioned in Clause 1 of this Article;
b/ The enterprise that manages the State's capital in the joint-stock company, with regard to cases mentioned in Clause 2 of this Article.
Chapter IV
IMPLEMENTATION PROVISIONS
Article 21.- This Decree takes effect 15 days after its signing and shall replace Decree No.28-CP of May 7, 1996 and Decree No.25-CP of March 26, 1997. The earlier documents on equitization which are contrary to this Decree shall cease to be effective.
Article 22.- Within 30 days from the date this Decree takes effect, the Ministry of Finance, the Ministry of Labor, War Invalids and Social Affairs, the State Bank of Vietnam and relevant ministries as well as agencies shall provide guidances for the implementation of this Decree.
Article 23.- The ministers, the heads of the ministerial-level agencies, the heads of the agencies attached to the Government, the presidents of the People's Committees of the provinces and cities directly under the Central Government and the Managing Boards of the Corporations 91 shall have to implement this Decree.
 
 
THE GOVERNMENT




Phan Van Khai
 
APPENDIX
LIST OF CATEGORIES OF STATE ENTERPRISES TO BE SELECTED FOR EQUITIZATION
(Issued together with Decree No.44/1998/ND-CP of June 29, 1998)
I. Category of existing State enterprises, which shall not be equitized yet:
- Public-utility State enterprises mentioned in Article 1 of Decree No.56-CP of October 2, 1996 of the Government.
In cases where the State enterprises of this category, that have the State's capital of more than 10 billion VND, plan to be equitized, the permission from the Prime Minister is required. If they have the State's capital of 10 billion VND or less, the equitization shall be decided by the concerned ministers or the presidents of the People's Committees of the provinces or cities directly under the Central Government.
- Enterprises engaged in the manufacture of products and/or the provision of services which the State holds the business monopoly thereover, such as explosives, toxic chemicals, radioactive substances, printing of bank notes and valuable certificates, national and international information networks.
II. Category of existing State enterprises, where the State needs to hold prevailing or special shares when the equitization is carried out:
- Public-utility State enterprises with the State's capital of over 10 billion VND;
- Exploitation of precious and rare ores;
- Large-scale mineral exploitation;
- Technical service activities for oil and gas exploitation;
- Production of fertilizers, insecticides, medicines, chemicals and pharmaceuticals;
- Large-scale production of nonferrous and precious and rare metals;
- Large-scale production of electricity, power transmission and distribution;
- Repair of flying vehicles;
- Post and telecommunications exploitation services;
- Railway, air and sea transport;
- Printing, publishing, large-scale production of alcohol, beer and cigarette;
- Investment banks and banks for the poor;
- Large-scale petroleum business.
III. The remaining categories of existing State enterprises may all be equitized and apply other forms of ownership, where and the State does not hold prevailing or special shares.