Article 87 of the Law on Enterprises, passed in November 2005, states that the Government would issue guidelines for private offers of shares in joint stock companies.

Over four years later, the guidelines have finally arrived.

On January 4, 2010, the Government issued Decree No 01/2010/ND-CP governing offers of any percentage of total shares in an enterprise to investors on a private basis.

During the four-year absence of guidelines, joint stock companies, as a matter of practice, usually offered shares privately to investors by means of their internal arrangement and approval. That means there was not any requirement to register the offering. Companies only needed to register the transfer of shares once it had resulted in a shareholder holding 5 per cent or more of the total shares in the company, as required under Article 86.4 of the Law on Enterprises.

But the new decree changes things.

Under Article 4 of the new decree, an offering of shares on private basis is defined as the offering of shares or right to purchase shares, without announcement in the mass media, made directly to either (a) professional stock investors, or (b) fewer than 100 investors who are not professional stock investors. This definition introduces another undefined term, "professional stock investors" and the Law on Securities should be referred to to check on whether there is a definition or not.

Article 8 of the decree requires that a company offering shares on a private basis issue a plan on the offering which must be approved by the general meeting of shareholders or the board of management or the owner(s) of the company, subject to the authority defined in the company’s charter.

The offer must then be registered with the competent authority at least 20 days prior to the intended date of offer. Particularly in the case of an offering of shares to foreign investors, it must conform to regulations in effect on business or investment conditions and on the limitation of shares held by foreign investors then in effect.

The decree only allows a company to unilaterally implement the offering if the competent authority has made no response to its registration within 15 days from the date of submission of the registration application.

Article 11 of the decree requires that within 10 days of the completion of the offering, the company must submit a report the results in conjunction with the list of new shareholders to the competent authority. In addition, the company must announce the result of the offering on its website.

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If, after the offering, the company becomes a publicly-held company (i.e., one having more than 100 shareholders), the company must register with the competent authority as a publicly-held company.

A number of these procedures are repetitive. Let’s imagine that if a company wished to offer 7 per cent of its total shares to one investor, it must undergo the following procedures:

(a) internal approval of the offering plan and completion of application dossier;

(b) file an application for registration of the offering;

(c) conduct the offering;

(d) report the results of the offering to the authority;

(e) announce the result of the offering on its website;

(f) report the announced information to the authority; and,

(g) register the major shareholder with the same authority (because he holds more than 5 per cent of total shares), even though in an earlier step, the list of new shareholders was already reported to the authority.

Or, to give another example, a company is newly established. In the application and the business registration certificate granted, it clearly states that founding shareholders shall hold 30 per cent of the total shares. The remaining 70 per cent of the shares shall be offered to new investors. Immediately after the establishment of the company, the company would like to sell 70 per cent share to a single investor. Prior to the sale, under provisions of the decree, the company must register the offering with the competent authority despite the fact that the authority has already provided for the share structure in the business registration certificate.

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The decree also sets out specific penalties for the breaches of these procedures. Notably, the level of penalties is quite high. Companies need to review and check these procedures for compliance to avoid risk. In cases that the shares are offered and purchased not in accordance with the regulated procedures, the transactions could even become null and void. There’s an opportunity for some parties to manipulate the situation to negate a transaction that has become unfavourable, e.g., in the even share prices that have fluctuated wildly.

The new decree takes effect on February 25. It is silent on whether offerings of shares on private basis prior to that effective date without registration of offerings shall be effective.

According to Vietnamnews

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