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The recent enactment of Vietnam's new Enterprise Law (Law 59/2020/QH14) marks a pivotal shift in the country's approach to legal reform. Unlike previous revisions primarily focused on addressing immediate shortcomings, the new law embodies a proactive approach. This signifies a move beyond mere reactive problem-solving towards shaping a robust and future-proof legal framework for business operations in Vietnam.

Key aspects of this proactive approach include:

  • Long-term vision: The new law is not solely focused on rectifying existing issues but also aspires to elevate the legal framework to international best practices. This forward-looking perspective ensures that Vietnamese businesses operate under a legal framework that aligns with evolving global standards and fosters competitiveness.
  • Alignment with economic goals: The proactive approach recognizes the intertwined nature of legal reform and economic development. By streamlining regulations and enhancing investor protection, the new law aims to create a more attractive and supportive environment for businesses, thereby contributing to Vietnam's economic growth and integration into the global marketplace.
  • Continuous improvement: The proactive approach acknowledges the need for ongoing evaluation and adaptation of the legal framework. This suggests a commitment to revisiting the law periodically to ensure it remains relevant and effective in the face of evolving economic realities and best practices.

Benefits of the Proactive Approach:

  • Enhanced investor confidence: A legal framework that aligns with international standards and demonstrates a commitment to improvement fosters greater trust and confidence among domestic and foreign investors. This can lead to increased investment inflows, which are crucial for Vietnam's economic development.
  • Improved business environment: Streamlined procedures, reduced administrative burdens, and stronger corporate governance practices all contribute to a more efficient and transparent business environment. This not only benefits existing businesses but also incentivizes new ventures to establish themselves in Vietnam.
  • Sustainable growth: By adopting a proactive approach to legal reform, Vietnam can ensure its legal framework remains adaptable and responsive to the ever-changing needs of its economy. This adaptability is crucial for fostering sustainable and long-term economic growth.

In summary:

The new Enterprise Law, with its emphasis on a proactive approach to legal reform, signifies a significant step forward for Vietnam's business landscape. By prioritizing long-term vision, alignment with economic goals, and continuous improvement, the new law lays the foundation for a more competitive, attractive, and sustainable business environment, paving the way for Vietnam's continued economic growth and integration into the global market.

 

2. Streamlining Market Entry

Prior to the enactment of the new Enterprise Law (Law 59/2020/QH14) in June 2020, establishing a business in Vietnam was often perceived as a complex and time-consuming process. Recognizing this as a barrier to foreign and domestic investment, the new law prioritizes streamlining market entry through a series of key measures:

  • Elimination of unnecessary regulations: The law removes redundant and outdated regulations that previously impeded the business registration process. This includes eliminating the requirement for companies to submit company seal samples to authorities.
  • Embracing online registration: The introduction of an online registration system significantly simplifies and expedites the business registration process. This online system allows for quicker processing times, reduced administrative burdens, and increased efficiency.
  • Reduced wait times: Streamlining the registration process translates into shorter wait times for businesses seeking to enter the Vietnamese market. This allows them to focus on core business activities and launch their operations sooner.

Benefits of Streamlined Market Entry:

  • Enhanced attractiveness for investors: A simplified and efficient market entry process makes Vietnam a more attractive destination for foreign investors. This can lead to increased foreign direct investment (FDI), which plays a crucial role in Vietnam's economic development.
  • Reduced costs: By eliminating unnecessary procedures and embracing online registration, the new law reduces the overall cost associated with establishing a business in Vietnam. This is particularly beneficial for smaller businesses and startups with limited resources.
  • Improved competitiveness: Streamlined market entry fosters a more competitive business environment by facilitating the entry of new players and encouraging innovation. This benefits consumers by offering them a wider range of choices and potentially driving down prices.

Impact on Vietnam's Ranking:

Vietnam's efforts to streamline market entry are expected to have a positive impact on its ranking in the World Bank's Doing Business index. This index measures the ease of doing business in various countries around the world. A higher ranking in this index can further enhance Vietnam's reputation as an attractive investment destination.

 

3. Enhanced Protection for Investors and Shareholders

The revised Enterprise Law (Law 59/2020/QH14) prioritizes strengthening the protection of investors and shareholders in Vietnam. This focus on investor protection aims to cultivate greater trust and confidence in the Vietnamese market, thereby attracting both domestic and foreign investment. The new law introduces several key measures to achieve this objective:

1. Expanded Access to Information:

  • Shareholders now have easier access to information on a company's operations and financial performance. This empowers them to make informed investment decisions and hold companies accountable for their actions.

2. Strengthened Legal Recourse:

  • The law simplifies the process for shareholders to file lawsuits against company managers who breach their fiduciary duties or engage in misconduct. This provides shareholders with a stronger legal mechanism to seek compensation for any losses they may incur due to managerial negligence or wrongdoing.

3. Reduced Barriers to Exercising Rights:

  • The new law removes or relaxes certain conditions previously hindering shareholders from exercising their rights. For instance, the minimum shareholding requirement for proposing board nominations has been reduced, allowing a wider range of shareholders to participate in the company's governance.

4. Focus on Minority Shareholder Protection:

  • The revised law specifically addresses the concerns of minority shareholders, who are often at risk of being marginalized by majority shareholders or company management. The new provisions aim to ensure that minority shareholders' rights are protected and their voices can be heard.

Benefits of Enhanced Investor Protection:

  • Increased investor confidence: Stronger investor protection measures boost investor confidence in the Vietnamese market. This encourages investors to allocate more resources to Vietnamese companies, thereby fueling economic growth and development.
  • Improved corporate governance: By holding companies accountable to their shareholders, enhanced investor protection promotes better corporate governance practices. This leads to more transparent and responsible management, ultimately benefiting all stakeholders.
  • Attracting long-term investments: A robust investor protection framework attracts long-term investors who are seeking stable and reliable investment opportunities. This is crucial for ensuring the sustainability of Vietnam's economic growth.

 

4. Improved Corporate Governance for State-Owned Enterprises (SOEs)

State-owned enterprises (SOEs) play a significant role in Vietnam's economy. Recognizing the need for improved transparency and accountability within these entities, the new Enterprise Law (Law 59/2020/QH14) introduces several measures aimed at enhancing corporate governance for SOEs. These measures address key challenges and aim to:

1. Mitigate Power Centralization and Conflicts of Interest:

  • The law introduces stricter regulations to curb excessive power concentration within SOEs. This helps prevent individuals or groups from exerting undue influence and making decisions for personal gain rather than in the best interests of the company and the public.
  • Additionally, the law establishes mechanisms to identify and address potential conflicts of interest between personal and professional interests of individuals associated with SOEs. This fosters a more ethical and transparent decision-making process.

2. Enhance Transparency:

  • The new law mandates increased transparency in SOE operations. This includes requiring SOEs to disclose financial statements, performance reports, and other relevant information to the public. This increased transparency allows stakeholders, including citizens and investors, to hold SOEs accountable for their actions and performance.

3. Promote Information Dissemination:

  • The revised law emphasizes the importance of information dissemination for SOEs. This involves actively sharing information with the public, including details on their corporate governance structure, decision-making processes, and financial performance. This fosters greater public trust and confidence in SOEs.

Benefits of Improved Corporate Governance in SOEs:

  • Reduced corruption: Enhanced transparency and accountability within SOEs can help curb corruption and ensure resources are used efficiently and effectively, ultimately benefiting the public.
  • Improved efficiency and performance: By promoting better decision-making and preventing resource misuse, improved corporate governance can lead to increased efficiency and enhanced performance of SOEs, contributing to Vietnam's economic growth.
  • Attracting investments: A more transparent and accountable SOE sector can attract greater foreign investment as it reduces investors' concerns about potential mismanagement or corruption.

 

5. Boosting the Capital Market

The new Enterprise Law (Law 59/2020/QH14) recognizes the crucial role of a vibrant capital market in fueling economic growth and development. To enhance the attractiveness and accessibility of the Vietnamese capital market for businesses and investors, the law introduces a key innovation:

  • Introduction of Non-Voting Depositary Receipts (NVDRs):

This provision allows companies to issue NVDRs, which are financial instruments representing ownership in a company's underlying shares. However, unlike traditional shares, NVDR holders do not have voting rights. This structure offers several advantages:

  • Attract foreign investors: Companies operating in sectors with foreign ownership restrictions can leverage NVDRs to attract foreign capital without compromising control over voting rights. This opens up new avenues for fundraising and facilitates the expansion of these companies.
  • Diversify investment options: NVDRs introduce a new and diverse investment option for investors seeking exposure to the Vietnamese market but who may not be interested in voting rights. This broadened range of options can potentially increase overall investor participation in the market.
  • Boost market liquidity: The introduction of NVDRs is expected to increase liquidity in the Vietnamese stock market by attracting a wider pool of investors and facilitating easier trading of shares.

Benefits of a Boosted Capital Market:

  • Reduced reliance on bank loans: A robust capital market offers businesses alternative sources of financing beyond traditional bank loans. This can help mitigate the risks associated with high dependence on bank financing and provide businesses with greater flexibility.
  • Fueling innovation and growth: Increased access to capital allows businesses to invest in research and development, expand operations, and pursue growth opportunities. This, in turn, contributes to innovation and economic development.
  • Enhanced international integration: A thriving capital market can help attract foreign investment and integrate Vietnam into the global financial system. This can lead to knowledge transfer, technology advancements, and overall economic prosperity.

 

6. Facilitating Mergers and Acquisitions

The new Enterprise Law (Law 59/2020/QH14) acknowledges the strategic importance of mergers and acquisitions (M&As) in facilitating business growth, restructuring, and enhancing competitiveness in the Vietnamese market. To address existing challenges and encourage M&A activity, the law introduces several key measures:

  • Transforming Private Enterprises into Joint-Stock Companies:

Previously, only joint-stock companies could participate in M&A transactions. The new law allows private enterprises to transform into joint-stock companies, granting them greater flexibility and compatibility when engaging in M&A activities. This simplifies the process and opens up new opportunities for private businesses to participate in mergers and acquisitions.

  • Streamlining Procedures and Reducing Bureaucracy:

The revised law aims to streamline M&A procedures by reducing unnecessary bureaucratic hurdles. This can lead to faster completion times, lower costs, and increased efficiency for businesses undertaking M&A transactions.

  • Promoting Transparency and Disclosure:

The law emphasizes the importance of transparency and disclosure in M&A processes. This includes requiring companies to disclose relevant information to shareholders and regulators, ensuring informed decision-making and protecting the interests of all stakeholders involved.

Benefits of Facilitating M&As:

  • Enhanced competitiveness: M&A activity can lead to the consolidation of industries, creating larger and more competitive companies. This can lead to economies of scale, increased efficiency, and enhanced competitiveness in the Vietnamese market.
  • Unlocking synergies: Mergers and acquisitions can allow companies to combine their strengths and resources to unlock synergies that would not be possible if they remained separate entities. This can lead to innovation, cost reductions, and improved market positions.
  • Facilitating restructuring: M&A transactions can be a valuable tool for restructuring struggling businesses, allowing them to streamline operations, exit unprofitable ventures, and adapt to changing market conditions.

 

7. Conclusion

The introduction of the revised Enterprise Law (Law 59/2020/QH14) marks a pivotal moment for Vietnam's business environment. The law signifies a proactive approach to legal reform, prioritizing long-term vision, economic alignment, and continuous improvement. Through key measures such as streamlining market entry, enhancing investor protection, improving corporate governance in SOEs, boosting the capital market, and facilitating M&As, the new law aims to create a more transparent, efficient, and attractive business environment for both domestic and foreign investors.

These reforms are expected to stimulate economic growth, foster innovation, and enhance Vietnam's competitiveness in the global marketplace. While ongoing monitoring and evaluation are crucial to ensure the reforms achieve their intended outcomes, the new Enterprise Law undoubtedly positions Vietnam on a promising path towards a more vibrant, sustainable, and globally integrated economy.

If you need further explanation on this subject, please don't hesitate to contact us through email at lienhe@luatminhkhue.vn or phone at: +84986 386 648. Lawyer To Thi Phuong Dzung.