［draft2010/3/31］

 

Comments on the Draft Decree Providing Detailed Guidelines

for Implementation of a Number of Articles of the Law on Enterprises

 

Presented by

Chihiro NUNOI (Professor of Law, HITOTSUBASHI University)

Kayoko NAITO (Attorney at Law, Oh-Ebashi LPC and Partners)

Nagaaki TSUKAHARA (Attorney at Law, NAGOYA University)

Hikaru OGUCHI (Attorney at Law, NISHIMURA and ASAHI)

 

Article 4 of the Draft Decree Providing Detailed Guidelines for Implementation of a Number of Articles of the Law on Enterprises (hereinafter referred to as the “Decree”)

 

All assets which can be valued monetarily can be used for capital contribution. This provision is commendable because it makes it clear that intellectual property rights can be used for capital contribution.

 

Article 5, Paragraph 1 of the Decree

 

Under the installment payment method for capital contributions, there may be confusion whether charter capital means the amount actually paid in or the amount committed to be contributed. It is commendable that this paragraph makes this point clear.  In Japan, there is no such confusion because charter capital for a former limited liability company and shareholding company must be paid up in full. Before the amendment of the Company Law (Commercial Code) in 1948, the installment payment method was adopted.  At that time, the amount committed to be contributed was recorded as the charter capital, while the amount of unpaid capital was recorded under the column on assets. Dividends were then distributed based on the amount actually paid in.  

 

 

 

 

 

Article 5, Paragraph 4 of the Decree

 

 

Article 22, Paragraph 5 of the Law on Enterprises provides that the number of shares to be issued (hereinafter referred to as the “authorized shares”) is a matter to be stated in the charter.  Therefore, the resolution approving the number of authorized shares should be a matter to be resolved by the general meeting of the shareholders for the purpose of determining the change in the number of authorized shares and the amendment of the charter (Article 96, Paragraph 2-e and Article 104, Paragraph 3-b of the Law on Enterprises: i.e., requires the approval of 75 % or more.).

 

In addition, there is no provision that limits the maximum number of authorized shares.  For instance, if more than 20% of the number of outstanding shares is to be issued, we are of the opinion that it is necessary to provide a provision requiring a resolution of the meeting of the shareholders as well as a resolution of the meeting of the board of directors in order to avoid liability for the damages that may be caused to the shareholders due to the dilution.

 

 

Article 16, Paragraph 1 of the Decree

 

This provision is highly valued since it defines who will perform the rights and obligations of the legal representative in case of his or her absence.  However, this provision allows the legal representative to grant authorization to another person by a simple written document, but does not provide any safeguard concerning any legal matter that may arise if such document is forged.  In addition, this document is at risk of being abused and may be used even after the legal representative comes back to Vietnam because it does not require the effective period of authorization to be stated thereon.  In order to avoid such risk, it is preferable to require the registration of such information (i.e., registration at the business registration office). If such registration is difficult, we think that it is necessary to consider the liability of the enterprise for acts of an apparent representative to protect third parties who may enter into transactions with such apparent representative without gross negligence.

 

Article 18, Item 9 of the Decree

 

This item states that the business registration office shall be entitled to inspect the result of the schedule of the capital contribution when considered necessary or upon the request of at least one member of the company. However, the business registration office is a registration bureau and not a competent authority concerning enterprises. There is no basis in the Law on Enterprises for the business registration office to be a competent authority concerning enterprises. If the business registration office is considered a competent authority, then there is a possibility that business registration would be based on a substantial examination and not merely an examination of the formal requirements.

 

Article 19, Paragraph 1 of the Decree

 

It states that the member shall be entitled to lodge a complaint or denunciation with the business registration office against a director or chairman of the members’ council for civil liability in certain cases including the exercise of assigned rights and duties against the law or failure to properly exercise such rights and duties. It is not clear what authority the business registration office has concerning such complaint or denunciation. The business registration office is a registration bureau and not an institution for the resolution of disputes arising within a company. It is common to resolve disputes through the court or any alternative dispute resolution (ADR).

 

Article 24, Paragraphs 3 and 4 of the Decree

 

Under the law requiring the number of shares to be issued (hereinafter referred to as the “authorized shares”) to be stated in the charter, shares can be issued within the number of such authorized shares and generally, only by the resolution of the board. The purpose of these paragraphs requiring a shareholding company to notify the business registration office of an offer for sale to less than one hundred unidentified investors is not clear. There is no definition of “unidentified investors” and there is room for the business registration office to unduly intervene in the issuance of shares. In addition, the effect of a shareholding company not notifying the business registration office of such offer is not clear. Hence, we are of the opinion that these paragraphs should be deleted.

 

Article 25 of the Decree

 

In the case of payment of dividends in the form of par value shares, we think that there must be a provision for the change (increase) of the amount of capital (Par value × number of outstanding shares ≦ amount of capital).

 

Article 27, Paragraph 1, Sentence 3 of the Decree

 

It is stipulated that “Unless otherwise stipulated by the charter of the company or expressed in writing by the relevant shareholder, an independent member(s) of the board of management shall automatically be the authorized representative of all shareholders failing to attend the general meeting of shareholders.”

 

In this respect, where an independent member(s) of the board of management automatically become(s) the authorized representative of all the shareholders who fail to attend the general meeting of the shareholders, there may be a financial merit for a company because such company does not have to make a solicitation for proxies.  However, under this system, where such independent member(s) would vote for the proposals from the management, this provision could nullify the effect of controlling management through the general meeting of the shareholders.  Also, the provision for the quorum of the general meeting would become meaningless under such system.  Therefore, this sentence must be deleted.

 

 

Article 28, Paragraph 1 of the Decree

 

Is this paragraph applicable to the subsidiaries in Vietnam of foreign companies?  According to Article 4.15 of the Law on Enterprises, a company that owns 50% of the shares of its subsidiary is categorized as a parent company.  In such a case, would a list of the transactions between a foreign company and its subsidiary in Vietnam be required to be prepared?  If it is necessary, only transactions involving a consideration of more than a certain amount should be required to be listed.

 

 

 

Article 28, Paragraph 2 of the Decree

 

With respect to the provision of Article 28, Paragraph 2 of the Decree, “All shareholders, managers, members of the inspection committee, employees of the company and their authorized representatives shall be entitled to sight, consult and make an extract or copy of all or part of items of the aforesaid list in working hours,” is it really necessary to disclose information concerning transactions with related persons of a company to its employees?  We are of the view that there is no need to give such right to employees.

 

Article 37 of the Decree

 

We highly value and welcome this amendment, which deletes Paragraphs 1 and 2 of Article 25 of the current decree.