I. Overview of changing dividend rates of joint stock companies
During its business operations, a joint stock company may distribute dividends on each stock based on business profits or as agreed upon among shareholders, and these dividends can be adjusted periodically. Any change in the dividend rate must be notified and comply with the regulations under the Law on Enterprise. To better understand this issue, NPLaw provides the analysis below.
II. Legal provisions on changes in dividend rates of joint stock companies
1. What are the conditions for changing the dividend rate?
Current enterprise laws do not provide specific conditions for changing the dividend rate of a joint stock company. Pursuant to Clause 4, Article 135 of the Law on Enterprise 2020, the dividend rate is determined at the annual General Meeting of Shareholders. Therefore, any adjustment in the dividend rate per stock requires the Company to convene a General Meeting of Shareholders in accordance with the Law.
2. In what cases is the dividend rate of a joint stock company changed?
At present, the Law on Enterprise 2020 and related guiding legal documents do not specify particular circumstances under which a joint stock company may change its dividend rate. However, under Clause 2, Article 135 and Clause 5, Article 4 of the Law on Enterprise 2020, dividends are net profits distributed per stock in cash or other assets, with net profits being the enterprise’s profit after tax. Consequently, a change in the dividend rate may arise due to the company’s financial position, profitability, or other factors affecting its ability to pay dividends.
3. Procedures for changing the dividend rate of a joint stock company
The Law on Enterprise 2020 does not explicitly state procedures for changing the dividend rate of a joint stock company. However, under Clause 4, Article 135, dividends must be fully paid within six months from the end date of the annual General Meeting of Shareholders. The Board of Directors prepares the list of shareholders entitled to dividends, determines the dividend payable on each stock, and sets the time and form of payment at least 30 days before each dividend payment.
Thus, to change the dividend rates, joint stock companies may convene a meeting of the annual General Meeting of Shareholders, thereby establishing a basis for adjusting the dividend rate.
III. Questions on changing dividend rates of joint stock companies
1. Are there any limits on how often the dividend rate can be changed?
The Law on Enterprise 2020 does not set a limit on times that the dividend rate may be adjusted within a fiscal year. It means the enterprise may change its dividend rate multiple times a year depending on its financial situation and actual profits, provided such changes are decided by the General Meeting of Shareholders.
2. Must a change in the dividend rate be notified?
Currently, the Law on Enterprise 2020 and its guiding legal documents do not specifically require notification of a change in the dividend rate. Therefore, such a matter is subject to the company’s Charter, and shareholders shall comply with it accordingly.
3. Who has the authority to approve changes to the dividend rate?
According to Point e, Clause 3, Article 139 and Clause 1, Article 147 of the Law on Enterprise 2020, the determination or adjustment of the dividend rate for each type of stock shall be discussed and approved at the General Meeting of Shareholders. Resolutions on such matters are passed by voting at the meeting or by collecting written opinions.
Under Clause 2, Article 148, resolutions are adopted when approved by shareholders representing more than 50% of the total voting shares of all shareholders attending the meeting, or by a different ratio as stipulated in the company’s Charter.
Thus, the authority to approve changes in dividend rates rests with the General Meeting of Shareholders.
4. What is the legal process for a joint stock company to change the already announced dividend rate?
Current law does not provide specific procedures for changing an already announced dividend rate. However, based on related legal regulations, the company must convene an extraordinary or annual General Meeting of Shareholders as prescribed in Clause 1, Article 139 of the Law on Enterprise 2020 to discuss and approve changes to dividend rates.
5. How are shareholders’ rights protected under the Law in case of a change in the dividend rate?
Enterprise laws do not expressly regulate how shareholders’ rights are protected in the event of a change in the dividend rate, but it does provide for shareholders’ rights as follows:
- Under Point b, Clause 1, Article 115 and Article 117 of the Law on Enterprise 2020, ordinary shareholders and preferred shareholders entitled to dividends have the right to receive dividends at a rate determined by the General Meeting of Shareholders.
- Shareholders who own dividend preference stocks have the right to receive dividends. Accordingly, dividend preference stocks are shares that pay dividends at a higher rate than the dividend rate of common stocks or a stable annual rate. Annual dividends include fixed dividends and bonus dividends. Fixed dividends do not depend on the company's business results. The specific fixed dividend rate and the method of determining bonus dividends are clearly stated in the dividend preference stocks.
IV. Legal advisory services on changing in dividend rates of joint stock companies
The above is information addressing questions about changes in dividend rates of joint stock companies provided by NPLaw. If you have any further legal concerns or require detailed assistance, please feel free to contact NPLaw using the information below:
