Disputes over rights and benefits arising from preference shares in joint stock companies

Failure to properly implement the rights and benefits attached to preference shares may lead to serious disputes between shareholders and the company. The following article by NPLaw clarifies the legal risks involved in disputes over rights and benefits arising from preference shares and the legal liabilities that enterprises may have to take. 

I. Current situation of disputes over rights and benefits arising from preference shares in the present period

The main causes leading to disputes over rights and benefits arising from preference shares stem from unclear provisions in the company charter, enterprises unilaterally changing preferential rights without the lawful consent of preference shareholders, or investors’ lack of legal understanding when contributing capital. In many cases, preference shareholders have their rights infringed but encounter difficulties in proving and protecting their rights before competent authorities.

It can be seen that such a situation creates an urgent need for proper understanding and correct application of corporate law in order to minimize legal risks for both parties. In conclusion, disputes over rights and benefits arising from preference shares are a pressing issue that requires a systematic and lawful approach.

II. Understanding disputes over rights and benefits arising from preference shares

1. What are preference shares and what rights and benefits are attached to them in disputes over rights and benefits arising from preference shares?

Preference shares are a type of share provided for in Clause 2, Article 114 of the Law on Enterprise 2020  as amended in 2025, according to which a joint stock company may issue various types of preference shares, including voting preference shares, dividend preference shares, redeemable preference shares, and other types of preference shares as prescribed by the company charter.

The rights and benefits attached to preference shares are not automatically established as with ordinary shares but mainly depend on the contents of the company charter and the share issuance plan. 

In disputes over rights and benefits arising from preference shares, it is essential to determine whether the contents of the preferential rights have been lawfully recognized and to what extent the enterprise is obliged to perform such rights. Accordingly, in disputes over rights and benefits arising from preference shares, careful examination of the Law on Enterprise 2020 as amended in 2025, the company charter, and the share issuance plan is the main basis for determining the lawful scope of shareholders’ benefits as well as the corresponding obligations of the enterprise.

2. Who is entitled to benefit from preference shares in the event of a dispute over rights and benefits?

Pursuant to Clause 1, Article 121 of the Law on Enterprise 2020 as amended in 2025, a share certificate records the contents confirming ownership of one or more shares in the company. Therefore, in disputes, the person entitled to request protection of rights and interests must prove their lawful status as a shareholder with respect to the preference shares.

Vietnamese law protects the rights and interests of preference shareholders based on clear legal status and valid evidence. In conclusion, only individuals and organizations lawfully recognized as preference shareholders have the legal basis to participate in and request dispute resolution.

3. In what situations may disputes over rights and benefits arising from preference shares occur?

Disputes may arise during the payment of preferential dividends, when the company is dissolved or goes bankrupt, when amendments to the company charter change preferential rights, or when additional shares are issued affecting the rights and interests of existing preference shareholders.

In particular, Clause 6, Article 148 of the 2020 Law on Enterprises as amended in 2025 provides that resolutions of the General Meeting of Shareholders that alter the rights and obligations of preference shareholders must be approved by that group of preference shareholders. If the enterprise violates this provision, preference shareholders have the right to request cancellation of the resolution under Article 151 of the Law on Enterprise 2020. 

III. Legal regulations related to disputes over rights and benefits arising from preference shares

1. How does the Law on Enterprise regulate disputes over rights and benefits arising from preference shares?

Articles 116 to 118 of the Law on Enterprise 2020 as amended in 2025 specifically provide for the contents of preferential rights attached to each type of preference share. It serves as the initial legal basis for determining the nature and scope of the rights and benefits of preference shareholders when disputes arise.

In addition, Clause 6, Article 148 of the Law on Enterprise 2020 as amended in 2025 strictly regulates the conditions for passing resolutions of the General Meeting of Shareholders in cases where such resolutions alter or directly affect the rights and obligations of preference shareholders. Accordingly, shareholders holding the same type of preference shares must approve such resolutions according to the statutory ratio or the ratio prescribed in the company charter.

2. How is the dispute resolution process for disputes over rights and benefits arising from preference shares regulated by law?

Under Vietnamese law, disputes over rights and benefits arising from preference shares are resolved according to the following process:

• First, the parties may negotiate or mediate on the basis of the company charter and relevant agreements in order to voluntarily remedy violations and protect the lawful rights and interests of preference shareholders.
• If no agreement is reached, and if there is a valid arbitration agreement between the parties under the Law on Commercial Arbitration 2010, the dispute shall be resolved through commercial arbitration, and the arbitral award shall be final and binding.
• In the absence of an arbitration agreement or where the arbitration agreement is invalid, preference shareholders have the right to initiate proceedings before the competent People’s Court in accordance with the Civil Procedure Code 2015, requesting protection of their rights and interests, cancellation of unlawful resolutions, or compelling the company to properly perform its committed obligations.

3. What consequences may disputes over rights and benefits arising from preference shares cause if not resolved?

If not resolved promptly, disputes may lead to financial losses for shareholders, reputational damage to the enterprise, disruption of governance activities, and prolonged legal risks.

• First, the most direct risk lies in the decline of market confidence. 
• Regarding enterprise operations, such conflicts cause stagnation in decision-making. It prevents new projects from being implemented, causing the enterprise to lose development opportunities and competitiveness in the market. At the same time, banks and new investors often refuse to provide loans or capital to a company facing internal conflicts, resulting in financial shortages.
• From a legal perspective, prolonged disputes force the parties to engage in costly litigation before courts or arbitration.
• In particular, disputes over rights and benefits arising from preference shares may seriously damage the enterprise’s reputation.

Therefore, resolving disputes early and in accordance with the law is a key factor in ensuring business stability.

IV. Questions related to disputes over rights and benefits arising from preference shares

1. Who is responsible for resolving disputes over rights and benefits arising from preference shares?

Pursuant to Articles 116 to 118 of the Law on Enterprise 2020 as amended in 2025, the rights and benefits attached to preference shares are established on the basis of the company charter and the share issuance plan. Therefore, the company is responsible for properly and fully implementing such rights for preference shareholders.

In cases where the company fails to resolve the matter, resolves it unsatisfactorily, or where conflicts arise between the parties that cannot be resolved internally, the responsibility for dispute resolution belongs to the competent adjudicatory authority.

Thus, responsibility for resolving disputes over rights and benefits arising from preference shares is established based on the company’s legal obligations and the dispute resolution authority of the Court or Arbitration in accordance with legal regulations.

2. Is there any regulation requiring the company to disclose information related to the rights and benefits of preference shares?

A joint stock company must clearly state the specific contents relating to the rights and benefits of preference shares in the share certificate (according to Article 121 of the Law on Enterprise 2020), including the provisions under Articles 116, 117, and 118 (for example: fixed dividend rates, priority rights to receive dividends, capital redemption rights, voting rights in the case of voting preference shares, etc.).

When issuing preference shares, the General Meeting of Shareholders must approve the issuance plan, which must clearly specify the characteristics and benefits attached to such shares.

Accordingly, the company is required to disclose information relating to the rights and benefits of preference shares.

4. What risks may shareholders face if they do not have documents proving their rights and benefits arising from preference shares?

Shareholders owning preference shares may face many serious risks if they do not have documents proving their rights and benefits (such as share certificates, a properly recorded shareholder register, handover minutes, or other legal documents clearly specifying the characteristics and rights under Article 121 of the Law on Enterprise 2020).

The main risks include:

• Inability to prove ownership rights and status as a preference shareholder.
• Loss of the right to receive preferential dividends or capital redemption.
• Inability to exercise transfer rights or other related rights.
• Restriction or loss of participation rights in corporate governance (if they hold voting preference shares).
• Difficulties in requiring the company to perform its obligations.
• Legal risks and disputes.

In summary, documents proving rights and benefits are essential factors in protecting preference shareholders. Shareholders should request the company to provide complete documents immediately upon receiving shares and periodically check the shareholder register in order to minimize risks.

5. How are shareholders’ rights and benefits protected by law in disputes over preference shares?

In disputes over rights and benefits arising from preference shares, Vietnamese law establishes various mechanisms to protect the lawful rights and interests of preference shareholders.

First, the rights and benefits of preference shareholders are protected through the mechanism of recording and enforcing preferential rights. Pursuant to Articles 116 to 118 of the Law on Enterprise 2020 as amended in 2025, the rights and obligations of preference shareholders are established on the basis of the company charter and the share issuance plan.

Second, the law protects preference shareholders through the right to request cancellation of unlawful resolutions. Accordingly, preference shareholders have the right to initiate legal proceedings requesting the Court to cancel such resolutions under Article 151 of the Law on Enterprise 2020 as amended in 2025.

Third, preference shareholders are protected by law through the right to initiate lawsuits claiming damages.

Thus, although the rights of preference shareholders largely depend on the company charter and share issuance agreements, once such rights and benefits have been lawfully established, Vietnamese law still protects them through mechanisms such as legal proceedings, cancellation of unlawful resolutions, and claims for damages.

V. Are you looking for a reputable law firm to assist with issues related to disputes over rights and benefits arising from preference shares?

With experience in advising on and resolving corporate disputes, NPLaw is ready to support clients in cases involving disputes over rights and benefits arising from preference shares, from legal consultation and risk assessment to representation in dispute resolution before Courts or Arbitration.

Choosing a reputable legal advisory firm is an important solution to maximize the protection of shareholders’ lawful rights and interests in complex disputes relating to preference shares.

The above information is for reference purposes only. Should you require detailed advice regarding your specific case, please contact NPLaw Firm for immediate consultation.