How are breaches of share purchase agreements handled?

A breach of a share purchase agreement is one of the common situations that arises during the negotiation and execution of contractual transactions between parties. The following article outlines the legal regulations concerning breaches of share purchase agreements and addresses several related issues in order to assist individuals and organizations in protecting their lawful rights and interests.

I. Current situation relating to breaches of share purchase agreements

At present, breaches of share purchase agreements occur with increasing complexity, accompanied by a growing number of commercial disputes brought before courts, particularly in joint stock companies.

Some typical causes of breaches of share purchase agreements include:

• Contracts not complying with required formalities: Common errors include the absence of signatures, failure to specify the type of shares, lack of payment terms, or omission of the transfer price.
• Application of improper authority: The transaction is performed by a person who does not possess the authority or legal capacity at the time of signing the agreement.
• Transfer of restricted shares: Violations involving the transfer of shares that are subject to statutory or charter-based transfer restrictions.

The causes of breaches of share purchase agreements often arise from the parties’ lack of legal knowledge, weak corporate governance, or intentional misconduct aimed at gaining improper benefits. Such situations highlight the need to strengthen legal awareness, improve supervisory mechanisms, and further develop the legal framework in order to ensure transparency and legal certainty in share transfer transactions.

II. Concept of breach of a share purchase agreement

To better understand breaches of share purchase agreements and identify acts constituting contractual violations, the following analysis provides an overview of the relevant issues.

1. What is a breach of a share purchase agreement?

According to Clause 12 Article 3 of the Law on Commercial 2005, a breach of contract refers to a situation in which a party fails to perform or improperly or incompletely performs its obligations as agreed between the parties or as prescribed by law.

The purchase or transfer of shares refers to the act whereby a shareholder transfers ownership of their shares to another shareholder of the company or to another individual or organization through sale, donation, or inheritance.

Accordingly, a breach of a share purchase agreement may be understood as the failure of one party to perform or the incomplete or the improper performance of obligations agreed upon in a share transfer agreement with respect to transferring shares to another shareholder or to an individual or organization.

2. At which stage can breaches of share purchase agreements occur?

Breaches of share purchase agreements may occur at any stage of the contractual process, from the negotiation and conclusion of the agreement to the period after the transfer has been completed. For example:

• During the stage of concluding the share purchase agreement: The parties may violate obligations relating to the contractual form or the duty to disclose information, such as when the seller conceals existing legal risks, ongoing disputes, or potential tax liabilities of the company, or when one party unilaterally withdraws an offer to enter into a contract without notifying the other party.
• During the stage of performing the share purchase agreement: At such a stage, violations commonly relate to payment obligations, such as when the buyer fails to pay the purchase price in full, makes late payment, or uses an unlawful payment method. Violations may also arise from failure to transfer shares within the agreed timeline or from improper signing authority contrary to legal regulations.

In summary, breaches of share purchase agreements may occur at any stage of the contractual process. Therefore, to minimize risks, the parties should incorporate clear risk allocation clauses and specific compensation mechanisms for each stage of the transaction.

3. Why is the correct determination of a breach important in dispute resolution?

Proper determination of a breach of a share purchase agreement plays a significant role in the dispute resolution process, enabling the parties to save time, costs, and legal responsibilities. Specifically, it serves as the basis for:

• Applying contractual remedies: Correctly determining a breach is a prerequisite for applying remedies such as contractual sanctions or compensation for damages. Once a breach is clearly established, the injured party may claim contractual sanctions or damages, provided that it can demonstrate a causal connection between the breach and the actual loss incurred.
• Determining the degree of fault: In many disputes, fault may arise from both parties. Clarifying the breach helps allocate responsibility for risks and related costs (such as late payment interest and court fees) in a fair manner.
• Determining the right to terminate the contract: The parties may unilaterally terminate or rescind the contract based on the proper determination of a breach. If the breach is considered fundamental and prevents the other party from achieving the contractual purpose, the injured party may unilaterally terminate or cancel the contract without being required to continue performing its obligations.

Thus, the accurate determination of a breach of a share purchase agreement is essential in resolving disputes effectively.

III. Legal regulations concerning breaches of share purchase agreements

Understanding the legal provisions governing breaches of share purchase agreements is a matter of concern for many entities. Accordingly, the following section outlines the relevant regulations under current Vietnamese law.

1. What acts are commonly considered breaches of share purchase agreements?

Under Clause 12 Article 3 of the Law on Commercial 2005, a breach of contract occurs when a party fails to perform or incompletely or improperly performs obligations as agreed between the parties or as prescribed by law.

Accordingly, the following acts are commonly considered breaches of share purchase agreements:

• Violation of payment obligations: One party delays payment or fails to pay the share purchase price on time according to the agreed payment schedule, or only pays part of the transfer price and postpones the remaining amount without the consent of the seller, as regulated in Clause 1 Article 119 of the Law on Enterprise 2020 (amended 2025).
• Violation of share transfer procedures: The company fails to register the change of shareholder in the shareholder register upon request of the relevant shareholder within 24 hours from the time the request is received under the company charter, or fails to record complete information in the shareholder register as required under Clauses 6 and 7 Article 127 of the Law on Enterprise 2020 (amended 2025).
• Violation of pre-emptive rights: A shareholder transfers shares to a third party without offering them to existing shareholders or transfers shares that are subject to transfer restrictions under the company charter or applicable law, as provided in Clause 1 Article 127 of the Law on Enterprise 2020 (amended 2025).

Accordingly, the above acts are commonly regarded as breaches of share purchase agreements.

2. How is the time of transfer of share ownership determined by law?

Pursuant to Clause 6 Article 127 of the Law on Enterprise 2020 (amended 2025), an individual or organization acquiring shares in the cases specified in this Article shall only become a shareholder of the company from the time their information specified in Clause 2 Article 122 of this Law is fully recorded in the shareholder register.

According to Clause 2 Article 122 of the Law on Enterprise 2020 (amended 2025), the shareholder register must contain the following main information:

• The name and headquarter address of the company;
• The total number of shares authorized for issuance, the types of shares authorized for issuance, and the number of shares authorized for issuance for each type;
• The total number of shares issued for each type and the value of contributed share capital;
• The full name, contact address, nationality, and legal identification documents of shareholders who are individuals; or the name, enterprise identification number or legal documents, and headquarter address of shareholders who are organizations;
• The number of shares of each type held by each shareholder and the date of share registration.

Therefore, the transfer of share ownership is only officially established once the transferee’s information is duly recorded in the company’s shareholder register.

3. How does the law regulate the form and validity of share purchase agreements?

According to Clause 2 Article 127 of the Law on Enterprise 2020 (amended 2025), share transfers may be implemented by contract or through transactions on the securities market. In cases where the transfer is conducted by contract, the transfer document must be signed by the transferor and the transferee or their authorized representatives. If the transaction is conducted on the securities market, the procedures shall comply with the laws on securities.

Pursuant to Article 401 of the Civil Code 2015 as guided by Article 22 of Decree No. 21/2021/ND-CP, a legally concluded contract becomes effective from the time of its conclusion unless otherwise agreed by the parties or otherwise prescribed by law. Accordingly, a share transfer agreement becomes legally effective at the time agreed upon by the parties in the contract. If the parties do not specify the effective time, the contract becomes effective from the date of signing.

Thus, the form and validity of share purchase agreements are governed by the above provisions.

4. How does the law regulate compensation for damages in cases of breach of a share purchase agreement?

Compensation for damages arising from breaches of share purchase agreements is primarily governed by the Civil Code 2015 and the Law on Commercial 2005.

- Under Articles 302 and 303 of the Law on Commercial 2005:

Compensation for damages refers to the obligation of the breaching party to compensate the injured party for losses caused by the breach.

The value of damages includes the actual and direct losses suffered by the injured party as well as the direct profits that the injured party would have obtained if the breach had not occurred.

Except for cases of exemption from liability provided under Article 294 of the Law on Commercial 2005, liability for damages arises when the following elements are present:

• There is a breach of contract;
• There is actual damage;
• The breach of contract directly causes the damage.

- Under Article 419 of the Civil Code 2015, Damages for breach of contractual obligations are determined as follows:

• Individuals and legal entities whose civil rights are infringed are entitled to full compensation for damages, except where otherwise agreed by the parties or otherwise prescribed by law under Article 13 of the Civil Code 2015. Where damages arise from a breach of obligations, the obligor must fully compensate for such damages unless otherwise agreed or otherwise provided by law under Article 360 of the Civil Code 2015.
• The entitled party may claim compensation for benefits that it would have obtained from the contract. It may also request the obligor to reimburse expenses incurred due to the failure to perform contractual obligations, provided that such expenses do not overlap with the compensation for lost contractual benefits.

IV. Questions regarding breaches of share purchase agreements

To further clarify the legal regulations relating to breaches of share purchase agreements, the following are several frequently asked questions and their explanations.

1. Does a breach of a share purchase agreement affect the rights of other shareholders?

A breach of a share purchase agreement may directly or indirectly affect the interests of other shareholders in a joint stock company in several ways.

• Violations of share transfer regulations during the period applicable to founding shareholders, or violations of transfer restrictions under the company charter, may infringe upon the rights and interests of other shareholders.

Under Clause 1 Article 127 of the Law on Enterprise 2020 (amended 2025), shares are freely transferable except in cases provided in Clause 3 Article 120 of this Law or where the company charter imposes transfer restrictions.

Under Clause 3 Article 120 of the Law on Enterprise 2020 (amended 2025), within three years from the date the enterprise registration certificate is issued, ordinary shares held by founding shareholders may be freely transferred to other founding shareholders but may only be transferred to non-founding shareholders with the approval of the General Meeting of Shareholders. In such cases, the founding shareholder intending to transfer shares does not have voting rights with respect to such a transfer.

• Prolonged disputes arising from contractual breaches may delay updates to the shareholder register, thereby affecting the determination of voting ratios at the General Meeting of Shareholders and creating difficulties in passing important corporate decisions according to Clause 6 Article 127 and Article 138 of the Law on Enterprise 2020 (amended 2025).
• In addition, legal disputes arising from breaches of share transfer agreements may damage the company’s reputation in the market, indirectly reducing the value of shares held by other shareholders.

Accordingly, breaches of share purchase agreements may affect the rights of other shareholders under the above regulations.

2. Can prolonged breaches of a share purchase agreement lead to contract cancellation?

Prolonged breaches of a share purchase agreement may result in the cancellation of the contract.

Under Article 423 of the Civil Code 2015, a party has the right to cancel the contract without compensation for damages in the following cases:

• The other party commits a breach that constitutes a condition for cancellation agreed upon by the parties;
• The other party seriously breaches its contractual obligations;
• Other cases as provided by law.

A serious breach refers to the failure of a party to perform its obligations to such an extent that the other party cannot achieve the purpose of entering into the contract.

The party canceling the contract must promptly notify the other party. If failure to notify causes damage, compensation must be paid.

3. Is negotiation or mediation possible when a breach occurs?

Under Article 317 of the Law on Commercial 2005, the methods of dispute resolution include:

• Negotiation between the parties;
• Mediation conducted by an organization, agency, or individual selected by the parties;
• Settlement by arbitration or court.

Commercial disputes before arbitration or court are conducted according to the procedural rules prescribed by law.

In addition, Clause 3 Article 3 of the Civil Code 2015 provides that individuals and legal entities must establish, perform, and terminate their civil rights and obligations in good faith and honesty.

Therefore, negotiation and mediation are common and legally encouraged dispute resolution methods before initiating proceedings before arbitration or courts.

4. Does a breach of a share purchase agreement invalidate the share transfer transaction?

A breach of a share purchase agreement may result in the transfer transaction becoming invalid or being terminated depending on the nature of the breach and the applicable legal conditions.

• Under Article 407 of the Civil Code 2015, provisions concerning invalid civil transactions from Article 123 to Article 133 also apply to invalid contracts.
• Under Article 122 of the Civil Code 2015, a civil transaction lacking any of the conditions prescribed in Article 117 shall be invalid unless otherwise provided by law. According to Article 117, a civil transaction is valid when the following conditions are satisfied:
• The parties have civil legal capacity and civil act capacity appropriate to the transaction;
• The parties participate voluntarily;
• The purpose and content of the transaction do not violate legal prohibitions or social ethics;

The form of the transaction complies with legal requirements where the law prescribes form as a condition of validity.

• Additionally, under Clause 1 Article 423 of the Civil Code 2015, a party may cancel the contract and isn’t obliged to compensate damages if the other party seriously breaches contractual obligations or other relevant legal regulations.

Accordingly, a share transfer transaction may be deemed legally invalid if it fails to meet the conditions for a valid civil transaction or if the contract has been effectively concluded but is subsequently canceled due to a serious breach by one party.

5. Can the breaching party remedy the breach and continue performing the contract?

A party breaching a share purchase agreement may remedy the breach and continue performing the contract if such remedy is permitted under the contract and agreed upon by the other party.

Under Article 292 and Clause 1 Article 297 of the Law on Commercial 2005, commercial remedies include:

• Proper performance of the contract;
• Contractual sanctions;
• Compensation for damages;
• Suspension of contract performance;
• Termination of contract performance;
• Cancellation of the contract;
• Other measures agreed upon by the parties that are not contrary to the fundamental principles of Vietnamese law, international treaties to which Vietnam is a party, or international commercial practices.

Compelling proper performance refers to the right of the injured party to require the breaching party to perform the contract correctly or to apply other measures to ensure contractual performance, with the breaching party bearing the related costs.

Accordingly, the law encourages parties to reach agreements to maintain the contract where possible in order to ensure stability in civil and commercial transactions. The breaching party should proactively propose a clear remedial plan with a specific timeframe for rectifying the breach.

V. Why should you seek legal advice from NPLaw when facing issues related to breaches of share purchase agreements?

The above information provides an overview of legal issues relating to breaches of share purchase agreements as presented by NPLaw. With a team of experienced lawyers and legal professionals, NPLaw provides reputable and professional legal services aimed at safeguarding the lawful rights and interests of its clients.

If you require legal assistance, you may contact NPLaw for consultation and support.

The information above is provided for reference purposes only. For detailed advice regarding specific cases, please contact NPLaw Law Firm for prompt consultation.