The issue of founding shareholders unilaterally transferring shares to external parties has arisen in a considerable number of enterprises during their operation, resulting in various legal consequences and internal disputes. A proper understanding of the applicable regulations, accurate identification of risks, and the adoption of appropriate remedial measures are essential factors in helping enterprises maintain operational stability and ensure compliance with the law. The following article provides an overview and essential information surrounding this issue.
I. Current situation concerning founding shareholders’ undisclosed transfers of shares to external parties
In practice, cases where founding shareholders unilaterally transfer shares to external parties without complying with statutory requirements or the company’s charter have shown an increasing trend. Such conduct is often implemented discreetly and without disclosure, creating difficulties for internal corporate supervision and management.
In many cases, such “undisclosed transfers” stem from a desire to withdraw capital rapidly or from conflicts among founding shareholders. However, failure to comply with lawful procedures and formalities has led to numerous disputes concerning share ownership rights and shareholder status within the company.
In addition, many enterprises only discover such transactions after consequences have already arisen, such as changes in the shareholder structure or disputes over management rights. It demonstrates that practical mechanisms for supervising share transactions and improving legal awareness among founding shareholders remain significantly limited.
II. Concept of founding shareholders’ undisclosed transfers of shares to external parties
1. What is meant by a founding shareholders’ undisclosed transfers of shares to external parties?
A founding shareholders’ undisclosed transfers of shares to external parties refers to a transfer of shares by a founding shareholder to another person without satisfying mandatory conditions prescribed by law or the company’s charter, particularly during periods in which transfer restrictions apply. Such conduct is commonly associated with the absence of valid approval, failure to comply with procedural requirements, or intentional concealment of the transaction.
It constitutes a form of unlawful share transfer and entails substantial legal risks for both the enterprise and relevant parties.
2. What indicators may be used to determine whether a share transfer transaction constitutes an “undisclosed transfer”?
A share transfer transaction may be considered an “undisclosed transfer” where it fails to satisfy mandatory requirements under applicable law or the company’s charter. Specifically, the transaction may not have been approved by the General Meeting of Shareholders in circumstances where such approval is legally required, may violate the transfer restriction period applicable to founding shareholders, or may fail to complete procedures for recording changes in shareholder information as required by law.
In addition, indications of an “undisclosed transfer” may include intentional concealment of the transaction through mechanisms such as authorization agreements, nominee arrangements, or failure to publicly disclose the transfer.
Where a transaction lacks transparency, breaches transfer conditions, or is not validly recorded in the company’s corporate records, there are grounds to determine that the transaction constitutes an undisclosed share transfer.
3. How does an undisclosed share transfer differ from a share transfer conducted in breach of the company charter?
An undisclosed share transfer and a share transfer conducted in breach of the company charter are both forms of non-compliance; however, they differ in legal nature and degree of violation.
An undisclosed share transfer occurs where a shareholder (particularly a founding shareholder) transfers shares in contravention of mandatory legal provisions, such as failing to obtain approval from the General Meeting of Shareholders during the statutory restriction period under Clause 3, Article 120 of the Law on Enterprise 2020 as amended and supplemented in 2025, or intentionally concealing the transaction and failing to register shareholder changes under Article 122 of the same Law. Such conduct constitutes violations of both substantive and procedural legal requirements and is generally regarded as unlawful.
By contrast, a share transfer in breach of the company charter refers to a transaction that fails to comply with the company’s internal regulations (for example, failing to prioritize offering shares to existing shareholders or failing to follow internal approval procedures), but does not necessarily violate mandatory provisions of law. Depending on the circumstances, such transactions may still be recognized as valid provided they do not conflict with compulsory legal requirements.
III. Legal regulations relating to founding shareholders secretly transferring shares to external parties
1. Conditions for the validity of share transfers by founding shareholders
Under Clause 3, Article 120 of the Law on Enterprise 2020 as amended and supplemented in 2025, within 03 years from the date of issuance of the Enterprise Registration Certificate, founding shareholders may freely transfer shares only to other founding shareholders. Where a founding shareholder intends to transfer shares to an external party, approval from the General Meeting of Shareholders is required.
Clause 1, Article 127 of the Law on Enterprise 2020 as amended and supplemented in 2025 further provides that such transfer must be conducted in accordance with the prescribed procedures and must not violate restrictions under the company charter. In addition, the transaction is only fully recognized once the new shareholder’s information has been recorded in the register of shareholders under Article 122 of the same Law.
Accordingly, a transfer of shares by a founding shareholder becomes effective only when transfer restrictions are properly observed, lawful approval (where required) is obtained, and all recording procedures are completed in accordance with applicable regulations.
2. Can undisclosed share transfers be subject to administrative sanctions?
Undisclosed share transfers may lead to administrative sanctions; however, sanctions are not imposed directly for the act of “undisclosed transfer” itself but rather for violations of related legal obligations arising during the transfer process.
When a share transfer occurs, the company is obligated to notify and register changes to founding shareholder information and update the shareholder register. Failure to perform such obligations, or improper performance thereof, may result in penalties under Article 49 of Decree No. 122/2021/ND-CP.
Therefore, undisclosed share transfers may still be subject to administrative sanctions, but the applicable sanctions relate to violations concerning registration, notification, and management obligations associated with shareholder information rather than a standalone sanction specifically targeting the undisclosed transfer itself. In addition, where an undisclosed share transfer is conducted, the transfer transaction may not be legally effective.
3. Legal liabilities of founding shareholders engaging in undisclosed share transfers
A founding shareholder who secretly transfers shares may take various forms of legal liability depending on the nature and consequences of the conduct.
Regarding civil liability: If the transfer violates Clause 3, Article 120 of the Law on Enterprise 2020 as amended and supplemented in 2025 and causes damage to the company or other shareholders, the violating party must compensate for losses in accordance with Article 360 of the Civil Code 2015. Additionally, the transaction may not be recognized, resulting in the transferee not obtaining shareholder status.
Regarding administrative liability: If related obligations are breached, such as failure to notify or register changes to founding shareholders or failure to update the shareholder register, administrative sanctions may apply under Article 49 of Decree No. 122/2021/ND-CP.
Regarding internal corporate liability: The violating founding shareholder may be required by the company or other shareholders to cancel the transaction, deny recognition of the transferee’s shareholder status, or be subject to sanctions prescribed in the company charter.
4. Is a founding shareholder who violates regulations on share transfers required to compensate the company for damages?
If the founding shareholder also serves as the legal representative of the company, such an individual may take personal liability for damage caused to the company under Clause 2, Article 13 of the Law on Enterprise 2020 as amended by Clause 4, Article 1 of the Law amending and supplementing several articles of the Law on Enterprise 2025.
In the context of an undisclosed share transfer, where the transfer violates applicable regulations and causes damage to the company or other parties, the remaining shareholders have the right to request restitution of benefits obtained or seek compensation for damages under Clause 1, Article 166 of the Law on Enterprise 2020 as amended and supplemented in 2025.
IV. Questions relating to founding shareholders’ undisclosed transfers of shares to external parties
1. Are founding shareholders free to transfer shares to persons who are not founding shareholders?
Founding shareholders may not be entirely free to transfer shares to persons who are not founding shareholders. Accordingly, within 03 years from the date on which the company is granted the Enterprise Registration Certificate, ordinary shares held by founding shareholders may be freely transferred to other founding shareholders and may only be transferred to non-founding shareholders upon approval by the General Meeting of Shareholders under Article 120 of the Law on Enterprise 2020 as amended and supplemented in 2025.
However, the above restriction does not apply to ordinary shares prescribed in Clause 4 of the same Article, specifically: (i) shares additionally acquired by founding shareholders after enterprise registration; or (ii) shares already transferred to persons who are not founding shareholders.
2. Can a transaction be declared invalid where a founding shareholder transfers shares in violation of legal requirements?
A share transfer transaction conducted by a founding shareholder may be declared invalid if it fails to satisfy the legal conditions for validity prescribed by law.
Specifically, under Clause 3, Article 120 of the Law on Enterprise 2020, any transfer of shares to a person who is not a founding shareholder within 03 years from the issuance date of the Enterprise Registration Certificate must obtain approval from the General Meeting of Shareholders. If such approval is not obtained but the transfer is nevertheless implemented, the transaction violates a mandatory legal requirement.
Furthermore, pursuant to Article 122 of the Civil Code 2015, a civil transaction may be invalid where it violates a legal prohibition or fails to satisfy the validity requirements of the transaction (Point c, Clause 1, Article 117 of the same Code).
However, not every case automatically results in invalidity. Any declaration of invalidity must be determined by a court or competent authority based on the circumstances and consequences of the transaction.
3. Is the transfer of shares through an authorization agreement or through a nominee arrangement considered a violation of transfer restrictions?
The transfer of shares through an authorization agreement or by appointing another person to hold title in their name may not necessarily constitute a violation of transfer restrictions.
Pursuant to Clause 1, Article 138 of the Civil Code 2015, individuals and legal entities may authorize other individuals or legal entities to establish and perform civil transactions on their behalf. Therefore, where the share transfer complies with applicable transfer restrictions, such arrangement does not constitute a violation.
Such authorization or nominee arrangements are only lawful where they do not alter the substantive compliance with statutory transfer restrictions. Conversely, if these arrangements are used to conceal or circumvent legal requirements, they may still be regarded as violations and expose the parties to legal risks.
4. Is the company obligated to notify other shareholders upon discovering an unlawful share transfer transaction?
The company is not subject to a mandatory legal obligation to notify other shareholders upon discovering an unlawful share transfer transaction, as current enterprise legislation does not expressly impose such a requirement.
However, pursuant to Article 122 of the Law on Enterprise 2020 as amended and supplemented in 2025, the company is responsible for maintaining and updating the register of shareholders accurately and truthfully.
At the same time, to uphold principles of transparency and protect shareholders’ rights and interests, enterprises should proactively provide information or report the matter at the General Meeting of Shareholders when violations are identified.
V. Why enterprises should seek legal advice from NPLaw in matters involving founding shareholders’ undisclosed transfers of shares to external parties
Seeking legal advice from NPLaw enables enterprises to properly assess the legal validity of an “undisclosed” share transfer transaction and minimize dispute-related risks. With experience in corporate and enterprise matters, lawyers can provide tailored legal solutions, protect shareholders’ legitimate interests, and ensure compliance with applicable laws.
In addition, NPLaw supports clients in preparing legal documents, representing clients in dealings with relevant parties, and resolving disputes effectively.
The above information is provided for reference purposes only. Should you require advice on a specific matter, please contact NPLaw Firm for prompt legal consultation.
