Legal regulations on controlling stakes

I. Understanding controlling stakes 

Controlling stakes refers to a sufficiently large ownership percentage for capital that allows its holder to control business operations and make main decisions in an enterprise, generally from 51% or more.

A holder of controlling stakes has the power to determine business  development strategy, appoint senior managers, and directly influence profits. While the ownership percentage ensures control rights, it also entails responsibilities for managing and developing the enterprise. 

II. Legal provisions on controlling stakes

1. What is a controlling stake?

Controlling stake is an ownership percentage for capital in an enterprise that is sufficient to control operations and make significant decisions. Typically, the percentage is from 51% of the charter capital, enabling the owner to decide on business strategy, senior personnel, and development direction. Controlling stake also ensures the authority but is taken with management and operational responsibilities. 

2. Does current Law provide the ratio principle on controlling stakes? 

Vietnamese law does not set out a specific ratio for controlling stakes applicable to all types of enterprises. However, under the Law on Enterprise 2020, an individual or organization is considered to obtain controlling rights if they hold 51% or more of the charter capital, which is sufficient to pass significant resolutions within the company.

For certain regulated sectors such as banking, insurance, and securities, the law may impose different thresholds of controlling stakes in order to ensure effective management and risk limitation.

3. When are controlling stakes applied?

Controlling stakes applies in the following circumstances:

• Control of business operations: A shareholder or member holding over 51% of the charter capital may decide on main matters such as business strategy, senior personnel, and profit distribution.
• Mergers and acquisitions (M&A): In M&A transactions, the acquiring party often seeks controlling stakes to gain control over the target company.
• Investments on subsidiaries: Parent companies or corporate groups usually hold controlling stakes in subsidiaries to their manage operations and finances.
• Sector-specific regulations: Certain industries (banking, insurance, telecommunications, etc.) impose specific controlling stake thresholds to safeguard economic stability.

III. Common questions regarding controlling stakes

1. What rights and obligations do holders of controlling stakes have?

Rights and obligations of holders of controlling stakes are governed by the Law on Enterprise 2020 and related legal regulations. A holder with a controlling percentage (commonly 51% or more) is entitled to control the enterprise’s operations while also taking specific duties.

The holder has the following rights:

• Control of business operations, including the authority over business strategies, investment plans, and organizational structure.
• Appointment and dismissal of senior personnel, including Board of Directors, Board of Management, or Members’ Council (depending on the type of company).
• Approval of main resolutions such as profit distribution, change of business lines, merger, consolidation, or dissolution.
• Transfer of capital contribution according to the provisions of law, except in cases restricted by the Company Charter or specialized laws.
• Inspection and supervision of financial and business activities to protect their interests.

The holder has the following obligations:

• Compliance with law and company charter, without abusing the power to harm the enterprise or other shareholders/members.
• Ensuring efficient business operations and avoiding losses or damage to interests of the enterprise or other shareholders/members.
• Fulfilling tax and financial obligations, including contributing capital as committed and meeting other statutory financial liabilities.
• Avoiding abuse of the control power for personal gain. 

Thus, holders of controlling stakes enjoy the significant authority but must also comply with obligations to ensure transparent and efficient business operations.

2. How much charter capital does an enterprise with State capital have to hold to obtain the controlling stake?

Under Article 88 of the Law on Enterprise 2020, a State-owned enterprise is defined as:

• An enterprise in which the State holds 100% of charter capital; or
• An enterprise in which the State holds more than 50% of charter capital or voting shares.

Accordingly, a State enterprise is deemed to have controlling stakes if the State holds more than 50% of charter capital or voting shares. Such ownership grants the State direct control over regular decisions and indirect rights over certain matters requiring a 65% approval rate.

3. What is the procedure for holding controlling stakes?

Contributing capital to acquire controlling stakes in Vietnamese enterprises must comply with the relevant laws. The process involves: 

- Determining controlling percentage: For instance, under Article 47 of the Law on Enterprise 2020, Members’ Council decisions in a multi-member limited liability company require approval by members representing at least 65% of the contributed capital, unless otherwise provided in the charter. 

- Procedures for contributing capital to hold controlling stakes: 

• Step 1: Preparing documents 
• For individuals: notarized copy of Citizen identity card or Passport.
• For organizations: notarized copy of the Enterprise Registration Certificate or equivalent documents, decision on capital contribution from the competent authority, and authorization documents (if applicable).
• Step 2: Implementing capital contribution 
• For limited liability companies and partnerships: Members must fully and timely contribute the committed capital within 90 days from the date of issuance of the Enterprise Registration Certificate.
• For joint stock companies: Shareholders must fully pay for the registered shares within 90 days from the date of issuance of the Enterprise Registration Certificate.
• Step 3: Transferring the ownership
• For contributed assets subject to ownership registration (e.g., land use rights), the contributor must register ownership transfer with the competent authority.
• Step 4: Updating enterprise records
• The company updates its members or shareholders information and implements enterprise registration changes (if applicable).

Capital contribution leading to control must comply with conditional business sectors, particularly for foreign investors. In case of enterprise registration changes, notification must be filed with the business registration authority within 10 days. Proper compliance ensures stakeholders’ rights and avoids legal risks.

IV. Legal advisory services on controlling stakes 

The foregoing provides an overview of controlling stakes and applicable legal regulations. For in-depth legal support and clarification on specific requirements, Clients may contact NPLaw. Our team of experienced lawyers and legal professionals is willing to provide accurate, effective, and dedicated advisory services.