Minority shareholders are individuals who own a small proportion of shares in a joint-stock company but still play an important role in corporate governance. Below, NPLaw provides an overview of the legal issues relating to minority shareholders.
I. Role of minority shareholders
Minority shareholders play a crucial role in ensuring transparency, fairness, and accountability in corporate governance. Although they hold a relatively small percentage of shares, they can contribute to monitoring the management’s activities and preventing acts of abuse of power or decisions that are not in the company’s or shareholders’ common interests.
Minority shareholders are also entitled to participate and vote in the General Meeting of Shareholders, request disclosure of information, and initiate lawsuits in certain cases to protect their legitimate rights and interests as well as those of other shareholders. Therefore, their role is essential in maintaining a balance of power within the company and promoting sustainable corporate development.
II. Legal regulations on minority shareholders
1. Definition of minority shareholders
Pursuant to Clause 2, Article 115 of the Law on Enterprise 2020, a group of shareholders owning 5% or more of the total ordinary shares (or a lower percentage as provided in the company’s charter) may exercise certain rights similar to those of major shareholders. Accordingly, shareholders holding less than 5% of the total ordinary shares are generally regarded as minority shareholders.
2. Rights and obligations of minority shareholders
Under Articles 115 and 166 of the Law on Enterprise 2020, minority shareholders are entitled to the following fundamental rights:
- Attending, speaking, and voting at the General Meeting of Shareholders;
- Receiving dividends in proportion to their shareholdings;
- Freely transferring shares, except in cases subject to restrictions;
- Accessing company information, financial statements, and meeting minutes;
- Initiating lawsuits against managers who violate their rights and obligations, causing damage to the company if owning at least 1% of the total ordinary shares (Article 166);
- Requesting convening of the General Meeting of Shareholders, nominating members to the Board of Directors or Supervisory Board, and examining or extracting corporate books and records if owning at least 5% of the total ordinary shares.
Obligations of minority shareholders include:
- Contributing the subscribed shares in full and on time;
- Complying with the company’s charter and resolutions of the General Meeting of Shareholders;
- Taking financial liability within the scope of their contributed capital;
- Not withdrawing capital from the company in any form.
3. Is a joint-stock company required to have minority shareholders?
The Law on Enterprise 2020 does not stipulate that a joint-stock company must have minority shareholders. The law merely provides that:
- Shareholders may be organizations or individuals, with a minimum of three shareholders and no maximum limit (Article 111 of the Law on Enterprise 2020);
- Shareholders or groups of shareholders owning 5% or more of the total ordinary shares are entitled to request convening of the General Meeting of Shareholders and nominate members to the Board of Directors (Article 115 of Law on Enterprise 2020).
From these provisions, it can be inferred that shareholders holding less than 5% of the total ordinary shares are considered minority shareholders, and their presence in the company’s structure is not mandatory.
III. Questions on minority shareholders
1. How does the Law protect minority shareholders?
The law provides specific mechanisms to protect minority shareholders. In particular, under Clause 2, Article 115 of the Law on Enterprise 2020, a group of shareholders owning 5% or more of the total ordinary shares (or a lower percentage as prescribed in the company’s charter) may:
- Request convening of the General Meeting of Shareholders;
- Request inspection of financial books, meeting minutes, resolutions of the Board of Directors, and Supervisory Board decisions;
- Nominate candidates to the Board of Directors and the Supervisory Board.
Additionally, according to Clause 1, Article 166 of the Law on Enterprise 2020, any shareholder (including minority shareholders) has the right to initiate a lawsuit against managers who violate their rights and obligations, causing damage to the shareholder or the company.
2. Are minority shareholders entitled to sue company managers?
Pursuant to Clause 1, Article 166 of the Law on Enterprise 2020, a shareholder or a group of shareholders holding at least 1% of the total ordinary shares may file a lawsuit against members of the Board of Directors, the Director, or the General Director on their own or on behalf of the company to claim restitution of benefits or compensation for damages in the following circumstances:
- Breach of management duties;
- Acting ultra vires, contrary to the company’s charter or applicable laws;
- Abuse of authority for personal gain;
- Other cases as provided by law or the company’s charter.
In summary, minority shareholders are entitled to sue company managers to claim damages or recover benefits improperly obtained.
3. Are minority shareholders obliged to attend the Annual General Meeting of Shareholders?
Under the Law on Enterprise 2020, specifically Article 115 on Rights of Ordinary Shareholders, ordinary shareholders have the right to attend and speak at the General Meeting of Shareholders and to exercise their voting rights directly or through a proxy.
Accordingly, attendance at the General Meeting of Shareholders is a right, not an obligation. Shareholders, including minority shareholders (those holding a smaller proportion of shares than major shareholders), are not required to be physically present at the meeting. They may authorize another person to attend and vote on their behalf if they are unable to participate directly.
IV. Legal consultancy services regarding minority shareholders
The above article by NPLaw provides insights into minority shareholders. With a team of experienced lawyers and legal experts, NPLaw is always ready to accompany, advise, and support clients in resolving legal issues relating to minority shareholders. Should you need legal assistance, please contact NPLaw using the information below:
