The pre-emptive right to purchase shares enables shareholders to preserve their ownership ratio when a company issues additional shares; however, if such a right is not exercised in compliance with legal regulations, various legal complications may arise.
The pre-emptive right to purchase shares enables shareholders to preserve their ownership ratio when a company issues additional shares; however, if such a right is not exercised in compliance with legal regulations, various legal complications may arise.
I. Current issues relating to the pre-emptive right to purchase shares
In practice, within joint stock companies, shareholders’ pre-emptive rights to purchase shares upon the issuance of additional shares are not always fully and properly implemented in accordance with the law. Many enterprises do not clearly stipulate such a right in their Company Charter or apply it inconsistently among shareholders, leading to potential disputes.
Moreover, in certain cases, the issuance of new shares alters ownership ratios without ensuring the pre-emptive rights of existing shareholders, thereby directly affecting their lawful rights and interests and negatively impacting transparency and stability in corporate governance.
II. Concept of the pre-emptive right to purchase shares
The pre-emptive right to purchase shares is an important legal mechanism designed to protect existing shareholders when a joint stock company issues additional shares. Proper understanding of the nature, subjects, and significance of such a right enables shareholders to proactively safeguard their lawful rights and interests while helping to limit disputes arising in business operations.
1. What is the pre-emptive right to purchase shares?
Shares represent the smallest equal units into which a company’s charter capital is divided. Pursuant to Article 114 of the Law on Enterprise 2020, shares of a joint stock company comprise two types:
- Ordinary shares;
- Preference shares, including:
+ Dividend preference shares;
+ Voting preference shares;
+ Redeemable preference shares;
+ Other preference shares as provided in the Company Charter and securities laws.
The pre-emptive right to purchase shares is the right of existing shareholders to be given priority to purchase newly issued shares in proportion to the shares they currently hold in the company, unless otherwise provided by law or the Company Charter.
2. Who is entitled to the pre-emptive right to purchase shares under the law?
Pursuant to Point c, Clause 1, Article 115 of the Law on Enterprise 2020 regarding the right to purchase shares, ordinary shareholders are entitled to priority in purchasing newly issued shares in proportion to their ownership of ordinary shares in the company.
Such a regulation aims to ensure fairness among shareholders and prevent abuse of power during the share issuance process.
3. Benefits of the pre-emptive right to purchase shares
The pre-emptive right to purchase shares enables shareholders to preserve their ownership ratios, maintain voting rights and economic interests in the company, and limit the risk of share dilution.
For enterprises, respecting and properly implementing such a right contributes to enhanced transparency, stability, and credibility in corporate governance.
III. Legal regulations related to the pre-emptive right to purchase shares
The pre-emptive right to purchase shares is recognized under enterprise law to protect the interests of existing shareholders when a company issues additional shares. However, the application of such a right is not uniform in all cases and depends on the type of shares, resolutions of the General Meeting of Shareholders, and specific legal provisions.
1. Does the pre-emptive right to purchase shares apply to all types of shares?
Pursuant to Point c, Clause 1, Article 115 of the Law on Enterprise 2020, ordinary shareholders have the pre-emptive right to purchase newly issued shares in proportion to their ownership of ordinary shares in the company.
Accordingly, the pre-emptive right to purchase shares applies only to holders of ordinary shares when the company issues additional ordinary shares. For preference shares, the pre-emptive right shall apply only if stipulated in the Company Charter or a resolution of the General Meeting of Shareholders.
Such a distinction clarifies the rights attached to each type of share and ensures flexibility in the company’s capital structure.
2. In which cases may the pre-emptive right to purchase shares be restricted or lost?
Pursuant to Clause 3, Article 17 of the Law on Enterprise 2020, as amended by Point c, Clause 6, Article 1 of the amended Law on Enterprise 2025 regarding the right to purchase shares, the following entities are not entitled to purchase shares in a joint stock company:
- State agencies and units of the people’s armed forces using state assets to contribute capital to enterprises for the purpose of earning private benefits for their own agencies or units;
- Persons prohibited from contributing capital to enterprises under the Law on Cadres and Civil Servants 2025, the Law on Public Employees 2010 as amended in 2019, and the Law on Anti-Corruption 2020 as amended in 2025, except as otherwise permitted under laws on science and technology, innovation, and national digital transformation.
Any restriction or exclusion of the pre-emptive right to purchase shares must be based on clear legal grounds and comply with the proper decision-making authority.
3. How should a company handle cases where shareholders do not exercise their pre-emptive rights to purchase shares?
Where shareholders fail or refuse to exercise their pre-emptive rights within the notified duration, the company may offer such shares to other shareholders or external investors in accordance with the issuance plan approved by the General Meeting of Shareholders.
Such an approach ensures flexibility in capital mobilization while avoiding delays in the share issuance process.
4. How is the duration for exercising the pre-emptive right to purchase shares regulated?
Current law does not prescribe a uniform duration applicable to all cases of exercising the pre-emptive right to purchase shares. Instead, it requires the company to clearly specify the time for exercising such right in the share issuance plan approved by the General Meeting of Shareholders.
Clearly defining a reasonable duration enables shareholders to make timely decisions and helps minimize disputes during the share issuance process.
IV. Questions regarding the pre-emptive right to purchase shares
In practice, shareholders and enterprises often encounter questions concerning the scope of exercising the pre-emptive right, handling cases where the right is not exercised within the prescribed time, and the legal consequences thereof. Clarifying these issues helps protect shareholders’ lawful rights and interests and reduces dispute risks for enterprises.
1. If a shareholder fails to exercise the pre-emptive right within the prescribed time, is the right forfeited?
If a shareholder does not exercise the pre-emptive right within the time notified by the company under the issuance plan, such right shall be deemed waived. The company may then offer the unsubscribed shares to other eligible parties in accordance with the resolution of the General Meeting of Shareholders.
It ensures the progress of share issuance and avoids prolonging the company’s capital mobilization.
2. May a shareholder authorize another person to exercise the pre-emptive right to purchase shares?
Pursuant to Point c, Clause 2, Article 124 of the Law on Enterprise 2020, shareholders of a joint stock company may transfer their pre-emptive rights to purchase shares to another person.
Accordingly, shareholders may authorize others to exercise such rights through the transfer of pre-emptive rights, allowing greater flexibility, particularly when shareholders cannot directly participate in the transaction.
3. How should a company handle cases where multiple shareholders wish to exercise their pre-emptive rights simultaneously?
Where multiple shareholders exercise their pre-emptive rights, the allocation of shares shall be made in proportion to each shareholder’s existing shareholding, unless otherwise decided by the General Meeting of Shareholders in compliance with the law.
It ensures fairness and minimizes conflicts of interest among shareholders.
4. Are there legal sanctions if a company violates shareholders’ pre-emptive rights to purchase shares?
If a company violates shareholders’ pre-emptive rights to purchase shares, shareholders are entitled to request the annulment of unlawful resolutions or initiate legal proceedings before the Court or Arbitration in accordance with Article 151 of the Law on Enterprise 2020.
These sanctions are intended to protect shareholders’ lawful interests and enhance enterprises’ compliance with the law.
5. Does a change in share price affect the pre-emptive right to purchase shares?
The pre-emptive right to purchase shares is not dependent on market price fluctuations but is determined based on the issuance plan approved by the General Meeting of Shareholders. However, price changes may influence shareholders’ decisions on whether to exercise such rights.
Accordingly, shareholders should carefully consider price factors to make decisions aligned with their interests.
V. Why seek legal advice from NPLaw regarding issues related to the pre-emptive right to purchase shares?
The pre-emptive right to purchase shares is an important right but is prone to disputes if not properly implemented in accordance with the law and the Company Charter. Seeking legal advice from NPLaw enables clients to:
- Clearly understand legal regulations and their rights and obligations;
- Accurately assess legal risks associated with each share issuance plan;
- Receive assistance in drafting and reviewing charters, resolutions, and issuance plans;
- Be represented and have their rights protected in the event of disputes or litigation.
With a team of experienced lawyers specializing in corporate law, NPLaw is a reliable legal partner for shareholders and enterprises in effectively safeguarding pre-emptive rights to purchase shares.
The above information is provided for reference purposes only. For detailed advice on specific cases, clients are encouraged to contact NPLaw for prompt consultation.
