The voting right of shareholders is a fundamental right in a joint stock company, allowing shareholders to participate in main corporate decisions. Such a right not only protects shareholders’ interests but also plays a crucial role in ensuring fairness and transparency in corporate governance. Below, NPLaw provides an overview of the legal regulations concerning shareholders’ voting rights.
I. Understanding shareholders’ voting rights
Shareholders’ voting rights are fundamental rights enabling shareholders to participate in making important corporate decisions. Shareholders may exercise their voting rights at General Meetings of Shareholders, where matters such as electing members of the Board of Directors, determining development strategies, or distributing profits are decided.
Voting rights are determined based on the number of shares held by each shareholder, who may vote directly or indirectly through an authorized representative. However, voting rights may be restricted or invalidated if not exercised in accordance with legal provisions or the company’s charter. For instance, in cases where meetings are improperly convened or resolutions contravene the law. Shareholders are also entitled to request the annulment of resolutions that violate legal provisions or the company charter.
II. Legal regulations on shareholders’ voting rights
1. What are shareholders’ voting rights?
Shareholders’ voting rights refer to the legal entitlement that allows shareholders of a joint stock company to participate in decision-making on major company matters through voting at the General Meetings of Shareholders.
2. When are shareholders’ voting rights established?
While the Law on Enterprise 2020 does not stipulate a specific clause defining the time voting rights are established, according to Clause 1, Article 141, the list of shareholders is compiled based on the company’s shareholder register. This list must be made no more than 10 days before sending the notice of the General Meetings of Shareholders, unless the charter specifies a shorter period.
Accordingly, voting rights are determined at the time the company sets up the list of shareholders, and only those whose names appear on the list at that time may vote at the meeting even if they later transfer their shares.
3. Scope of shareholders’ voting rights
The scope of voting rights is detailed in the Law on Enterprise 2020, primarily in Article 115 for ordinary shareholders and Article 116 for shareholders holding preferred voting shares. Specifically, ordinary shareholders are entitled to attend, speak, and vote at General Meetings of Shareholders meetings, with each ordinary share corresponding to one vote (Clause 1, Article 115).
Furthermore, shareholders or groups of shareholders holding at least 5% of the total number of ordinary shares (or a lower ratio if provided in the charter) enjoy broader rights, including the right to access internal documents, request the convening of the General Meetings of Shareholders when the Board of Directors violates shareholders’ rights, and request the Supervisory Board to review the company’s operations (Clauses 2 and 3, Article 115). Shareholders or groups holding at least 10% of ordinary shares (or a lower percentage prescribed by the charter) also have the right to nominate candidates for the Board of Directors and Supervisory Board (Clause 5, Article 115).
For preferred voting shares, under Article 116, the scope of voting rights is broader since one share may carry more than one vote, as specified in the company’s charter. However, such a type of share may only be held by authorized organizations designated by the Government or founding shareholders and is valid only for a limited period (three years from the company’s establishment for founding shareholders). After such a period, preferred voting shares automatically convert into ordinary shares.
In summary, the scope of shareholders’ voting rights depends on the type of shares (ordinary or preferred), the shareholding ratio, and the company’s charter, reflecting the shareholder’s role in corporate decision-making.
III. Clarifications on common questions regarding shareholders’ voting rights
1. Forms of exercising voting rights
Under Point a, Clause 1, Article 115 of the Law on Enterprise 2020, shareholders may exercise their voting rights by:
- Voting directly;
- Voting through an authorized representative; or
- Other forms prescribed by the company’s charter and the law.
It allows shareholders flexibility in exercising their voting rights, depending on their circumstances and company regulations.
2. Can shareholders agree to combine their voting rights?
Currently, the law does not prohibit shareholders from agreeing to combine their voting rights. Under Clause 5, Article 115 of the Law on Enterprise 2020, shareholders or groups of shareholders holding at least 10% of ordinary shares may form groups to nominate individuals to corporate management bodies. Although the term “combined voting rights” is not expressly used, grouping shareholders to exercise joint voting rights constitutes a form of vote aggregation.
3. How are illegally exercised voting rights handled?
If shareholders’ voting rights are exercised unlawfully, resulting in invalid resolutions, shareholders may request annulment of such resolutions under Article 151 of the Law on Enterprise 2020 within 90 days from the date of receiving the resolution or meeting minutes. The annulment may be sought through a Court or Arbitration if there are serious violations in the convening procedure or if the resolution’s content breaches legal provisions or the company charter.
Thus, disputes over unlawful voting rights may be resolved through the Court or Arbitration.
4. How many shares must a shareholder own to have voting rights in all cases?
Under Clause 1, Article 115 and Clause 3, Article 4 of the Law on Enterprise 2020, ownership of even one (01) ordinary share entitles a shareholder to voting rights. Therefore, an ordinary shareholder holding at least one share enjoys full voting rights as prescribed by law.
5. In what cases may shareholders’ voting rights be restricted?
According to Articles 116, 117, and 118 of the Law on Enterprise 2020, shareholders’ voting rights may be restricted in specific cases, mainly concerning preferred shares. Specifically, shareholders holding dividend-preferred or redeemable preferred shares do not have voting rights, cannot attend General Meetings of Shareholders meetings, and may not nominate members of the Board of Directors or Supervisory Board, except in special cases provided under Clause 5, Article 114 and Clause 6, Article 148.
Additionally, founding shareholders holding preferred voting shares enjoy such privileges only for three years from the date the company receives its Enterprise Registration Certificate. After such a period, these preferred shares automatically convert into ordinary shares, and the shareholders lose their voting privileges. Furthermore, voting rights may also be restricted by the company’s charter or specific legal provisions designed to balance interests among shareholder groups.
IV. Legal consultancy services on shareholders’ voting rights
The above article by NPLaw provides an overview of shareholders’ voting rights. With a team of experienced lawyers and legal specialists, NPLaw is always ready to accompany, advise, and support clients on all legal matters concerning shareholders’ rights. For legal assistance, please contact NPLaw via the following information:
