In business operations and investment activities, the pledging of shares is a fairly common security measure to secure the performance of obligations. However, it also entails various legal risks relating to shareholders’ rights, transaction validity, and the handling of shares in the event that the secured obligation is not duly performed.

I. Introduction to issues relating to pledged shares

In the context of the growing demand for capital mobilization and the securing of financial obligations, the pledging of shares has become a security measure widely adopted by shareholders. Through pledging their shares, shareholders may use the value of their shares to secure loans or other civil obligations while still maintaining their status as shareholders of the company. In practice, however, the pledging of shares is not merely a civil relationship between the pledgor and the pledgee, but also directly affects the rights and interests of the company and other shareholders.

Legal issues commonly arising in connection with pledged shares include conditions and forms of share pledges, the scope of shareholders’ rights while shares are pledged, voting rights and dividend entitlements, as well as the handling of pledged shares when the secured obligation is not performed. In addition, inconsistencies between civil law and corporate law, together with specific provisions of the company’s Charter, further complicate the application of law to pledged shares.

Accordingly, properly identifying and understanding the legal issues relating to pledged shares is essential for shareholders, enterprises, and relevant parties to proactively prevent risks, protect their lawful rights and interests, and minimize disputes arising from transactions secured by shares.

II. Overview of pledged shares

In investment and corporate governance activities, the pledging of shares is an important security measure not only for the pledging shareholder, but also for the company and related parties. A correct understanding of the legal nature, applicable conditions, and the rights and obligations arising from pledged shares helps parties effectively utilize this instrument while minimizing unnecessary risks and disputes.

1. What are pledged shares and why are they important in enterprises?

Pursuant to Point a Clause 1 Article 111 of the Law on Enterprise 2020: Charter capital is divided into equal portions called shares. A share is the smallest equal portion of a company’s charter capital.

Pledged shares refer to the situation in which a shareholder uses shares under their lawful ownership to secure the performance of a civil obligation, typically a debt repayment obligation, in favor of the pledgee. The pledging of shares does not terminate the shareholder’s ownership of the shares, but gives rise to the pledgee’s rights over the shares within the scope of the secured obligation.

In enterprises, pledged shares play an important role as they enable shareholders to mobilize capital flexibly without transferring ownership of shares. At the same time, for the pledgee, shares are valuable assets closely associated with financial rights and governance rights, and are therefore regarded as a relatively secure form of collateral.

2. What risks may arise when shares are pledged?

Despite their benefits, pledged shares also involve significant legal risks. For the pledging shareholder, the greatest risk lies in the potential loss of control or the enforcement of shares if the secured obligation is not properly performed. The enforcement of pledged shares may lead to changes in the shareholder structure and affect corporate governance rights.

For the pledgee, risks may arise if the pledged shares are subject to transfer restrictions, are under dispute, or if the pledge is not established in compliance with legal formality and procedural requirements, resulting in the risk that the pledge is not recognized or is difficult to enforce upon default. Additional risks may stem from a decline in share value or poor business performance of the company.

3. What conditions must be satisfied for pledged shares to be legally recognized?

Article 309 of the Civil Code 2015 provides: A pledge of property is an act whereby one party (the pledgor) delivers property under its ownership to another party (the pledgee) to secure the performance of an obligation.

Accordingly, for pledged shares to be legally recognized, the shares used as collateral must first belong to the lawful ownership of the pledgor and must not fall within cases prohibited or restricted from being pledged under the law or the company’s Charter.

In many cases, the pledging of shares must also be recorded in the company’s shareholder register in order to be enforceable against third parties. Notifying the company of the pledged status of shares is an important factor in preventing disputes relating to shareholders’ rights and the pledgee’s rights.

4. What obligations do the parties have when shares are pledged?

In cases of pledged shares, the parties’ obligations are governed by Articles 311 and 313 of the Civil Code 2015, specifically:

Obligations of the pledgor:

  • Deliver the pledged property to the pledgee in accordance with the agreement;
  • Notify the pledgee of any third-party rights over the pledged property, if any; failing such notification, the pledgee has the right to terminate the pledge contract and claim damages, or to maintain the contract and accept such third-party rights;
  • Pay reasonable expenses for preserving the pledged property, unless otherwise agreed.

Obligations of the pledgee:

  • Preserve and safeguard the pledged property; compensate the pledgor for any loss, misplacement, or damage to the pledged property;
  • Not sell, exchange, donate, or use the pledged property to secure other obligations;
  • Not lease, lend, exploit, or derive benefits from the pledged property unless otherwise agreed;
  • Return the pledged property and relevant documents, if any, upon termination of the secured obligation or upon replacement by another security measure.

Compliance with each party’s obligations is a crucial basis for ensuring stability and legal safety in share pledge transactions.

III. Legal regulations relating to pledged shares

The pledging of shares is subject to both civil law governing security measures and corporate law governing share regimes and shareholders’ rights. Therefore, the legality and validity of pledged shares must be assessed in light of the combined application of the Civil Code 2015 and the Law on Enterprise 2020 (as amended in 2025), together with relevant guiding instruments.

1. How does the law regulate the pledging of shares?

Vietnamese law does not specifically limit which types of assets may be pledged; in principle, assets may be used to secure obligations. Pursuant to Article 295 of the Civil Code 2015, as guided by Chapter II of Decree No. 21/2021/ND-CP, assets used to secure obligations include:

  • Existing assets or assets formed in the future, except where prohibited from sale, transfer, or other transfer of ownership at the time the security contract is established;
  • Assets sold under contracts with reservation of ownership;
  • Assets subject to breached bilateral obligations in cases of lien;
  • Assets under all-people ownership where permitted by law.

Clause 8 Article 6 of the Law on the State Bank of Vietnam 2010 defines “valuable papers” as evidence certifying debt repayment obligations between the issuer and the holder under specific terms and conditions.

Accordingly, shares are considered a type of asset. Upon issuance of share certificates and registration of shareholders in the shareholder register, such register constitutes valuable papers. Therefore, shareholders may pledge their shares.

2. What are the notification obligations when shares are pledged?

Pursuant to Clause 2 Article 311 of the Civil Code 2015, the pledgor must notify the pledgee of any third-party rights over the pledged property. Failure to do so entitles the pledgee to terminate the pledge contract and claim damages or to continue the contract and accept such third-party rights.

In addition, pursuant to Clause 1 Article 122 of the Law on Enterprise 2020, a joint-stock company must establish and maintain a shareholder register recording information relating to shares and shareholders. When shares are pledged, notifying the company to record the pledge in the shareholder register helps prevent further transfer of pledged shares, protects the pledgee’s rights in the event of disputes, and provides a basis for determining priority upon enforcement.

3. Common violations in the pledging of shares

In practice, violations relating to pledged shares often result from failure to comply with civil and corporate law requirements, including:

  • Pledging shares not under the lawful ownership of the pledgor, or shares under dispute or subject to transfer restrictions under the company’s Charter or Clause 3 Article 120 of the Law on Enterprise 2020;
  • Failure to execute a valid pledge contract in accordance with Article 310 of the Civil Code 2015, leading to the risk of invalidity;
  • Failure to notify the company or to request recording of the pledge in the shareholder register, giving rise to disputes with third parties or the company;
  • Abuse of pledge rights, whereby the pledgee unlawfully interferes with the governance rights of the pledging shareholder beyond the scope of the secured obligation.

Such violations increase the risk that the pledge transaction is declared invalid or becomes difficult to enforce, and are common causes of disputes among shareholders, pledgees, and joint-stock companies.

IV. Questions relating to pledged shares

In practical application, shares used as collateral often give rise to numerous questions concerning the company’s liabilities, shareholders’ rights, and the manner of handling such shares when the secured obligation is not duly performed. Below are the issues most commonly encountered, together with corresponding explanations from a legal perspective.

1. Can a company be sanctioned for failing to notify other shareholders of pledged shares?

Current law does not require a joint-stock company to notify all shareholders when a shareholder pledges their shares. The pledging of shares is essentially a civil transaction between the shareholder and the pledgee. Therefore, failure to notify other shareholders does not automatically result in administrative sanctions.

However, if the company’s Charter requires disclosure or notification of the legal status of shares and the company fails to comply, the company or its managers may bear liability under the Charter and be required to compensate for damages, if any.

2. Who has jurisdiction to resolve disputes relating to pledged shares?

Jurisdiction depends on the parties’ agreement and the nature of the dispute:

  • People’s Courts have jurisdiction under the Civil Procedure Code 2015 (as amended in 2025) where no arbitration agreement exists;
  • Commercial arbitration has jurisdiction where the pledge contract or loan agreement contains a valid arbitration clause under the Law on Commercial Arbitration 2010;
  • Where disputes directly involve the company (e.g., refusal to recognize enforcement of pledged shares), the company may be an interested party with related rights and obligations.

3. What enforcement methods apply if the borrower fails to repay the secured debt?

Pursuant to Clause 1 Article 303 of the Civil Code 2015, upon default, the pledgee may enforce the pledged shares through:

  • Auction of the asset;
  • Sale of the asset by the secured party;
  • The secured party receives the principal asset to substitute for the guarantor's performance of their obligations;
  • Other agreed methods.

Enforcement must comply with share transfer regulations under the Law on Enterprises 2020 and the company’s Charter, particularly where shares are subject to transfer restrictions.

4. What is the notification process for pledging shares to other shareholders?

The law does not prescribe a mandatory notification procedure. In practice, the process typically includes:

  • Written notification by the pledgor or pledgee to the company regarding the pledge;
  • Recording of the pledge status in the shareholder register;
  • Internal disclosure to shareholders where required by the Charter or resolutions of the General Meeting of Shareholders.

Such notification aims at transparency and dispute prevention, rather than being a condition for the validity of the pledge.

5. What legal consequences may arise if shares are pledged without the consent of all shareholders?

As a general principle, a shareholder does not need the consent of all other shareholders to pledge shares under their lawful ownership, except where:

  • The company’s Charter imposes restrictions or requires approval;
  • The shares are subject to transfer restrictions under the Law on Enterprise 2020.

If such restrictions are violated, legal consequences may include:

  • Partial or total invalidation of the pledge transaction under Article 117 of the Civil Code 2015;
  • Joint liability of relevant signatories, shareholders, members of the Board of Directors, or the Director/General Director to compensate damages and return unlawful benefits to the company pursuant to Clause 5 Article 167 of the Law on Enterprise 2020;
  • Disputes relating to voting rights, transfer rights, and enforcement of shares upon default.

V. Are you seeking a reputable legal expert to assist with issues relating to pledged shares?

Pledged shares constitute a complex legal matter requiring in-depth understanding of both civil law and corporate law. Consulting experienced lawyers will help you accurately assess risks, structure secure transactions, and effectively protect your lawful rights and interests in all situations.

The above information is for reference purposes only. For detailed advice on specific cases, please contact NPLaw Law Firm for prompt consultation.