Purchase of preferred shares in accordance with legal regulations

The purchase of preferred shares is one of the common issues arising in joint stock companies. The following article outlines the legal regulations governing the purchase of preferred shares, the applicable conditions, eligible purchasers, and answers to several related questions in order to assist individuals and organizations in protecting their lawful rights and interests.

I. Current situation relating to the purchase of preferred shares

The purchase of preferred shares by investors and shareholders is currently less common than other types of shares for several reasons, such as limitations on voting rights. However, shareholders holding preferred shares may enjoy a number of advantages, including higher dividends or the right to capital redemption, and in certain circumstances may receive preferential rights compared with ordinary shares.

Preferred shares are often used as a mechanism for raising long-term capital while maintaining corporate control. Nevertheless, their implementation and prevalence remain limited due to the complexity of legal regulations and the fact that they are not yet widely understood. Thus, transactions involving preferred shares are mainly concentrated in large companies or listed companies.

II. Concept of purchasing preferred shares

In order to better understand the purchase of preferred shares and how it differs from other types of shares, the following section provides a detailed explanation.

1. What is the purchase of preferred shares?

At present, there is no specific legal provision that directly defines preferred shares. However, pursuant to Clause 2 Article 114 of the Law on Enterprise 2020 (as amended in 2025), in addition to ordinary shares, a joint stock company may issue preferred shares.

The holders of preferred shares (referred to as preferred shareholders) are entitled to certain privileges in the management and operation of the joint stock company corresponding to the type of preferred shares they hold.

Accordingly, the purchase of preferred shares is a right of shareholders as stipulated in the company’s charter or as decided by the General Meeting of Shareholders. Shareholders owning shares enjoy equal rights, obligations, and benefits corresponding to the type of shares held. Purchasing preferred shares provides investors with certain advantages compared with ordinary shares, such as higher dividends, priority in capital repayment, or greater voting power, depending on the type of preferred shares, although such shares may also be accompanied by certain restrictions on voting rights and participation in corporate management.

2. Which entities are permitted to purchase preferred shares in a joint stock company?

The entities permitted to purchase preferred shares in a joint stock company vary depending on the type of preferred shares. According to Clause 2 Article 114 of the Law on Enterprise 2020 (as amended in 2025), preferred shares include the following types:

• Dividend preferred shares;
• Redeemable preferred shares;
• Voting preferred shares;
• Other types of preferred shares as provided in the company’s charter and the laws on securities.

For voting preferred shares: Clause 1 Article 116 of the Law on Enterprise 2020 (as amended in 2025), as guided by Article 11 of Decree No. 47/2021/ND-CP, stipulates that only organizations authorized by the Government and founding shareholders are entitled to hold voting preferred shares.

For redeemable preferred shares and dividend preferred shares: Clause 3 Article 114 of the Law on Enterprise 2020 (as amended in 2025) provides that the persons entitled to purchase such preferred shares shall be determined by the company’s charter or decided by the General Meeting of Shareholders.

Accordingly, the entities permitted to purchase preferred shares in a joint stock company are determined in accordance with the provisions above.

3. How does the purchase of preferred shares differ from the purchase of ordinary shares?

Pursuant to Article 114 of the Law on Enterprise 2020 (as amended in 2025), a joint stock company consists of two main categories: ordinary shares and preferred shares. Ordinary shares are mandatory and must be owned by ordinary shareholders. Preferred shares, on the other hand, are optional and are owned by preferred shareholders, including the following types:

• Dividend preferred shares;
• Redeemable preferred shares;
• Voting preferred shares;
• Other preferred shares as provided in the company’s charter and the laws on securities.

Based on Articles 114, 115, 116, 117, and 118 of the Law on Enterprise 2020 (as amended in 2025), ordinary shares and preferred shares may be distinguished as follows:

- Ordinary shares: 

• Ordinary shares are mandatory shares of a company and are allocated based on the charter capital. Holders of ordinary shares are referred to as ordinary shareholders.
• Ordinary shares cannot be converted into preferred shares, and each ordinary share carries one vote.
• Voting rights: Shareholders may exercise their voting rights directly, through authorized representatives, or through other methods as prescribed by the company’s charter and applicable laws.
• Shareholders may freely transfer their shares to others, except in the cases provided in Clause 3 Article 120, Clause 1 Article 127 of the Law on Enterprise 2020, and other relevant legal provisions.

- Preferred shares

- Dividend preferred shares

• These shares are entitled to dividends at a rate higher than that of ordinary shares or at a fixed annual rate.
• The holders are determined by the company’s charter or by a decision of the General Meeting of Shareholders.
• They may be converted into ordinary shares under a resolution of the General Meeting of Shareholders.
• Dividends distributed annually include fixed dividends and bonus dividends. Fixed dividends are not dependent on the company’s business performance. The specific fixed dividend rate and the method for determining bonus dividends must be stated clearly in the share certificates of dividend preferred shares.
• Holders do not have voting rights, the right to attend the General Meeting of Shareholders, or the right to nominate candidates to the Board of Directors or the Supervisory Board, except in cases stipulated in Clause 6 Article 148 of the Law on Enterprise 2020.
• They are transferable.

- Redeemable preferred shares

• These shares may be redeemed by the company at the request of the shareholder or in accordance with the conditions specified in the share certificates of redeemable preferred shares and the company’s charter.
• The holders are determined by the company’s charter or by a decision of the General Meeting of Shareholders.
• They may be converted into ordinary shares under a resolution of the General Meeting of Shareholders.
• Holders do not have voting rights, the right to attend the General Meeting of Shareholders, or the right to nominate candidates to the Board of Directors or the Supervisory Board, except in cases stipulated in Clause 5 Article 114 and Clause 6 Article 148 of the Law on Enterprise 2020.
• They are transferable.

- Voting preferred shares

• These are shares that carry more voting rights than ordinary shares; the number of votes attached to each voting preferred share is determined by the company’s charter.
• Ownership is limited to organizations authorized by the Government and founding shareholders.
• They may be converted into ordinary shares under a resolution of the General Meeting of Shareholders.
• Holders may vote on matters within the authority of the General Meeting of Shareholders.
• Such shares may not be transferred to other persons except in cases of transfer under a legally effective court judgment or decision, or by inheritance.

Accordingly, the purchase of preferred shares differs from the purchase of ordinary shares in the manners analyzed above. 

III. Legal regulations relating to the purchase of preferred shares

Understanding the legal framework governing the purchase of preferred shares is a concern of many stakeholders. In response to this need, NPLaw provides the following overview of the latest legal provisions governing the purchase of preferred shares.

1. What types of preferred shares are permitted to be issued under current law?

According to Clause 2 Article 114 of the Law on Enterprise 2020 (as amended in 2025), a joint stock company may issue the following types of preferred shares:

In addition to ordinary shares, a joint stock company may issue preferred shares. The holders of preferred shares are referred to as preferred shareholders. Preferred shares include the following types:

• Dividend preferred shares;
• Redeemable preferred shares;
• Voting preferred shares;
• Other types of preferred shares as provided in the company’s charter and the laws on securities.

Accordingly, the law currently recognizes the above types of preferred shares that may be issued by joint stock companies.

2. What are the conditions for a company to issue and sell preferred shares?

Clause 3 Article 114 of the Law on Enterprise 2020 (as amended in 2025) stipulates that the persons entitled to purchase dividend preferred shares, redeemable preferred shares, and other types of preferred shares shall be determined by the company’s charter or decided by the General Meeting of Shareholders.

- Accordingly, the conditions for issuing and selling preferred shares depend on the type of preferred shares, but the general conditions include:

• Dividend preferred shares and redeemable preferred shares must be provided for in the company’s charter or approved by the General Meeting of Shareholders.
• Voting preferred shares may only be held by organizations authorized by the Government and founding shareholders pursuant to Clause 1 Article 116 of the Law on Enterprise 2020 (as amended in 2025).

- Under Clauses 2 and 3 Article 123 of the Law on Enterprise 2020 (as amended in 2025), the offering of shares may be conducted through the following methods:

• Offering shares to existing shareholders;
• Private offering of shares;
• Public offering of shares.

Public offerings of shares, including those conducted by public companies or other entities, must comply with the laws on securities.

- Clause 4 Article 124 of the Law on Enterprise 2020 (as amended in 2025) provides that in the case of offering shares to existing shareholders of a joint stock company that is not a public company, the shares shall be deemed sold once they have been fully paid for and the purchaser’s information specified in Clause 2 Article 122 of the Law is fully recorded in the shareholder register. From that time, the purchaser becomes a shareholder of the company.

- According to Article 125 of the Law on Enterprise 2020 (as amended in 2025), a private offering of shares by a joint stock company that is not a public company must satisfy the following conditions:

• The offering must not be conducted through mass media;
• The offering must be made to fewer than 100 investors, excluding professional securities investors, or exclusively to professional securities investors.

A joint stock company that is not a public company must conduct private offering in accordance with the following principles:

• The company shall determine the private offering plan in accordance with the Law on Enterprises;
• Existing shareholders have a pre-emptive right to purchase shares under Clause 2 Article 124 of the Law, except in cases of merger or consolidation of companies;
• If shareholders and transferees of the pre-emptive rights do not purchase all the offered shares, the remaining shares may be sold to other persons under the private offering plan, provided that the conditions are not more favorable than those offered to existing shareholders unless otherwise approved by the General Meeting of Shareholders.

In summary, a company may issue and sell preferred shares in accordance with the above conditions.

3. Does the law restrict the entities eligible to purchase preferred shares?

According to Clause 1 Article 116 of the Law on Enterprise 2020 (as amended in 2025), only organizations authorized by the Government and founding shareholders are entitled to hold voting preferred shares.

Accordingly, current enterprise law restricts the entities permitted to purchase voting preferred shares. However, there are no restrictions on purchasers of dividend preferred shares or redeemable preferred shares. Any investor may purchase these shares if they are issued by the company, unlike voting preferred shares which are subject to ownership limitations.

4. What are the procedures for purchasing preferred shares under the law?

Clause 3 Article 114 of the Law on Enterprise 2020 (as amended in 2025) stipulates that the persons entitled to purchase dividend preferred shares, redeemable preferred shares, and other preferred shares shall be determined by the company’s charter or by the General Meeting of Shareholders.

Under Articles 132 and 133 of the Law on Enterprise 2020 (as amended in 2025), the procedures relating to share transactions include cases where shares are repurchased at the request of shareholders or under a decision of the company.

Repurchase of preferred shares at the request of shareholders under Article 132 of the Law on Enterprise 2020 (as amended in 2025):

• A shareholder who votes against a resolution concerning corporate reorganization or changes to the rights and obligations of shareholders as provided in the company’s charter may request the company to repurchase their shares.
• The request must be made in writing and must state the shareholder’s name and address, the number of shares of each type, the intended selling price, and the reason for requesting the repurchase.
• The request must be sent to the company within 10 days from the date on which the General Meeting of Shareholders passes the relevant resolution.
• The company must repurchase the shares at the market price or at a price determined in accordance with the principles set out in the company’s charter within 90 days from the date of receiving the request. If the parties cannot agree on the price, they may request a professional valuation organization to determine the price. The company must introduce at least three valuation organizations for the shareholder to select from, and the selected organization’s determination shall be final.

Repurchase of preferred shares by decision of the company under Article 133 of the Law on Enterprises 2020 (as amended in 2025), the company has the right to repurchase part or all of the dividend preferred shares that have been sold under the following conditions:

• The Board of Directors may decide to repurchase no more than 10% of the total number of shares of each type sold within a period of 12 months. In other cases, the repurchase must be decided by the General Meeting of Shareholders.
• The Board of Directors shall determine the repurchase price. For other types of shares, if the company’s charter does not provide otherwise and there is no separate agreement between the company and the relevant shareholders, the repurchase price must not be lower than the market price.

In addition, the company may repurchase shares from each shareholder in proportion to their shareholding ratio in the company according to the following procedures:

• The decision to repurchase shares must be notified by a method ensuring delivery to all shareholders within 30 days from the date on which the decision is adopted.
• The notice must include the company’s name, the address of its headquarter, the total number and types of shares to be repurchased, the repurchase price or the principles for determining such price, the payment procedures and deadlines, and the procedures and deadlines for shareholders to sell their shares to the company.
• Shareholders who agree to sell their shares must send a written confirmation to the company within 30 days from the date of receiving the notice.

The confirmation must include the shareholder’s full name, contact address, legal identification number for individual shareholders; the name, enterprise identification number or legal identification number, and the headquarter address for organizational shareholders; the number of shares owned and the number of shares proposed for sale; the payment method; and the signature of the shareholder or the legal representative of the shareholder. The company may only repurchase shares within the specified time.

Accordingly, the procedures for purchasing preferred shares are implemented in accordance with the above legal provisions.

IV. Questions relating to the purchase of preferred shares

1. May a purchaser of preferred shares transfer such shares?

• Clause 3 Article 116 of the Law on Enterprise 2020 (as amended in 2025) provides that shareholders holding voting preferred shares are not permitted to transfer those shares to other persons, except in cases of transfer under a legally effective court judgment or decision, or by inheritance.
• Under Clauses 2 of Articles 117 and 118 of the Law on Enterprise 2020 (as amended in 2025), the law does not prohibit shareholders holding dividend preferred shares or redeemable preferred shares from transferring their shares.

Accordingly, holders of dividend preferred shares and redeemable preferred shares may transfer their shares, whereas voting preferred shares may not be transferred except in cases of transfer according to a legally effective court judgment or decision, or by inheritance.

2. If the company suffers business losses, are holders of preferred shares still entitled to dividends?

Clause 1 Article 135 of the Law on Enterprise 2020 (as amended in 2025) provides that dividends paid for preferred shares are implemented according to the specific conditions applicable to each type of preferred shares.

According to Clause 1 and Point a Clause 2 Article 117 of the Law on Enterprise 2020 (as amended in 2025), shareholders holding dividend preferred shares have the right to receive dividends in accordance with the regulations. Dividends paid annually include fixed dividends and bonus dividends. Fixed dividends are not dependent on the company’s business performance. The specific fixed dividend rate and the method for determining bonus dividends must be clearly stated in the share certificates of dividend preferred shares.

Accordingly, even if the company incurs business losses, holders of dividend preferred shares are still entitled to receive fixed dividends as provided above.

3. Is registration with the business registration authority required when purchasing preferred shares?

Clause 1 and Clause 5 Article 122 of the Law on Enterprise 2020 (as amended in 2025) provide that a joint stock company must establish and maintain a shareholder register from the date on which the enterprise registration certificate is issued. The shareholder register may be in the form of a written document or electronic data set recording information on the share ownership of shareholders. The company must promptly update changes in shareholders in the register upon request of the relevant shareholders in accordance with the company’s charter.

Articles 132 and 133 of the Law on Enterprise 2020 (as amended in 2025) provide procedures for share repurchase, including internal decisions and written notices, without requiring registration with the business registration authority.

Accordingly, the purchase of preferred shares does not require direct registration with the business registration authority but is primarily recorded in the company’s shareholder register or regulated by the company’s charter.

4. Do purchasers of preferred shares have the right to request financial information from the company?

According to Point b Clause 2 Article 116, Point c Clause 2 Article 117, and Clause 2 Article 118 of the Law on Enterprise 2020 (as amended in 2025), shareholders holding preferred shares enjoy rights similar to those of ordinary shareholders.

Pursuant to Points đ and e Clause 1 and Point a Clause 2 Article 115 of the Law on Enterprise 2020 (as amended in 2025), ordinary shareholders have the following rights:

• To examine, search, and extract information relating to names and contact addresses in the list of voting shareholders and request correction of inaccurate information;
• To examine, search, extract, or copy the company’s charter, minutes of the General Meeting of Shareholders, and resolutions of the General Meeting of Shareholders;
• Shareholders or groups of shareholders holding at least 5% of the total number of ordinary shares, or a smaller percentage as stipulated in the company’s charter, have the right to examine and extract minutes and resolutions of the Board of Directors, semi-annual and annual financial statements, reports of the Supervisory Board, contracts and transactions subject to approval by the Board of Directors, and other documents, except those relating to trade secrets or business secrets of the company.

Accordingly, purchasers of preferred shares have rights similar to ordinary shareholders and may request financial information of the company in accordance with the provisions above.

V. Why you should seek legal advice from NPLaw regarding the purchase of preferred shares

The above information provides an overview of issues relating to the purchase of preferred shares. With a team of experienced lawyers and legal professionals, NPLaw offers reliable and professional legal services to ensure the best protection of clients’ legitimate rights and interests. If you require legal assistance, you may contact NPLaw for consultation and support.

The information provided above is for reference purposes only. For detailed advice regarding a specific case, please contact NPLaw Law Firm for prompt consultation.