In the operations of a joint stock company, the distribution of dividends is a key matter that reflects the company’s business performance and the alignment of interests between the company and its shareholders. So, who are the shareholders entitled to receive dividends, and how does Vietnamese law regulate their rights and obligations? Let’s explore the details of shareholders receiving dividends in the article below.
I. Understanding shareholders receiving dividends
1. Who are the shareholders receiving dividends?
Shareholders receiving dividends are those who own shares in a joint stock company and are eligible to receive dividends pursuant to the resolution of the General Meeting of Shareholders or the Board of Directors (depending on the type of shares held).
According to the Law on Enterprise 2020, dividends may be distributed to ordinary shareholders or preferred shareholders entitled to dividends. Receiving dividends reflects both ownership and the right to benefit from the profits generated by the company's operations.
2. What is a dividend to a shareholder?
Clause 5, Article 4 of the Law on Enterprise 2020 defines:
- Dividend means a portion of after-tax profits paid per share in cash or in other assets.
Accordingly, a dividend is the portion of a company’s net profits distributed to shareholders in accordance with legal regulations. For shareholders, dividends are a legitimate return on investment and also an indicator of the company’s financial stability and profitability.
3. What benefits do shareholders receiving dividends enjoy?
According to Article 115 of the Law on Enterprise 2020, in addition to receiving dividends, shareholders are entitled to various benefits, including:
- Participating in and voting at the General Meeting of Shareholders on company matters;
- Reviewing, accessing, and extracting business and financial information of the company in accordance with the law;
- Freely transferring their shares, unless otherwise restricted by law or the company's Charter;
- Having preemptive rights to purchase newly issued shares in proportion to their existing shareholdings.
Depending on the type of shares held (e.g., ordinary shares, voting preference shares, dividend preference shares), and the proportion of ownership, shareholders or groups of shareholders may also enjoy additional rights under the Law on Enterprise and the company's Charter.
II. Legal provisions on shareholders receiving dividends
1. Dividend preference shares for dividend-entitled shareholders
Clause 1, Article 117 of the Law on Enterprise 2020 provides:
- Dividend preference shares are shares that receive dividends at a higher or fixed annual rate, regardless of the company’s business performance. Annual dividends may include fixed dividends and bonus dividends. Fixed dividends are independent of the company’s business results. Specific fixed dividend amounts and the method of calculating bonus dividends must be stated clearly in the share certificate.
Thus, dividend preference shares grant their holders a higher or stable dividend regardless of performance. The specific rate and method of calculation for bonus dividends must be clearly stipulated in the company’s Charter.
2. Rights of shareholders holding dividend preference shares
According to Clause 2, Article 117 of the Law on Enterprise 2020, shareholders with dividend preference shares are entitled to:
- Receive dividends as stipulated in Clause 1 of this Article;
- Receive a portion of remaining assets in proportion to their shareholding after all liabilities and redeemable preference shares have been settled upon dissolution or bankruptcy;
- Enjoy other rights like ordinary shareholders, unless restricted under Clause 3 of this Article.
3. Legal regulations on dividend payments to shareholders
Dividend payments are governed by Article 135 of the Law on Enterprise 2020:
- Dividends for preference shares are paid according to specific conditions applicable to each type of preference share;
- Dividends for ordinary shares are based on realized net profits and paid from retained earnings;
- Dividends may be paid in cash, in company shares, or other assets as specified in the company’s Charter. If paid in cash, the payment must be in Vietnamese Dong and comply with lawful payment methods;
- Dividends must be fully paid within 6 months from the end of the annual General Meeting of Shareholders;
- The Board of Directors must prepare a list of eligible shareholders, determine the payable amount per share, and inform shareholders at least 15 days before the payment date;
- If shares are transferred after the record date but before the payment date, the transferor is entitled to the dividend;
- If dividends are paid in the form of shares, the company is not required to register a public offering under Articles 123–125 of the Law. However, the company must register an increase in charter capital corresponding to the total par value of the issued dividend shares within 10 days of completing the dividend distribution.
III. Questions regarding shareholders receiving dividends
1. What is the duration for paying dividends to shareholders?
Clause 4, Article 135 of the Law on Enterprise 2020 states:
- Dividends must be fully paid within 06 months from the conclusion of the annual General Meeting of Shareholders.
Hence, the maximum period to pay dividends to shareholders is 6 months from the end of the annual General Meeting.
2. What information must be included in the dividend payment notice?
According to Clause 4, Article 135 of the Law on Enterprise 2020, the dividend notice must include:
- Name and head office address of the company;
- Full name, contact address, nationality, and identification of the shareholder (if an individual);
- Name, enterprise code or legal documentation, and head office address (if an organization);
- Number of shares held by type, dividend amount per share, and total dividend amount to be received;
- Date and method of dividend payment;
- Full name and signature of the Chairperson of the Board of Directors and the legal representative of the company.
3. Must shareholders return dividends if paid illegally?
Article 136 of the Law on Enterprise 2020 provides:
- In case of illegal share repurchase under Article 134(1) or unlawful dividend payment under Article 135, shareholders must return the received amount or assets to the company. If they are unable to return it, all members of the Board of Directors shall be jointly liable for the company’s debts and obligations to the extent of the unreturned amount or assets.
Therefore, if dividends are paid in violation of legal provisions, shareholders must return the money or assets to the company.
4. Are dividends received by shareholders subject to personal income tax?
According to Point b, Clause 3, Article 2 of Circular 111/2013/TT-BTC (as amended by Clause 6, Article 11 of Circular 92/2015/TT-BTC):
- Income from capital investment includes dividends received from share purchases.
Thus, dividend income is subject to personal income tax. The applicable tax rate and related provisions are governed by the Law on Personal Income Tax and guiding documents.
5. Is it legal to receive dividends in the form of assets rather than cash?
Clause 3, Article 135 of the Law on Enterprise 2020 provides:
- Dividends may be paid in cash, in shares of the company, or in other assets as stipulated in the company’s Charter. If paid in cash, it must be made in Vietnamese Dong using lawful payment methods.
Therefore, payment of dividends in assets other than cash is lawful, provided that it is stipulated in the company’s Charter.
IV. Legal consulting services on shareholders receiving dividends
The above is the comprehensive legal analysis provided by NPLaw regarding shareholders entitled to receive dividends. With a team of experienced lawyers and legal professionals, NPLaw delivers reliable, professional legal services to ensure the lawful rights and interests of our clients. If you need support with any legal matters, feel free to contact NPLaw for direct consultation and guidance.
