Regulations on shares subject to transfer restrictions by agreement

Shares subject to transfer restrictions by agreement are a common issue in joint-stock companies. The article below sets out the legal provisions governing shares subject to transfer restrictions by agreement and addresses several related questions, with a view to assisting individuals and organizations in protecting their lawful rights and interests.

I. Introduction to issues relating to shares subject to transfer restrictions by agreement

Shares subject to transfer restrictions by agreement constitute an important legal instrument that enables joint-stock companies to manage their shareholder structure and maintain stability, particularly during the early stage of establishment or where the parties have entered into stringent agreements.

Such a category of shares is subject to limitations on sale and transfer within a certain period or upon fulfillment of specified conditions, which are typically stipulated in the company’s charter or on the relevant share certificates and must comply with the laws on enterprises.

II. Overview of shares subject to transfer restrictions by agreement

In order to better understand shares subject to transfer restrictions by agreement and related issues, please refer to the contents below.

1. What are shares subject to transfer restrictions by agreement?

Pursuant to Point a Clause 1 Article 111 of the Law on Enterprise 2020 (as amended in 2025), charter capital is divided into equal portions known as shares. Accordingly, it may be understood that:

• Shares represent the smallest equal units into which the charter capital of a company is divided.
• Shares constitute the legal basis evidencing a person’s status as a shareholder in a joint-stock company. Each class of shares confers upon its holder the corresponding legal rights and obligations.

Pursuant to Clause 1 Article 127 of the Law on Enterprise 2020 (as amended in 2025), shares are freely transferable, except for cases prescribed in Clause 3 Article 120 of this Law and cases where the company’s charter provides for restrictions on the transfer of shares.

Furthermore, Clause 3 Article 120 of the Law on Enterprise 2020 (as amended in 2025) provides for ordinary shares held by founding shareholders, whereby, within a period of three (03) years from the date on which the enterprise is granted the Enterprise Registration Certificate, ordinary shares of founding shareholders may be freely transferred among founding shareholders and may only be transferred to non-founding shareholders upon approval of the General Meeting of Shareholders.

In conclusion, shares subject to transfer restrictions by agreement are shares whose sale and transfer are restricted by provisions agreed upon in the company’s charter or by agreements among shareholders, with the aim of ensuring stability or closely managing the shareholder structure during the early stage of the company’s operations.

2. What forms may be used to determine shares subject to transfer restrictions by agreement?

The right to freely transfer shares is a fundamental principle under Clause 1 Article 127 of the Law on Enterprise 2020 (as amended in 2025). Accordingly, shareholders are entitled to freely transfer their shares to any other persons. However, the law permits restrictions on share transfers through the following agreed forms:

• Restrictions stipulated in the company’s charter: The charter clearly provides for limitations on share transfers, including relevant conditions and time limits applicable to such transfers.
• Restrictions under agreements limiting share transfers: These are agreements among shareholders, which may exist in addition to the charter, providing more detailed provisions on transfer restrictions (such as rights of first refusal and pre-emptive rights upon an intended transfer), together with other rights and obligations.

Accordingly, shares subject to transfer restrictions by agreement may be identified based on provisions set out in the company’s charter or in written agreements among shareholders.

3. When may transfer restrictions by agreement be lifted?

Pursuant to Clause 1 Article 127 of the Law on Enterprise 2020 (as amended in 2025), shares are freely transferable, except for cases prescribed in Clause 3 Article 120 of this Law and cases where the company’s charter provides for restrictions on the transfer of shares.

Under Clause 3 Article 120 of the Law on Enterprise 2020 (as amended in 2025), within three (03) years from the date of issuance of the Enterprise Registration Certificate, ordinary shares of founding shareholders may be freely transferred to other founding shareholders and may only be transferred to non-founding shareholders upon approval of the General Meeting of Shareholders.

Accordingly, transfer restrictions by agreement may be lifted in the following circumstances:

• Upon agreement and consent of the shareholders, if the restriction arises from a written agreement on transfer restrictions;
• Upon expiry of the transfer restriction period stipulated in the company’s charter;
• Upon approval of the General Meeting of Shareholders, in the case of transfer of ordinary shares of founding shareholders to non-founding shareholders within three (03) years from the date of issuance of the Enterprise Registration Certificate.

In summary, transfer restrictions by agreement may be lifted in the foregoing circumstances.

4. What risks may transfer-restricted shares pose to investors?

Agreed restrictions on the transfer of shares may pose certain risks to investors in the course of their investment or when they seek to sell or transfer their shares, including:

• Reduced liquidity and time-consuming transfers: The pool of potential buyers is restricted, making it more difficult to dispose of shares promptly or requiring a prolonged waiting period.
• Restrictions on the freedom to transfer: Investors may be required to first offer the shares to existing shareholders before selling to third parties, which may result in missed opportunities to obtain better prices. In certain cases, approval of the General Meeting of Shareholders or other shareholders is required and may be refused, thereby hindering exit opportunities.
• Diminished value and flexibility in making transfer-related decisions, necessitating careful negotiation of clear and detailed contractual terms.

Accordingly, shares subject to transfer restrictions by agreement may entail the above-mentioned risks for investors.

III. Relevant legal provisions on shares subject to transfer restrictions by agreement

Understanding the legal framework governing shares subject to transfer restrictions by agreement is a common concern among stakeholders. In this regard, the following summarizes the prevailing legal provisions.

1. How does the law regulate shares subject to transfer restrictions by agreement?

Clause 1 Article 127 of the Law on Enterprise 2020 (as amended in 2025) provides that shares are freely transferable, except for cases prescribed in Clause 3 Article 120 of this Law and cases where the company’s charter provides for restrictions on share transfers. Where the charter provides for restrictions on share transfers, such restrictions are only legally effective if clearly stated on the corresponding share certificates.

Under Clause 3 Article 120 of the Law on Enterprise 2020 (as amended in 2025), within three (03) years from the date of issuance of the Enterprise Registration Certificate, ordinary shares of founding shareholders may be freely transferred to other founding shareholders and may only be transferred to non-founding shareholders upon approval of the General Meeting of Shareholders. In such cases, the founding shareholder intending to transfer ordinary shares does not have the right to vote on the resolution approving such transfer.

Based on the above, shares subject to transfer restrictions by agreement are specifically governed by provisions in the company’s charter and/or agreements among shareholders.

2. Must shares subject to transfer restrictions by agreement be registered with competent authorities?

Shares are freely transferable, except for cases prescribed in Clause 3 Article 120 of the Law on Enterprise 2020 (as amended in 2025) and cases where the company’s charter provides for restrictions on share transfers. Where the charter provides for restrictions, such restrictions are only effective if clearly stated on the corresponding share certificates, pursuant to Clause 1 Article 127 of the Law on Enterprise 2020 (as amended in 2025).

Pursuant to Clauses 6 and 7 Article 127 of the Law on Enterprise 2020 (as amended in 2025):

• Individuals and organizations acquiring shares in the cases prescribed in this Article only become shareholders from the time their information as specified in Clause 2 Article 122 of this Law is fully recorded in the shareholder register.
• The company is required to register changes to shareholders in the shareholder register at the request of the relevant shareholder within twenty-four (24) hours from receipt of such request in accordance with the company’s charter.

Accordingly, the law does not require shares subject to transfer restrictions by agreement to be registered with state authorities. Instead, shareholders must comply with the company’s charter, shareholder agreements on transfer restrictions, and the company’s internal procedures.

3. Common violations when shareholders transfer shares subject to agreed transfer restrictions

Common violations committed by shareholders when transferring shares subject to agreed transfer restrictions include:

• Breach of the company’s charter: Failure to comply with transfer restriction clauses in the charter, such as rights of first refusal requiring shareholders to offer shares to existing shareholders prior to transferring to third parties.
• Non-compliance with prescribed form and procedures: The charter may require internal approvals prior to transfer or compliance with specified procedures, which are not observed.
• Breach of transfer conditions: The charter may prohibit transfers to competitors or require transferees to satisfy certain conditions (e.g., industry experience).

Accordingly, the above violations commonly arise when shareholders transfer shares subject to agreed restrictions.

IV. Questions on shares subject to transfer restrictions by agreement

To provide further clarity, the following are several frequently asked questions and responses regarding shares subject to transfer restrictions by agreement.

1. If shares are subject to agreed transfer restrictions but are nevertheless transferred, who takes liability?

Pursuant to Clause 1 Article 127 of the Law on Enterprise 2020 (as amended in 2025), where the company’s charter provides for restrictions on share transfers, such restrictions are only legally effective if clearly stated on the corresponding share certificates.

In addition, Clause 3 Article 119 of the Law on Enterprise 2020 (as amended in 2025) requires shareholders to comply with the company’s charter and internal governance regulations.

Accordingly, where shares subject to agreed transfer restrictions are nevertheless transferred in breach of such restrictions, liability primarily rests with the transferring shareholder for breaching shareholder obligations and/or contractual commitments under shareholder agreements on transfer restrictions.

2. How should disputes relating to shares subject to agreed transfer restrictions be resolved?

Article 317 of the Law on Commerce 2005 provides for the following dispute resolution mechanisms:

• Negotiation between the parties;
• Mediation by an agreed intermediary institution, organization, or individual;
• Resolution by arbitration or court proceedings.

Dispute resolution procedures before arbitral tribunals or courts shall be conducted in accordance with the relevant procedural laws.

Furthermore, Article 186 of the Civil Procedure Code 2015 provides that agencies, organizations, and individuals have the right to initiate legal proceedings, either directly or through lawful representatives, before a competent court to request protection of their lawful rights and interests.

Accordingly, in the cases of disputes relating to shares subject to agreed transfer restrictions, the parties may resolve the dispute in accordance with the dispute resolution clause stipulated in the company’s charter or shareholder agreement, through negotiation, mediation, or recourse to competent authorities, including courts and commercial arbitration (where an arbitration agreement exists).

3. What sanctions may apply in the cases of violations of transfer restrictions by agreement?

Where violations of agreed transfer restrictions occur, the enterprise and/or relevant shareholders may be subject to measures under the company’s charter, shareholder agreements, administrative sanctions, or criminal liability, depending on the nature and severity of the violation, including:

• Sanctions under the charter and shareholder agreements: The breaching shareholder may be required to compensate for damages or pay contractual sanctions according to Articles 13 and 360 of the Civil Code 2015 and Articles 300 and 301 of the Law on Commerce 2005. In addition, transfer contracts in breach of agreed restrictions may be declared invalid for violation of transfer restriction clauses according to Clause 1 Article 407 of the Civil Code 2015.
• Administrative sanctions: Enterprises may be subject to administrative fines for violations related to share transfers. For example, under Clause 2 Article 11 of Decree No. 88/2019/ND-CP, a fine ranging from 250,000,000 VND to 300,000,000 VND may be imposed for transferring shares during the period of remedial measures under resolutions of the General Meeting of Shareholders or decisions of the State Bank of Vietnam, except for cases specified in Points a, b, and c Clause 2 Article 56 of the Law on Credit Institutions.
• Criminal liability: Where the intentional transfer of restricted shares is executed for the purpose of fraudulent misappropriation of property, criminal liability for the offence of fraud and appropriation of property may arise under Article 174 of the Penal Code 2015 (as amended by Clause 3 Article 2 of the Law amending the Penal Code 2017). Depending on the nature and seriousness of the offence, penalties may range from imprisonment of six (06) months to three (03) years, up to life imprisonment in the most serious cases.

Accordingly, violations of agreed transfer restrictions may give rise to the foregoing legal consequences.

4. Against whom may shareholders initiate legal action if their rights are infringed due to violations of agreed transfer restrictions?

Pursuant to Article 186 of the Civil Procedure Code 2015, agencies, organizations, and individuals may initiate legal proceedings, either directly or through lawful representatives, before a competent court to request protection of their lawful rights and interests.

Under Article 429 of the Civil Code 2015, the statute of limitations for initiating a lawsuit to resolve contractual disputes is three (03) years from the date on which the claimant knew or should have known that their lawful rights and interests were infringed.

Accordingly, where a shareholder’s rights and interests are infringed due to violations of agreed transfer restrictions, the shareholder may initiate legal action against the transferring party, whether an individual or organization being a shareholder, that committed the violating act in breach of the company’s charter or shareholder agreements on restricted share transfers.

5. What measures may be adopted to prevent violations of agreed transfer restrictions?

To prevent violations of share transfer restrictions, the parties should adopt comprehensive legal measures, including clearly stipulating transfer restrictions in the company’s charter and shareholder agreements, and providing for effective sanctions. Specifically:

• Establishing a robust internal legal framework:
  + Company charter: Clearly stipulating restricted transfer cases, time limits, and transfer conditions (e.g., rights of first refusal in favor of existing shareholders).
  + Shareholder agreements: Providing more detailed and binding provisions than the charter, including non-compete obligations, pre-emptive rights, and veto rights over transfers.
  + Recording restrictions on share certificates: Clearly stating transfer restrictions on the relevant share certificates.
• Strict transfer procedures: Requiring transferees to undertake compliance with applicable agreements, and empower the company to refuse registration of transfers in the case of non-compliance.
• Enforcement measures and sanctions: The charter and shareholder agreements should provide for remedies in the case of breach, including compensation for damages, contractual sanctions, and the possibility of declaring non-compliant share transfer transactions invalid.

Accordingly, the above measures may be applied to prevent violations of agreed transfer restrictions.

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The foregoing information is provided by NPLaw for reference purposes in relation to shares subject to transfer restrictions by agreement. With a team of experienced lawyers and legal professionals, NPLaw delivers reputable and professional legal services, ensuring optimal protection of clients’ lawful rights and interests. Should you require legal assistance, you may contact NPLaw for consultation and support.

The above information is for reference only. For tailored advice in specific cases, please contact Ngoc Phu Law Company Limited for prompt consultation and support.