A transfer can be understood as an act of one party transferring ownership or the right to use legally owned or used assets to another party. The transferee then becomes the new owner or the party entitled to use the transferred assets. Currently, most transfer transactions between parties are conducted freely. However, the law also imposes transfer restrictions on certain transactions, notably those involving shares or capital contributions. The following article by NPLaw provides an overview of transfer restrictions in general, and specifically on share and capital contribution transfers.
A transfer can be understood as an act of one party transferring ownership or the right to use legally owned or used assets to another party. The transferee then becomes the new owner or the party entitled to use the transferred assets. Currently, most transfer transactions between parties are conducted freely. However, the law also imposes transfer restrictions on certain transactions, notably those involving shares or capital contributions. The following article by NPLaw provides an overview of transfer restrictions in general, and specifically on share and capital contribution transfers.
I. Concept of transfer restrictions
1. What are transfer restrictions?
At present, the law does not provide a formal definition of transfer restrictions. In general, transfer restrictions refer to limitations on the transfer of ownership or usage rights of assets from one party to another in transactions.
Such restrictions are often applied in areas such as real estate transfers, investment projects, shares, trademarks, or intellectual property rights to protect the interests of involved parties and ensure market stability.
2. When can transfers be restricted?
Asset transfer is one of the rights of citizens. Therefore, restrictions on transfer can only be applied in specific cases and must comply with certain conditions. Currently, transfer restrictions may apply in cases such as:
- The transfer may lead to violations of the law;
- The transfer could affect the legal rights of the State, other parties, or public interests;
- The transfer could negatively impact the general transaction market.
It should be noted that transfer restrictions must be applied by authorized entities based on legal regulations, and cannot be imposed arbitrarily.
3. Why are transfer restrictions necessary?
There are several reasons for imposing transfer restrictions, including:
- To prevent transfers that may result in legal violations;
- To protect the legal rights of the State, other parties, or public interests;
- To control and manage risks, preventing impacts on the general transaction market.
II. Legal regulations on transfer restrictions of shares and capital contributions
1. Restrictions on capital contribution transfers
Clause 1, Article 52 of the Law on Enterprise 2020 provides:
- Except for cases specified in Clause 4, Article 51, and Clauses 6 and 7, Article 53 of this Law, members of a limited liability company with two or more members have the right to transfer part or all of their capital contributions to another person under the following conditions:
- Offering the capital contribution to other members in proportion to their ownership in the company under the same offer conditions;
- If the remaining members do not purchase or do not purchase the full amount within 30 days from the date of the offer, the transfer may be made to a non-member under the same offer conditions.
Based on this regulation, unless the company cannot pay for the repurchased capital contribution as required by law, or in special handling cases, members of a two-member limited liability company are restricted in transferring capital contributions (restricted in terms of eligible transferees). Specifically, transfers must follow these steps:
- Offering the capital contribution to the remaining members proportionally under the same terms;
- If remaining members do not purchase within 30 days, transfer to a non-member under the same conditions as offered to members.
2. Restrictions on share transfers
Clause 1, Article 127 of the Law on Enterprise 2020 provides:
- Shares may be freely transferred, except for cases specified in Clause 3, Article 120 of this Law, and if the company charter stipulates transfer restrictions. These restrictions are only effective when clearly stated on the corresponding share certificates.
Accordingly, share transfer restrictions apply in two cases:
- Restrictions based on the company charter;
- Restrictions under the law (Clause 3, Article 120, Law on Enterprise 2020): Within 3 years from the issuance of the Enterprise Registration Certificate, common shares of founding shareholders may be freely transferred to other founding shareholders and may only be transferred to non-founding shareholders with approval from the General Meeting of Shareholders. Founding shareholders intending to transfer common shares have no voting rights on such transfers.
3. Legal consequences of unlawful transfers
Clause 1, Article 407 of the Civil Code 2015 provides: The provisions on invalid civil transactions from Articles 123 to 133 of this Code also apply to invalid contracts.
Article 123 of the Civil Code 2015 stipulates: A civil transaction with objectives or content violating legal prohibitions or contrary to social ethics is invalid.
Based on these provisions, if a transfer is implemented in violation of the law, the transfer contract is invalid, and it does not create, modify, or terminate civil rights and obligations from the moment of establishment.
III. Questions on transfer restrictions of shares and capital contributions
1. Components of a transfer file for founding shareholder shares during the restriction period
According to Article 34 of the regulations attached to Decision 08/QĐ-HĐTV, the transfer dossier includes:
- Official letter from the issuing organization stating information of transferor, transferee, and number of shares;
- Request for transfer from the transferor (Form 16A/ĐKCK) with a copy of identification documents;
- Copy of the company charter;
- Resolution of the General Meeting of Shareholders approving the transfer if the transferee is not a founding shareholder;
- Securities transfer request form according to Form 21/LK of the Vietnam Securities Depository and Clearing Corporation; confirmation of account balances and commitment to freeze shares during the transfer process.
2. Cases where share transfers are restricted & timing of becoming a shareholder after transfer
According to Clause 1, Article 127, Law on Enterprise 2020:
- Restrictions may arise from the company charter;
- Restrictions under law (Clause 3, Article 120, Law on Enterprise 2020) within 3 years from company registration: common shares of founding shareholders can be freely transferred to other founding shareholders; transfer to non-founding shareholders requires General Meeting approval. Founding shareholders intending to transfer common shares do not have voting rights on such transfers.
3. Handling unlawful transfer restrictions
Transfer of assets is a legal right of citizens. Therefore, unlawful restrictions on transfers are considered violations of citizens’ rights. Depending on the nature and severity, violators may face administrative sanctions, criminal liability, or measures to remedy consequences, such as allowing the transfer and compensating for damages, in accordance with law.
IV. Legal advisory services on transfer restrictions of shares and capital contributions
The above provides detailed information from NPLaw to assist clients regarding transfer restrictions of shares and capital contributions. For further questions or legal issues, contact NPLaw directly for professional advice and guidance:
