Disputes concerning the right to purchase preferred shares commonly arise when the issuance of shares fails to adequately safeguard the lawful interests of shareholders, thereby leading to conflicts between shareholders and the company or among shareholders themselves.

I. Current situation relating to disputes concerning the right to purchase preferred shares

In the practical operation of joint stock companies, disputes concerning the right to purchase preferred shares have increasingly become more prevalent, particularly during capital increases, additional share issuances, or corporate restructuring processes. The primary causes often arise from provisions governing the right to purchase preferred shares in the company’s Charter being overly general, lacking transparency, or inconsistently applied alongside statutory regulations and internal corporate rules.

In addition, in many cases, the Board of Directors or the General Meeting of Shareholders issues resolutions on the issuance of preferred shares without fully ensuring the lawful rights and interests of shareholders, thereby leading to conflicts, complaints, and litigation.

Such situations not only directly affect the interests of shareholders but also negatively impact the corporate governance environment and the stability of the company’s operations.

II. Concept of disputes concerning the right to purchase preferred shares

Disputes concerning the right to purchase preferred shares refer to conflicts or disagreements arising between relevant parties (shareholders and the company, or among shareholders themselves) in relation to the establishment, exercise, or protection of the right to purchase preferred shares in accordance with the Law on Enterprise, the company’s Charter, or other lawful agreements.

1. What is a dispute concerning the right to purchase preferred shares?

A dispute concerning the right to purchase preferred shares is understood as a conflict or disagreement arising between relevant parties (shareholders and the company, or among shareholders themselves) regarding the establishment, exercise, or protection of the right to purchase preferred shares as provided for by the Law on Enterprise, the company’s Charter, or other lawful agreements.

2. In which circumstances do disputes concerning the right to purchase preferred shares commonly arise?

Disputes concerning the right to purchase preferred shares commonly arise in the following circumstances:

  • The company issues preferred shares without notifying or without fully notifying shareholders who are entitled to purchase such shares;
  • Restrictions, deprivation, or discriminatory treatment with respect to the right to purchase preferred shares of one or several shareholders;
  • Unclear determination of eligible purchasers, conditions, ratios, and time limits for purchasing preferred shares, or determinations that are inconsistent with the company’s Charter;
  • The Board of Directors or the General Meeting of Shareholders issues resolutions beyond its authority or in violation of legal provisions, thereby adversely affecting shareholders’ right to purchase preferred shares.

If the above circumstances are not promptly detected and addressed, they may become direct causes of disputes and litigation, affecting the lawful rights and interests of shareholders as well as the governance and management activities of the enterprise.

3. Who has the right to initiate legal proceedings when a dispute concerning the right to purchase preferred shares arises?

When a dispute concerning the right to purchase preferred shares arises, any shareholder whose lawful rights and interests are infringed has the right to initiate legal proceedings before a Court or a Commercial Arbitration tribunal for resolution in accordance with the law.

In addition, in certain circumstances, a group of shareholders satisfying the conditions set out in Clause 2 Article 115 of the Law on Enterprise 2020 also has the right to initiate legal proceedings in order to protect the common interests of shareholders and the company.

III. Legal regulations relating to disputes concerning the right to purchase preferred shares

The right of shareholders to purchase preferred shares and the allocation of preferred shares upon issuance are primarily governed by the Law on Enterprise 2020, as amended in 2025. A thorough understanding of the relevant legal provisions plays an important role in preventing and resolving disputes concerning the right to purchase preferred shares within enterprises.

1. How does current law regulate the right of shareholders to purchase preferred shares?

Pursuant to Clause 2 Article 114 of the Law on Enterprise 2020, preferred shares include the following types:

  • Dividend preferred shares: Shares that entitle their holders to dividends at a rate higher than that of ordinary shares or at a stable annual rate as provided in Clause 1 Article 117 of the Law on Enterprise 2020. Annual dividends consist of fixed dividends and bonus dividends.
  • Redeemable preferred shares: Shares that are redeemable by the company at the request of the shareholder or in accordance with the conditions stated on the share certificate of redeemable preferred shares and the company’s Charter as prescribed in Clause 1 Article 118 of the Law on Enterprise 2020.
  • Voting preferred shares: Ordinary shares carrying a greater number of voting rights than other shares; the number of votes attached to each voting preferred share shall be determined by the company’s Charter in accordance with Clause 1 Article 116 of the Law on Enterprise 2020.
  • Other types of preferred shares as provided for in the company’s Charter and securities laws.

The right of shareholders to purchase preferred shares is established on the basis of statutory provisions, the company’s Charter, and resolutions of the General Meeting of Shareholders, ensuring respect for the lawful rights and interests of shareholders and compliance with the mandatory provisions of the Law on Enterprise.

Pursuant to Clause 1 Article 115 of the Law on Enterprise 2020, ordinary shareholders have the pre-emptive right to purchase newly issued shares corresponding to their respective shareholding ratio of ordinary shares in the company. Furthermore, according to Clause 2 Article 124 of the Law on Enterprise 2020, shareholders of a joint stock company may transfer their pre-emptive right to purchase shares to another person.

2. What principles does the law provide regarding the allocation of preferred shares upon issuance?

The allocation of preferred shares upon issuance must comply with the principles of transparency, publicity, and proper authority. Accordingly, the General Meeting of Shareholders is the competent body to decide on the type of preferred shares, the number of shares to be issued, and the eligible purchasers (Point b Clause 2 Article 138 of the Law on Enterprise 2020).

In addition, the Board of Directors is not permitted to arbitrarily restrict or deprive shareholders of their right to purchase preferred shares without a lawful basis or without valid approval from the General Meeting of Shareholders, thereby ensuring fairness and equality among shareholders.

3. How is the statute of limitations for initiating disputes concerning the right to purchase preferred shares regulated?

Disputes concerning the right to purchase preferred shares are classified as business and commercial disputes. The statute of limitations applicable to commercial disputes is two years from the time when the lawful rights and interests are infringed (Article 319 of the Commercial Law 2005).

In cases where the dispute relates to a resolution of the General Meeting of Shareholders, shareholders have the right to initiate legal proceedings requesting the annulment of such resolution under Article 151 of the Law on Enterprise 2020, within 90 days from the date of receipt of the resolution or the meeting minutes.

4. What important legal considerations should enterprises note in order to limit disputes concerning the right to purchase preferred shares?

In order to limit disputes concerning the right to purchase preferred shares, enterprises should note the following:

  • Clearly and specifically stipulating the right to purchase preferred shares in the company’s Charter;
  • Ensuring that the authority to decide on the issuance of preferred shares belongs to the General Meeting of Shareholders in accordance with legal provisions;
  • Complying with the principles of transparency and publicity in the notification, allocation, and exercise of purchase rights;
  • Maintaining complete records, minutes, and resolutions to serve as legal grounds in the cases of disputes.

Compliance with the above considerations not only helps enterprises effectively prevent disputes concerning the right to purchase preferred shares but also contributes to ensuring stability, transparency, and sustainability in corporate governance activities.

IV. Clarification of questions relating to disputes concerning the right to purchase preferred shares

During the course of disputes concerning the right to purchase preferred shares, shareholders and enterprises often encounter various issues relating to the right of access to information, the scope of legal protection, and the impact of disputes on the company’s operations. Clarifying these issues helps the parties adopt appropriate handling strategies and minimize legal risks.

1. Can shareholders request the provision of documents and records to prove their right to purchase preferred shares?

Shareholders have the right to request the company to provide relevant documents and records such as the company’s Charter, resolutions of the General Meeting of Shareholders, meeting minutes, plans for the issuance of preferred shares, and related notices in accordance with the Law on Enterprise 2020.

Access to complete documents constitutes an important basis for shareholders to substantiate their lawful rights and interests when disputes arise.

2. Are minority shareholders given priority protection in disputes concerning the right to purchase preferred shares?

Article 151 of the Law on Enterprise 2020 provides mechanisms for protecting minority shareholders, including allowing shareholders or groups of shareholders specified in Clause 2 Article 115 of the Law to exercise the right to initiate legal proceedings, request the annulment of unlawful resolutions, or claim compensation for damages.

Accordingly, minority shareholders are still entitled to legal protection if they can demonstrate that their right to purchase preferred shares has been unlawfully infringed.

3. Is it mandatory to resolve disputes concerning the right to purchase preferred shares internally before initiating legal proceedings?

The law does not require internal resolution prior to initiating legal proceedings, except where otherwise provided in the company’s Charter or agreed upon by the parties. However, internal settlement through negotiation or mediation is often encouraged in order to save time and costs.

If no agreement can be reached, shareholders have the right to initiate legal proceedings before a Court or Arbitration in accordance with the law.

4. Do disputes concerning the right to purchase preferred shares affect shareholders’ voting rights?

In principle, disputes concerning the right to purchase preferred shares do not result in the loss of existing voting rights attached to the shares lawfully held by shareholders.

However, such disputes may indirectly affect voting rights arising from preferred shares that have not yet been issued or that are subject to ongoing disputes.

5. Do disputes concerning the right to purchase preferred shares affect the validity of a share issuance?

A dispute does not automatically invalidate the issuance of preferred shares. However, if a Court or competent authority determines that the issuance seriously violates legal provisions or the company’s Charter, the issuance may be declared partially or wholly invalid.

Therefore, disputes concerning the right to purchase preferred shares may directly affect the legality and validity of the share issuance.

V. Why you should seek legal advice from NPLaw in disputes concerning the right to purchase preferred shares

Disputes concerning the right to purchase preferred shares are complex in nature, involving corporate law, civil law, and procedural law simultaneously. Seeking legal advice from experienced lawyers at NPLaw enables clients to:

  • Accurately assess the legal grounds and potential dispute risks;
  • Develop appropriate and effective strategies to protect their interests;
  • Be represented in negotiation, mediation, or dispute resolution before Courts or Arbitration;
  • Minimize damages while ensuring the lawful rights and interests of shareholders and enterprises.

With a team of experienced lawyers specializing in corporate law and dispute resolution, NPLaw is a reliable partner to accompany and protect your interests in disputes concerning the right to purchase preferred shares.

The above information is provided for reference purposes only. Should you require detailed legal advice regarding a specific case, please contact NPLaw for prompt consultation.