In practice, many internal disputes within joint stock companies arise from share sales without complying with legal procedures, particularly where the procedures for offering or transferring shares are not implemented in accordance with the Law on Enterprise and the company charter.

I. Common legal risks relating to share sales without complying with legal procedures

In the operation of a joint stock company, the transfer or offering of shares must strictly comply with the provisions of the Law on Enterprise 2020, as amended in 2025, the company charter, and relevant resolutions. However, in practice, there are numerous cases where share sales fail to comply with procedural requirements, such as failure to observe the pre-emptive rights of existing shareholders, absence of valid resolutions of the General Meeting of Shareholders or the Board of Directors, or failure to update the shareholder register in accordance with legal regulations.

These violations entail many serious legal risks, including the following:

  • Risk of the share sale transaction being declared invalid: Share sales that fail to comply with procedures and formalities prescribed by law and the company charter may result in the transfer transaction being declared invalid by the Court due to violation of prohibitory provisions of law or failure to satisfy conditions for validity of civil transactions. The legal consequence is that the parties must return to each other what they have received and compensate for damages (if any), thereby directly affecting the interests of both buyers and sellers.
  • Risk of internal corporate disputes: Improper share sales often infringe upon the lawful rights and interests of other shareholders, particularly pre-emptive rights to purchase shares or voting rights within the company. 
  • Risk of legal liability for company managers: Company managers (members of the Board of Directors, Directors/General Directors) who decide on or permit improper share sales may take personal liability, including compensation liability toward the company or shareholders, and may even be subject to administrative sanctions in accordance with law.
  • Risk affecting the validity of corporate governance decisions: Changes in the shareholder structure based on invalid share sales may result in resolutions of the General Meeting of Shareholders or the Board of Directors being adopted with the participation of unlawful shareholders, thereby exposing such resolutions to the risk of annulment and disrupting the company’s operations.

II. Understanding share sales without complying with legal procedures

1. What does a share sale without complying with legal procedures mean in the corporate context?

In the corporate context, a share sale without complying with legal procedures refers to the offering, transfer, or distribution of shares failing to properly satisfy the legal procedures and formalities prescribed by the Law on Enterprise 2020, as amended in 2025, the company charter, and relevant resolutions.

Such conduct may include failure to ensure existing shareholders’ pre-emptive rights to purchase shares, absence of valid resolutions of the General Meeting of Shareholders or the Board of Directors, or failure to implement procedures for updating shareholder information in accordance with law. Such conduct causes the share sale transaction to carry the risk of illegality or incomplete legal validity.

2. What signs indicate the possibility of share sales without complying with legal procedures?

Several common signs indicating the possibility of improper share sales include: Rapid implementation of share transfers without adequate accompanying legal documents; absence of meeting minutes or resolutions issued by competent corporate bodies; failure to notify existing shareholders or provide them with the opportunity to exercise pre-emptive rights; and failure to promptly update the shareholder register or accurately reflect the ownership status of shares.

3. How may share sales without complying with legal procedures affect the company’s reputation?

Share sales without complying with legal procedures not only create legal risks but also negatively affect the company’s reputation and image in the market.

Where shareholder disputes arise or transactions are reviewed and annulled by competent authorities, the company may be perceived as lacking transparency and having weak corporate governance. It diminishes the confidence of investors, business partners, and credit institutions, thereby affecting the company’s ability to raise capital and achieve sustainable development.

4. Why do share sales without complying with legal procedures create risks for enterprises?

Improper share sales create risks for enterprises because they disrupt the shareholder structure and corporate control rights while potentially leading to unforeseen legal obligations.

Enterprises may face prolonged disputes, substantial legal costs, compensation liabilities, and even administrative sanctions. In the long term, these risks directly affect operational efficiency, corporate stability, and the development strategies of joint stock companies.

III. Legal provisions relating to share sales without complying with legal procedures

1. Which legal provisions affect share sales without complying with legal procedures?

Share sale activities of joint stock companies are directly governed by the Law on Enterprise 2020 (as amended and supplemented in 2025), including the following provisions:

  • Clause 2, Article 123 provides that share offerings may be conducted in the following forms:
    + Offering shares to existing shareholders;
    + Private placement of shares;
    + Public offering of shares.
  • Clause 4, Article 123 regulates procedures relating to share sales: The company must register changes to charter capital within 10 days from the completion date of the share sale.
  • Article 126 provides regulations on authority to decide share sales: the Board of Directors shall determine the timing, method, and sale price of shares. The share sale price must not be lower than the market price at the time of sale or the book value of the shares at the most recent time, except in the following cases:
    + Shares sold for the first time to persons who are not founding shareholders;
    + Shares sold to all shareholders in proportion to their existing shareholding ratio in the company;
    + Shares sold to brokers or underwriters, in which case the discount amount or specific discount rate must be approved by the General Meeting of Shareholders unless otherwise provided in the company charter;
    + Other cases and discount levels as prescribed by the company charter or resolutions of the General Meeting of Shareholders.

In addition, in certain cases, share sales are also governed by securities laws, civil laws, and relevant guiding documents.

2. What steps are necessary for lawful share sales, and how may improper implementation lead to violations?

For a share sale to be considered lawful, a joint stock company must fully comply with all procedures prescribed by law and the company charter, including:

The procedures for issuance of new shares to existing shareholders of non-public joint stock companies are implemented in accordance with Clauses 2 and 3, Article 124 of the Law on Enterprise 2020 as follows:

  • The company must send written notices to shareholders by methods ensuring delivery to their contact addresses recorded in the shareholder register at least 15 days before the expiry date for share subscription registration. Shareholders have the right to transfer their pre-emptive rights to purchase shares to other persons.
  • Where the number of shares intended to be offered is not fully subscribed by shareholders and transferees of pre-emptive rights, the Board of Directors may sell the remaining shares to shareholders of the company and other persons under conditions no more favorable than those offered to shareholders, unless otherwise approved by the General Meeting of Shareholders or otherwise provided under securities laws.
  • Shares are deemed sold once fully paid for and the purchaser’s information is fully recorded in the shareholder register; from that time, the purchaser becomes a shareholder of the company.
  • After full payment for the shares, the company shall issue and deliver share certificates to purchasers. Where share certificates are not delivered, shareholder information prescribed in Clause 2, Article 122 of the Law on Enterprise must be recorded in the shareholder register to certify the shareholder’s ownership rights in the company.

In cases where foreign investors purchase shares through private placement, under Clause 3, Article 125 of the Law on Enterprises 2020, procedures relating to share acquisition must comply with the Law on Investment 2020.

In addition, pursuant to Clause 4, Article 123 of the Law on Enterprise 2020, the company must register changes to charter capital within 10 days from the completion date of the share sale.

3. What legal consequences may arise when a company conducts a share sale without complying with procedural requirements?

Where a company conducts a share sale that fails to comply with procedural requirements, the share sale transaction may be declared invalid by the Court or may not be legally recognized.

At the same time, the company and related individuals may be liable for compensation for damages suffered by affected shareholders or third parties. Pursuant to Clause 2, Article 165 of the Law on Enterprise 2020, members of the Board of Directors, the Director or General Director, and other managers who violate their assigned rights and obligations shall take personal or joint liability to compensate for lost benefits, return benefits received, and indemnify the company and third parties for all damages incurred.

In addition, individuals and organizations involved in unlawful share issuance may also be subject to administrative sanctions in accordance with relevant laws. For example, pursuant to Clause 3, Article 46 of Decree No. 122/2021/ND-CP, a fine ranging from 30,000,000 VND to 50,000,000 VND may be imposed for failure to implement procedures for adjustment of charter capital or changes of members or founding shareholders with the business registration authority after the expiry of the capital contribution period and the adjustment period where members or founding shareholders fail to contribute sufficient capital and no member or founding shareholder fulfills the committed capital contribution obligation.

IV. Questions relating to share sales without complying with legal procedures

1. What rights do relevant parties have upon discovering a share sale without complying with procedural requirements?

Upon discovering share sales without complying with legal procedures, relevant parties, particularly affected shareholders, have the right to request the company to provide information and documents relating to the share sale transaction; request cancellation or suspension of the transaction if it has not yet been completed; and request the convening of a General Meeting of Shareholders to review and address the violation.

In addition, pursuant to Clause 1, Article 166 of the Law on Enterprise 2020, shareholders or groups of shareholders holding at least 1% of the total ordinary shares are entitled, in their own name or on behalf of the company, to initiate lawsuits against members of the Board of Directors, the Director or General Director for personal or joint liability in order to request return of benefits or compensation for damages suffered by the company or other persons in cases involving breaches of managers’ responsibilities; failure to perform, incomplete performance, untimely performance, or performance contrary to legal provisions, the company charter, or resolutions and decisions of the Board of Directors with respect to assigned rights and obligations; and other related violations.

2. What forms of sanctions may be imposed on enterprises conducting share sales without complying with legal procedures?

Enterprises conducting share sales without complying with legal procedures may take various forms of sanctions, including administrative fines, remedial measures, compensation for damages suffered by affected parties, or invalidation of the share sale transaction.

For example:

  • Pursuant to Clause 3, Article 46 of Decree No. 122/2021/ND-CP, a fine ranging from 30,000,000 VND to 50,000,000 VND may be imposed for failure to implement procedures for adjustment of charter capital or changes of members or founding shareholders with the business registration authority after the expiry of the capital contribution period and the adjustment period where members or founding shareholders fail to contribute sufficient capital and no member or founding shareholder fulfills the committed capital contribution obligation.
  • Pursuant to Clause 1, Article 166 of the Law on Enterprise 2020, shareholders or groups of shareholders holding at least 1% of the total ordinary shares are entitled, in their own name or on behalf of the company, to initiate lawsuits requesting return of benefits or compensation for damages suffered by the company or other persons where members of the Board of Directors, the Director or General Director fail to perform, incompletely perform, untimely perform, or perform contrary to legal provisions, the company charter, or resolutions and decisions of the Board of Directors with respect to assigned rights and obligations.

3. Which authorities have jurisdiction to supervise share sales without complying with legal procedures?

Depending on the nature and scope of the violation, various state authorities have jurisdiction to supervise and handle share sales without complying with legal procedures, including the People’s Courts, business registration authorities, specialized inspection and examination authorities, and in certain cases, securities regulatory authorities. These authorities are empowered to review and handle violations and apply measures to ensure compliance with the law.

4. How can situations involving share sales without complying with legal procedures be remedied in accordance with law?

To remedy situations involving share sales without complying with legal procedures, enterprises should review all legal documents relating to the share sale transaction, reconvene meetings and issue valid resolutions in accordance with proper authority, fully implement shareholders’ rights and obligations, and accurately update shareholder information in accordance with regulations.

In addition, enterprises should strengthen internal controls and consult legal experts in order to prevent similar violations in the future.

V. Are you looking for a reputable legal expert to assist with issues relating to share sales without complying with legal procedures?

In the context of increasingly strict and complex enterprise law regulations, consulting reputable legal experts is a necessary solution for enterprises and shareholders to minimize risks arising from issues relating to share sales without complying with legal procedures. Legal experts not only assist in assessing the legality of transactions and advising on dispute resolution strategies but also help enterprises establish appropriate internal procedures to ensure legal compliance and maintain long-term business stability.

The above information is for reference purposes only. Should clients require detailed advice regarding specific cases, please contact NPLaw Firm for immediate consultation.