I. Overview of the transfer of preferred shares
Preferred shares are a type of share that confers superior rights compared to common shares, including voting preferred shares, dividend preferred shares, redeemable preferred shares, and other types of preferred shares as stipulated in the company’s charter (Article 114 of the Law on Enterprise 2020). The transfer of preferred shares is subject to stricter regulations to protect the governance structure and the interests of specific groups of shareholders.
II. Legal provisions on the transfer of preferred shares
1. Conditions for the transfer of preferred shares
Not all types of preferred shares are freely transferable.
According to Articles 116 and 127 of the Law on Enterprise 2020:
- Voting preferred shares may not be transferred to another person, except in cases of inheritance or pursuant to a legally effective court decision.
- Other types of preferred shares may be transferred, provided they are not restricted by the company’s charter.
2. Form of transfer of preferred shares
The transfer of shares must be made through a written agreement or via legally recognized electronic transactions. The contract may be notarized or certified if required by the company charter or the involved parties. Upon completion of the transfer, the shareholder register must be updated in accordance with Article 122 of the Law on Enterprise.
3. Procedures for the transfer of preferred shares
The basic steps include:
- Reviewing the company charter for any conditions or restrictions on the transfer;
- Signing the share transfer agreement;
- Declaring and paying personal income tax, if profit arises;
- Submitting the updated shareholder information to the company, including:
+ Share transfer agreement;
+ Identification documents of the transferee;
+ Confirmation minutes of the Board of Directors (if required);
+ Company updates the shareholder register.
III. Common questions regarding the transfer of preferred shares
1. Is it permissible to transfer voting preferred shares?
Voting preferred shares may not be transferred, except to heirs or in accordance with a legally effective court decision as per Clause 3, Article 116 of the Law on Enterprise 2020.
2. Are all preferred shares freely transferable?
The transferability depends on the type of preferred share:
- Dividend preferred and redeemable preferred shares may be transferred if not restricted by the company’s charter.
- Voting preferred shares are not freely transferable.
3. What are the consequences of unlawfully transferring preferred shares?
Any transfer in violation of the law (e.g., unauthorized transfer of voting preferred shares) may be declared null and void.
The violator may be required to return any obtained benefits, the contract may be canceled, and they may be subject to civil liability or internal company sanctions.
4. Are preferred shares as freely transferable as common shares?
Preferred shares are not as freely transferable as common shares. Common shares are generally freely transferable unless restricted by the charter, as stipulated in Article 127 of the Law on Enterprise 2020. Preferred shares are subject to additional restrictions depending on their type.
5. Upon transfer, do the rights and obligations attached to preferred shares automatically transfer to the transferee?
When transferring preferred shares, the preferential rights and obligations of such shares are automatically transferred to the transferee, the rights and obligations attached to the shares. When the legal recipient of preferred shares, they are also entitled to benefits such as preferential dividends, refunds, unless otherwise provided in the company's charter.
IV. Legal advisory services for the transfer of preferred shares
To ensure compliance with legal requirements and minimize potential risks when transferring preferred shares, it is essential to seek support from professional legal consultancy services. NPLAW offers comprehensive legal support services from drafting agreements, addressing legal queries, to assisting with procedural implementation. This end-to-end support helps you save time and ensures the transaction is conducted successfully.
