What are founding shareholders’ frozen shares? Legal regulations and risks you need to know

During the operation of a joint stock company, there are many cases where the shares of founding shareholders are frozen due to legal requirements or decisions issued by competent authorities. Such freezing creates various restrictions on disposal rights, transfer rights, and financial benefits, requiring both shareholders and enterprises to clearly understand the applicable legal regulations in order to protect their lawful rights and interests.

I. Current issues relating to the freezing of founding shareholders’ shares

In practice, the freezing of founding shareholders’ shares is becoming increasingly common, often associated with internal disputes, unfulfilled financial obligations, or decisions on the application of interim urgent measures by the Court or other competent authorities. Such freezing not only restricts the founding shareholder’s right to transfer shares but also directly affects the shareholder structure, corporate governance, and the company’s ability to raise capital.

II. The concept of frozen shares of founding shareholders

1. What does it mean when the shares of a founding shareholder are frozen?

The freezing of a founding shareholder’s shares refers to the situation where shares held by a founding shareholder are temporarily restricted by a competent authority or under legal provisions from exercising disposal rights, such as transfer, pledge, mortgage, or conducting other transactions.

Pursuant to Clause 4, Article 4 of the Law on Enterprise 2020 (amended in 2025), a founding shareholder is a person who owns at least one ordinary share and whose name appears on the list of founding shareholders of the joint stock company; thus, the freezing of shares held by such a group of persons is often associated with the need to preserve assets, secure legal obligations, or serve the dispute resolution process.

2. Can the shares of a founding shareholder be frozen a second time?

The shares of a founding shareholder may be frozen a second time, or even multiple times, if additional obligations or new disputes arise. Current law does not prohibit the application of multiple freezing decisions over the same block of shares.

However, the handling of multiple freezing decisions shall be performed according to the priority principles prescribed by law. In judgment enforcement and asset handling, the order of priority is usually determined based on the time of application of the freezing measure or the time of registration of the security measure, in accordance with the Civil Code 2015, particularly Article 308 regarding the priority order of payment when handling secured assets.

3. What are the common legal risks relating to frozen shares of founding shareholders?

Common legal risks relating to the freezing of founding shareholders’ shares include the following:

• Restriction of disposal rights over shares: When shares are frozen, founding shareholders are not allowed to transfer, sell, donate, or use such shares to secure other obligations, resulting in the suspension of intended transactions.
• Impact on corporate governance rights: The freezing of shares may lead to restrictions on exercising voting rights and participating in decisions on important corporate matters, especially where shares are frozen to secure judgment enforcement.
• Risk of disputes with third parties: If shareholders or the company fail to publicly disclose or clearly notify the freezing status, transactions relating to such shares may be declared invalid, resulting in disputes with partners, investors, or transferees.
• Risks regarding priority order when handling shares: Where shares are frozen multiple times, asset handling will follow the priority principle based on the timing of the freezing decision or registration of the security measure, causing shareholders to potentially fail to recover the expected value of their shares.
• Negative impact on share value and personal reputation: Frozen shares often reduce liquidity, affect the actual value of shares, and damage the reputation of founding shareholders in investment and business activities.
• Prolonged resolution of legal obligations: The freezing of shares is often associated with disputes, judgment enforcement, or unresolved financial obligations, leading to additional costs and prolonged resolution of shareholders’ rights and interests.

III. Legal regulations relating to the freezing of founding shareholders’ shares

1. In what cases may the shares of founding shareholders be frozen?

The shares of founding shareholders may be frozen in the following cases, based on current legal regulations:

First, freezing under a decision of a competent state authority to secure case resolution or judgment enforcement.

• In civil proceedings, the Court has the authority to apply an interim urgent measure to freeze the assets of the obligated party pursuant to Clause 11, Article 114 of the Civil Procedure Code 2015.
• In criminal proceedings, the investigation authority or the Procuracy may issue an order for asset distraint, including shares, to secure the enforcement of fines, confiscation of assets, or compensation for damages according to Clause 1, Article 129 of the Criminal Procedure Code 2015.
• During civil judgment enforcement, the enforcement officer has the authority to apply coercive measures for distraint and handling of shares where the judgment debtor fails to voluntarily fulfill obligations, pursuant to Clause 3, Article 71 of the Law on Civil Judgment Enforcement 2008.

Second, freezing based on agreements in secured transactions: Where shareholders use shares as secured assets for loans or other civil obligations, the shares may be frozen based on the parties’ agreement. Such freezing is performed through the Vietnam Securities Depository and Clearing Corporation according to Point a, Clause 1, Article 23 of Circular No. 119/2020/TT-BTC, in order to ensure enforceability against third parties under Article 297 of the Civil Code 2015. 

2. Who has the authority to decide on freezing the shares of founding shareholders in a joint stock company?

Under current legal regulations, only competent state authorities have the authority to decide on freezing the shares of founding shareholders; the enterprise itself does not have the right to unilaterally freeze shares because such shares are assets under the ownership of shareholders. Specifically:

• The People’s Court has the authority to issue a decision to freeze shares in the form of an interim urgent measure during the resolution of civil or commercial disputes, pursuant to Clause 11, Article 114 and Article 126 of the Civil Procedure Code 2015.
• The Civil Judgment Enforcement Authority (Enforcement Officer) has the authority to distrain and handle shares for the enforcement of legally effective judgments and decisions pursuant to Clause 3, Article 71 and Article 92 of the Law on Civil Judgment Enforcement 2008.
• Investigation authorities, the Procuracy, and the Court in criminal proceedings have the right to distrain or freeze the shares of suspects or defendants to secure the enforcement of fines, confiscation of assets, or compensation for damages, pursuant to Articles 128 and 129 of the Criminal Procedure Code 2015.

3. How is the duration of freezing founding shareholders’ shares determined?

Currently, the law does not prescribe a specific period for the freezing of founding shareholders’ shares. Instead, the duration of this measure is determined according to each procedural or judgment enforcement process and only ends when there is a valid release decision issued by the competent authority.

In civil proceedings, a decision to freeze shares in the form of an interim urgent measure takes effect immediately upon issuance by the Court and remains effective until the Court issues a decision terminating such a measure. Pursuant to Clause 1, Article 138 of the Civil Procedure Code 2015, the freezing shall be lifted when the obligation has been secured, the requesting party withdraws the request, or the case has been resolved by a legally effective judgment or decision.

For civil judgment enforcement, distrained shares remain frozen until the Enforcement Officer issues a release decision. Pursuant to Clause 1, Article 105 of the Law on Civil Judgment Enforcement 2008, release is only considered when the judgment debtor has fulfilled obligations or when there is a decision to cancel the coercive measure by the competent authority.

In criminal proceedings, the freezing of shares is maintained throughout the investigation, prosecution, and trial process. Pursuant to Article 130 of the Criminal Procedure Code 2015 , such a measure only ends when the case is suspended, the person subject to the measure is declared not guilty, or when the procedural authority determines that the freezing is no longer necessary.

IV. Questions relating to frozen shares of founding shareholders

1. Can frozen shares of founding shareholders be used as secured assets for loans?

From a legal perspective, shares of founding shareholders that are being frozen or distrained cannot be used as secured assets for new loans.

The reason is that when shares are frozen, the owner’s right of disposition has been restricted or temporarily removed. Pursuant to Article 158 of the Civil Code 2015, ownership rights include the rights of possession, use, and disposition; in which pledging or mortgaging shares constitutes an act of disposition over assets. Once a competent authority applies a freezing measure, shareholders no longer have the right to transfer, mortgage, or otherwise dispose of those shares. 

In addition, under Article 295 of the Civil Code 2015, an asset is only considered a secured asset when the secured party has the right to handle such asset if the obligation is not performed. Frozen shares do not satisfy this condition because they cannot be legally disposed of.

Therefore, any pledge or mortgage transaction established over frozen shares has no legal validity and is at risk of being declared invalid under the law.

2. If the shares of a founding shareholder are frozen by a Court decision, does the shareholder have the right to initiate a lawsuit?

Where the shares of a founding shareholder are frozen under a Court’s decision applying an interim urgent measure, the shareholder does not initiate a separate lawsuit but instead exercises the right to lodge a complaint or request cancellation of the freezing decision within the ongoing case.

Specifically, pursuant to Article 140 of the Civil Procedure Code 2015, the shareholder (as a litigant) has the right to submit a complaint against the freezing decision to the Chief Justice of the Court handling the case within 03 working days from the date of receipt of the decision, if the shareholder believes that the application of such measure is unlawful or unnecessary.

Accordingly, the law does not require shareholders to file a separate lawsuit but establishes mechanisms for complaints, cancellation requests, and compensation claims within the procedural process itself to promptly protect the lawful rights and interests of shareholders.

3. Is the company responsible for notifying founding shareholders of the freezing of shares?

From a procedural legal perspective, notifying the decision to freeze shares is not the proactive obligation of the enterprise but is performed by the competent state authority. Pursuant to Article 139 of the Civil Procedure Code 2015, immediately after issuing a decision applying an interim urgent measure, the Court must send such decision to the shareholder whose shares are frozen and to relevant organizations, including the company.

After receiving the decision, the company’s responsibility shifts to the stage of implementation and internal management. Pursuant to Clause 5, Article 122 of the Law on Enterprise 2020 (amended in 2025), the company is required to update the freezing status of shares in the shareholder register, thereby controlling and preventing unlawful transfers during the period in which the measure remains effective.

Although enterprise law does not impose a mandatory obligation on the company to send a separate notice to shareholders, from the perspective of corporate governance and protection of shareholders’ lawful rights and interests, proactive communication is necessary. In the spirit of Point b, Clause 1, Article 165 of the Law on Enterprise 2020 (amended in 2025), enterprise managers must act honestly, prudently, and in the lawful interests of the company and shareholders.

4. Can frozen shares of founding shareholders still receive dividends or profits?

The freezing of a founding shareholder’s shares does not terminate shareholder status; thus, property rights arising from such shares, including the right to receive dividends or profits, in principle still belong to that shareholder. Pursuant to Point b, Clause 1, Article 115 of the Law on Enterprise 2020 (amended in 2025), ordinary shareholders have the right to receive dividends according to resolutions of the General Meeting of Shareholders.

However, in practice, shareholders are often not allowed to directly receive such dividends during the period in which the shares are frozen. The reason is that when shares are distrained or frozen to secure judgment enforcement, dividends and generated profits are considered fruits and income arising from the frozen assets. Pursuant to Clause 1, Article 24 of Decree No. 62/2015/ND-CP (as amended and supplemented by Clause 11, Article 1 of Decree No. 33/2020/ND-CP), where the judgment debtor has not yet fully performed obligations, the Enforcement Officer has the authority to request the handling of such fruits and income to ensure judgment enforcement.

Accordingly, the legal right to receive dividends still exists, but payment may be temporarily withheld, deducted, or used for judgment enforcement depending on the content and scope of the freezing decision or the decision of the competent authority.

5. When the shares of a founding shareholder are frozen, can the shareholder transfer or sell them?

When the shares of a founding shareholder are being frozen, the shareholder is not permitted to transfer, sell, or conduct any transaction that changes ownership of such shares. This is because the right of disposition over the assets has been temporarily suspended by law throughout the freezing period.

Any transaction established over frozen shares violates prohibitory provisions of law and shall be declared invalid pursuant to Article 123 of the Civil Code 2015. In other words, during the freezing period, shareholders have no right to sell or transfer shares in any form.

V. Why should you seek legal advice from NPLaw regarding frozen shares of founding shareholders

When issues arise relating to the freezing of founding shareholders’ shares, self-handling often involves significant legal risks because it simultaneously relates to enterprise law, civil procedure, criminal procedure, and judgment enforcement law. With extensive experience in corporate law and asset disputes, NPLaw supports clients in correctly identifying the legal basis for freezing, assessing the legality of freezing decisions, and advising on effective strategies to protect shareholders’ rights and interests.

The above information is for reference purposes only. If clients require detailed advice regarding a specific case, please contact NPLaw for immediate consultation.