What are shares restricted from transfer by law and what legal risks should enterprises be aware of?

In corporate governance practice, shares restricted from transfer by law are often a major cause of disputes between shareholders and the company. A proper understanding of the nature, scope of restrictions, and applicable legal grounds is an essential factor in protecting rights and minimizing legal risks.

I. The current situation of shares restricted from transfer by law

In the context of strong investment activities and corporate restructuring, regulations concerning shares restricted from transfer by law are being applied more strictly to control ownership structures and ensure internal governance stability. However, in practice, many enterprises and shareholders still do not fully understand the scope of transfer restrictions, resulting in unlawful transactions, internal disputes, or prolonged legal risks. In particular, cases involving ordinary shares of founding shareholders, preference shares, or restrictions under the company’s Charter are commonly the source of legal complications.

II. Understanding shares restricted from transfer by law

1. What are shares restricted from transfer by law?

Under the principle of the Law on Enterprise 2020 (amended in 2025), shares are generally freely transferable, except where restrictions are imposed by law or by the company’s Charter. Accordingly, shares restricted or prohibited from transfer by law refer to shares that cannot be freely transferred within a certain period or unless specific legal conditions or lawful provisions of the company’s Charter are satisfied.

2. Which types of shares are commonly restricted from transfer by law?

Pursuant to Point d, Clause 1, Article 111 of the Law on Enterprise 2020 (amended in 2025), shareholders have the right to freely transfer their shares to others, except in the cases prescribed in Clause 3, Article 120 and Clause 1, Article 127 of this Law.

Specifically:

• Clause 3, Article 120 provides that within 03 years from the date of issuance of the Enterprise Registration Certificate, ordinary shares of founding shareholders may be freely transferred only among founding shareholders; transfer to persons who are not founding shareholders is only permitted upon approval by the General Meeting of Shareholders. The founding shareholder intending to transfer such shares has no voting right regarding this matter.
• Clause 1, Article 127 stipulates that shares are freely transferable, except for the cases mentioned in Clause 3, Article 120 and where the company’s Charter provides for restrictions on share transfer. Restrictions under the Charter are only valid when clearly stated on the corresponding share certificates.

3. When can shares restricted from transfer by law be changed?

Transfer restrictions on shares under the Law on Enterprise 2020 (amended in 2025) may terminate or change when the imposed legal conditions no longer exist. The clearest example concerns ordinary shares of founding shareholders: Under Clause 3, Article 120 of the Law on Enterprise 2020 (amended in 2025), after 03 years from the date the company is granted its Enterprise Registration Certificate, such restriction automatically ceases to be effective, and those shares may thereafter be freely transferred under general regulations without requiring approval from the General Meeting of Shareholders.

In addition, restrictions imposed under the company’s Charter remain effective only until the relevant conditions or time limits specified therein are fulfilled or until such provisions are lawfully amended or supplemented by a valid resolution of the General Meeting of Shareholders and reflected on the corresponding share certificates.

In summary, shares initially prohibited or restricted from transfer will return to normal transferability upon expiration of the statutory period or when the restrictive conditions under the Charter are removed in accordance with shareholder resolutions and applicable law.

III. Legal regulations related to shares restricted from transfer by law

1. Who is responsible for resolving disputes related to shares restricted from transfer by law?

When disputes arise concerning the transfer of shares prohibited or restricted by law, Vietnamese law primarily assigns jurisdiction to judicial authorities, with the following options:

• People’s Court: Disputes among shareholders or between shareholders and the company regarding rights, obligations, and share ownership are generally resolved by the competent People’s Court in accordance with Clause 4, Article 30 of the Civil Procedure Code 2015 governing business and commercial disputes. The Court has jurisdiction when internal mediation or arbitration fails, or where there is no valid arbitration agreement between the parties.
• Commercial Arbitration: If the company’s Charter or agreements among shareholders contain an arbitration clause, the parties may choose arbitration pursuant to Clause 1, Article 5 of the Law on Commercial Arbitration 2010, and arbitral awards are enforceable under Vietnamese law.
• Internal Agreement and Mediation: Before bringing the matter before the Court or arbitration, shareholders may negotiate or conduct mediation under the company’s Charter or legal provisions in order to resolve internal conflicts independently.

Provincial-level People’s Courts are usually the principal competent authorities for resolving disputes relating to shares restricted from transfer by law, unless the parties have agreed to arbitration or commercial mediation.

3. What types of violations commonly relate to shares restricted from transfer by law?

Violations related to shares restricted from transfer usually arise from transfers made contrary to legal regulations or the company’s Charter, including:

• Transfer of shares during the restricted period (for example, ordinary shares of founding shareholders during the first 03 years being transferred to non-founding shareholders without approval from the General Meeting of Shareholders), in violation of Clause 3, Article 120 of the Law on Enterprise. 
• Execution of share transfer transactions contrary to provisions in the company’s Charter where transfer restrictions have been clearly stated on share certificates but the shares are still transferred against such restrictions.
• Illegal transfer of shares in entities governed by specialized laws (for example, in the banking sector, transfers violating capital ownership limits and specific share transfer regulations may be subject to administrative sanctions under sector-specific decrees).

These acts not only create internal disputes but may also result in legal consequences such as invalid transactions, mandatory restitution, and compensation under Law on Enterprise and Civil Law.

IV. Questions related to shares restricted from transfer by law

1. What may happen if shares restricted from transfer by law are illegally transferred?

Where shares restricted or prohibited from transfer under the Law on Enterprise 2020 (amended in 2025) are still transferred in violation of the law, such transactions may be considered legally invalid for breaching the principles of share transfer under Articles 111, 120, and 127 of the Law. In practice, this often leads to:

• Invalid transfer transaction: If restricted shares are transferred unlawfully, the transfer agreement will not produce legal effect.
• Internal disputes: Unlawful transfer easily causes conflicts among shareholders or between shareholders and the company concerning share ownership rights and voting rights.
• Legal or financial losses: The unlawful transferee may have difficulties where the company refuses to recognize ownership rights or may be required to return the shares and compensate for damages caused by the invalid transaction.

In summary, unlawful transfer of shares may not only be deemed invalid but may also lead to legal disputes and compensation claims among the relevant parties.

2. When changing regulations related to shares restricted from transfer by law, what procedures must the company follow?

When an enterprise intends to amend provisions on transfer restrictions in the company’s Charter, it must comply with the Law on Enterprise 2020 (amended in 2025) through the following basic steps:

• Preparing a Charter amendment plan: Pursuant to Clause 1, Article 24, the company’s Charter includes provisions on shares, shareholders’ rights, and principles of share transfer. Restrictions on transfer may be stipulated in the Charter but must comply with the law.
• Submission to the General Meeting of Shareholders for approval: Pursuant to Point đ, Clause 2, Article 138, the General Meeting of Shareholders has the authority to decide on amendments and supplements to the company’s Charter. Under Clause 1, Article 148 (as amended), a resolution is adopted when approved by at least 65% of the total voting shares (unless the Charter requires a higher ratio).
• Updating business registration records: After the amended Charter is approved, the company must carry out procedures for changing enterprise registration contents if the amendment affects registered information.

Pursuant to Clause 1, Article 30, enterprises must register changes where enterprise registration information is altered. The application dossier must include the amended Charter in accordance with enterprise registration laws.

• Updating the shareholder register and corresponding share certificates: Pursuant to Clause 1, Article 127 of the Law on Enterprise 2020 (amended in 2025), restrictions on transfer under the Charter are only effective against third parties when clearly stated on the corresponding share certificates. In addition, Article 122 requires the company to establish and update the shareholder register to record changes in share ownership.
• Internal notification and record retention: Pursuant to Clause 2, Article 11, enterprises are obliged to retain the Charter and provide it to shareholders as prescribed by law. Internal notification helps ensure uniform application of transfer restrictions.

3. What sanctions may apply if the company fails to comply with regulations on shares restricted from transfer by law?

Pursuant to Article 12 of Decree No. 340/2025/NĐ-CP, for credit institutions and entities subject to the Law on Credit Institutions, violations relating to shares, share certificates, and transfer limits may be sanctioned as follows:

• A fine ranging from 100,000,000 VND to 150,000,000 VND for founding shareholders transferring shares in violation of the Law on Credit Institutions (Point c, Clause 2, Article 12).
• Additionally, if the violation results in exceeding the lawful share ownership ratio, the violating party may be compelled to sell the excess shares within a maximum period of 06 months from the effective date of the sanctioning decision (Clause 3, Article 12).

In addition to monetary fines, the Decree also provides remedial measures such as:

• Compulsory restoration of compliance with safety ratios;
• Suspension of dividend distribution until the violation is fully remedied;
• Proposal or requirement for suspension, dismissal, or removal from management, executive, or supervisory positions for violating individuals.

4. When can a lawsuit be filed regarding the illegal transfer of shares restricted from transfer by law? What is the litigation procedure?

Under current law, shareholders may initiate legal proceedings when their lawful rights and interests are infringed, such as in cases where shares subject to transfer restrictions are unlawfully transferred, causing damage to the shareholder or the company (arising from transfers in violation of the Law on Enterprise 2020 (amended in 2025) or the company’s Charter). Shareholders’ right to initiate legal action is provided under Article 166 of the Law on Enterprise 2020 (amended in 2025), specifically as follows:

• Eligible Plaintiffs: A shareholder or a group of shareholders holding at least 1% of the total ordinary shares of the company may file a lawsuit before a civil court to protect their interests where there are grounds showing violations of law or the company’s Charter, including unlawful transfers of restricted shares.
• Time for Filing a Lawsuit: Legal proceedings may be initiated once the shareholder can prove that their lawful rights and interests have been actually infringed by an unlawful transfer transaction causing damage or depriving them of lawful transfer rights under applicable law and the company’s Charter. There is no requirement for the shareholder to have held the shares for a minimum period before filing the lawsuit, provided that the statutory ownership threshold is satisfied.

The litigation process is generally implemented in accordance with the spirit of the Civil Procedure Code 2015 through the following basic steps: preparation of litigation dossier,  submission to the competent court, court acceptance and resolution, judgment and enforcement.

Litigation is an essential legal instrument for shareholders to protect their rights when facing unlawful transfers of shares prohibited from transfer under the law or the company’s Charter.

V. Are you looking for a reputable legal expert to assist with issues related to shares restricted from transfer by law?

If you are seeking a legal service provider with in-depth expertise in corporate law and capital markets to advise, review, or handle disputes relating to shares restricted from transfer by law, NPlaw is a reliable choice. With extensive experience in advising on ownership structures, handling violations involving share transfers, and representing clients in dispute resolution, NPlaw assists clients in assessing the legality of transactions, developing risk remediation strategies, carrying out reporting and disclosure procedures in compliance with regulations, and protecting their lawful rights before competent authorities when necessary.

The above information is provided for reference purposes only. Should you require detailed advice regarding your specific case, please contact NPLaw Firm for immediate consultation.