What should shareholders consider when transferring shares to a third party to avoid legal risks?

In corporate practice, shareholders transferring shares to a third party is a fairly common occurrence, especially when there are changes in investment strategies or capital structure. However, if the relevant legal regulations and procedures are not fully understood, the transfer transaction may lead to legal risks and may even be declared invalid. The following article helps clarify the legal nature, implementation conditions, and important matters to note when shareholders transfer shares to a third party.

I. Current issues relating to shareholders wishing to transfer shares to a third party

At present, shareholders wishing to transfer shares to a third party is becoming increasingly common, particularly when enterprises need to restructure capital, change business strategies, or when shareholders no longer wish to continue their investment. However, in practice, many transfer transactions are executed without thoroughly reviewing legal conditions, the company charter, or statutory restrictions, resulting in internal disputes, delayed transactions, or legal risks for both the transferor and the transferee.

II. The concept of shareholders wishing to transfer shares to a third party

1. What does it mean when a shareholder wishes to transfer shares to a third party?

A shareholder transferring shares to a third party means that the shareholder exercises the right of disposition over the shares owned by them by transferring ownership of those shares to an individual or organization that is not an existing shareholder of the company. 

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, except for cases restricted under Clause 3, Article 120 and Clause 1, Article 127 of this Law.

2. Is transferring shares to a third party considered a fundamental right of shareholders?

Transferring shares to a third party is one of the fundamental and important rights of ordinary shareholders. Pursuant to Point d, Clause 1, Article 115 of the Law on Enterprise 2020 (amended in 2025), shareholders have the right to freely transfer their shares to others, thereby proactively deciding whether to continue or terminate their capital contribution in the company.

Such a right reflects the flexible nature of a joint stock company, enabling shareholders to easily withdraw capital, change investment strategies, or transfer ownership of shares. However, the right of transfer is not absolute and may be restricted in certain cases as prescribed in Clause 3, Article 120 and Clause 1, Article 127 of the Law on Enterprise 2020 (amended in 2025) or under the company charter, in order to ensure the stability of the shareholder structure and the common interests of the enterprise.

3. Does transferring shares to a third party mean terminating all rights and obligations within the company?

A shareholder transferring shares to a third party does not mean the termination of all rights and obligations within the company, but only the termination of rights and obligations attached to the transferred shares.

Pursuant to Article 127 of the Law on Enterprise 2020 (amended in 2025), shares are only considered transferred from the transferor to the transferee after a valid transfer agreement has been executed and the transferee is recorded in the company’s shareholder register. From that point onward, the transferring shareholder is no longer the owner of the transferred shares and therefore no longer enjoys the rights attached to those shares (such as voting rights, dividend rights, and the right to participate in shareholder decisions relating to the transferred shares).

However, it does not terminate all previous rights and obligations relating to the company, especially obligations that arose before the transfer (for example, debt repayment or performance of commitments under separately signed contracts), except for obligations directly attached to the transferred shares.

III. Legal regulations relating to shareholders wishing to transfer shares to a third party

1. What conditions must be satisfied for shareholders to transfer shares to a third party?

Pursuant to Point d, Clause 1, Article 111 and Clause 1, Article 127 of the Law on Enterprise 2020 (amended in 2025), shareholders have the right to freely transfer their shares to others, including third parties, except where the law or the company charter provides restrictions.

Accordingly, the transfer of shares is only lawful when:

• It does not fall under cases restricted as defined by Clause 3, Article 120 and Article 127 of the Law on Enterprise 2020 (amended in 2025);
• It does not violate transfer restrictions validly stipulated in the company charter;
• It complies with the proper form and transfer procedures prescribed by law.

2. In what cases does the law restrict the right of shareholders to transfer shares to a third party?

Pursuant to Clause 1, Article 127 of the Law on Enterprise 2020 (amended in 2025), the right of shareholders to transfer shares may be restricted in certain specific cases as follows:

First, restrictions applicable to founding shareholders: Within 03 years from the date the company is granted the Enterprise Registration Certificate, ordinary shares of founding shareholders:

• May be freely transferred to other founding shareholders;
• May only be transferred to persons who are not founding shareholders upon approval of the General Meeting of Shareholders. In such a case, the founding shareholder intending to transfer shares does not have voting rights regarding the transfer of their shares (under Clause 3, Article 120 of the Law on Enterprise 2020 (amended in 2025)).

Second, restrictions under the company charter: If the company charter provides restrictions on share transfers, such restrictions are only effective when clearly stated on the share certificates corresponding to those shares. If not expressly shown, such restrictions shall not be enforceable against shareholders.

3. Procedures for shareholders wishing to transfer shares to a third party

To ensure that the transfer of shares to a third party is legally recognized and to avoid dispute-related risks, shareholders must comply with the correct sequence and procedures prescribed by the Law on Enterprise 2020. Specifically, the procedure is implemented through the following basic steps:

- Step 1: Determining the right and conditions for share transfer

Shareholders are free to transfer their shares under Point d, Clause 1, Article 111 and Clause 1, Article 127 of the Law on Enterprise 2020 (amended in 2025), except in the following cases:

• Shares of founding shareholders during the first 03 years are restricted under Clause 3, Article 120;
• The company charter provides transfer restrictions and such restrictions are clearly stated on the share certificates.

- Step 2: Obtaining approval (if the transfer falls under restricted cases)

If the shareholder is a founding shareholder within the 03-year period or falls under cases where the company charter restricts transfer, the shareholder must:

• Obtain approval from the General Meeting of Shareholders (if required by law);
• Not participate in voting regarding the shares intended to be transferred.

- Step 3: Implementing the share transfer method

The transfer shall be implemented in accordance with Clause 2, Article 127 of the Law on Enterprise 2020 (amended in 2025), including:

• Transfer by contract: The share transfer agreement must bear the signatures of the transferor and the transferee (or their lawful representatives);
• Transfer through the securities market: Implemented in accordance with securities law (for public companies).

- Step 4: Recording the new shareholder’s information

The transferee only becomes a shareholder from the time:

• Their information is fully recorded in the shareholder register under Clause 6, Article 127 of the Law on Enterprise 2020 (amended in 2025).

- Step 5: Updating the shareholder register

The company is responsible for:

• Updating shareholder changes in the shareholder register upon a valid request;
• Completing such update within 24 hours from receipt of the request, in accordance with the company charter.

4. What are the common legal risks when shareholders transfer shares to a third party?

When shareholders wish to transfer shares to a third party, failure to comply with legal regulations and the company charter may result in the following common legal risks:

First, the transfer transaction may be at risk of being declared invalid if it violates transfer restrictions under the Law on Enterprise 2020 (amended in 2025) or the company charter, particularly where a founding shareholder transfers shares during the restricted period without approval from the General Meeting of Shareholders.

Second, the transferee may not be recognized as a shareholder if their information has not been fully recorded in the shareholder register. In such a case, the transferee cannot exercise shareholder rights despite having completed payment.

Third, disputes may easily arise regarding transfer price, payment obligations, or tax obligations, especially when the parties fail to prepare a clear and comprehensive written transfer agreement.

Fourth, the transferring shareholder may continue to be bound by liabilities toward the company or third parties if the transfer has not been legally completed or has not yet been recognized by the company.

Finally, where the transferee is a foreign investor, failure to satisfy investment conditions or market access conditions may result in suspension of the transaction or mandatory adjustment in accordance with legal regulations.

IV. Questions relating to shareholders wishing to transfer shares to a third party

1. If a shareholder transfers shares to a third party without following proper procedures, will the transaction be invalid?

If shares are transferred to a third party without complying with legal procedures, the transaction may be considered as not having full legal effect and may easily lead to disputes.

Clause 2, Article 127 of the Law on Enterprise 2020 (amended in 2025) requires that share transfer be implemented by a contract bearing the signatures of the transferor and the transferee or in accordance with securities market regulations for shares traded on the market. If these procedures are not properly followed, the registration of shareholder changes will not be recorded in the shareholder register, causing the transferee not to be recognized as the new shareholder of the company.

In the case of a dispute, the court may consider the transfer transaction as lacking sufficient legal grounds for recognition if there are no documents proving compliance with mandatory procedures. Therefore, failure to comply with procedures may lead to the transaction being declared invalid or unrecognized, unless the parties can prove the true nature of the agreement and the actual implementation based on their genuine intention.

2. Must shareholders sign a written share transfer agreement when transferring shares to a third party?

In most cases, shareholders transferring shares to a third party must execute a written share transfer agreement.

Pursuant to Clause 2, Article 127 of the Law on Enterprise 2020 (amended in 2025), share transfer is implemented by a contract bearing the signatures of the transferor and the transferee or through transactions on the securities market for listed shares.

If no written transfer agreement is executed (for shares not traded on the securities market), or if the prescribed procedures are not properly followed, the change of shareholders will not be recorded in the shareholder register. In such a case, the transferee will not be legally recognized as the new shareholder of the company, even though the parties have already agreed on the transfer.

3. Does transferring shares to a third party change the company’s shareholder structure?

A shareholder transferring shares to a third party may change the shareholder structure of the company, but the extent of such change depends on the transferee and the number of transferred shares.

However, if the transfer only occurs among existing shareholders or does not significantly affect ownership ratios, the shareholder structure may not change substantially. Conversely, where a large number of shares are transferred or transferred to a new investor, the shareholder structure and control rights of the company may be significantly affected.

4. If the third-party transferee is a foreign investor, what conditions must be satisfied?

When a shareholder wishes to transfer shares to a foreign investor, in addition to the share transfer conditions under the Law on Enterprise 2020, the transferee (foreign investor) must also satisfy separate legal conditions under the Law on Investment 2020 and related regulations as follows:

• Conditions on market access and business sectors (Article 9 of the Law on Investment 2020; Article 15 of Decree No. 31/2021/ND-CP): Foreign investors must satisfy market access conditions applicable to sectors restricted or conditionally accessible to foreign investors under investment law (for example, foreign ownership ratio limits in certain sectors and conditions relating to operations in specific fields).
• Conditions ensuring national defense, security, or land-related conditions (Clause 2, Article 24 of the Law on Investment 2020): If the enterprise owns land-related assets in sensitive areas (for example, border areas, islands, or areas affecting national defense and security), foreign investors must satisfy national defense, security, and land use conditions as prescribed by law.

Investment procedures and share transfer procedures: 

• Foreign investors may be required to register investment or notify the investment registration authority before implementing the transfer if the transaction changes the foreign ownership ratio beyond the statutory threshold or if the company operates in sectors subject to investment conditions.
• The transfer and registration of shareholder information changes must be implemented with the local business registration authority in accordance with regulations after the transfer agreement is signed.

5. Do shareholders have the right to freely negotiate the transfer price when transferring shares to a third party?

Current enterprise law does not prescribe a specific price for share transfers. Therefore, the transferring shareholder and the transferee have the right to freely negotiate the transfer price based on voluntary agreement and in accordance with market mechanisms.

However, the following points should be noted when agreeing on the transfer price:

• The transfer price must be clearly stated in the share transfer agreement or corresponding transaction documents;
• The determination of the transfer price must not be intended for tax evasion, tax fraud, or transfer pricing, and all tax obligations must be fully performed in accordance with tax law;
• Where shares are traded on the securities market, the transfer price must also comply with securities law and stock market regulations.

Accordingly, the right to freely negotiate the transfer price is recognized by law, but it must be exercised transparently, in the proper form, and in compliance with relevant legal regulations.

V. Why should you seek legal consultation from NPLaw regarding shareholders wishing to transfer shares to a third party

NPLaw is a reputable law firm with extensive experience in advising and handling matters relating to shareholders wishing to transfer shares to a third party. With in-depth knowledge of enterprise law and practical business operations, NPLaw supports clients in reviewing transfer conditions, drafting agreements, advising on procedures, and preventing legal risks, thereby ensuring that the transfer process is lawful, safe, and maximally protects clients’ rights and interests.

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