The recent enactment of the Law Amending a Number of Articles of the Law on Enterprises (the “New Law”) marks a significant development in Vietnam’s corporate legal landscape. Passed by the National Assembly, this legislation is designed to bolster corporate transparency, enhance accountability, and harmonize the domestic framework with international anti-money laundering and governance standards.
For businesses operating or intending to invest in Vietnam, understanding these pivotal changes is crucial for compliance and strategic planning.
1. Expanded Personal Liability for Legal Representatives
One of the most impactful changes relates to the personal liability of an enterprise’s legal representative.
Under the previous framework, a legal representative’s personal liability for damages caused to the enterprise was generally limited to a few specific violations (e.g., failure to act with honesty and care). The New Law significantly broadens this scope, mandating that the legal representative must now be held personally liable for damages resulting from all violations as prescribed by the Law on Enterprises or any other relevant laws.
This provision aims to dramatically increase the accountability of corporate leadership, prompting legal representatives to act with greater diligence and strictly in the best interests of the company. Companies, particularly those with multiple legal representatives, are strongly advised to review and clarify their Charters to precisely delineate rights, obligations, and corresponding responsibilities.
2. Mandatory Declaration of Beneficial Ownership (BO)
To align with global commitments on preventing money laundering and terrorist financing, the New Law introduces, for the first time, a specific definition of a Beneficial Owner (BO)—an individual with actual ownership or control over an enterprise with legal person status.
This introduces new mandatory obligations for most enterprises:
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Information Retention: Enterprises must collect, update, and retain accurate information regarding their BOs.
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Regulatory Notification: Changes in BO information must be promptly reported to the business registration agency (this obligation typically excludes listed companies and those registered for securities trading).
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Public Display: Enterprises are required to post a list of beneficial owners (if any) at their head office or other specified location.
Businesses established after the effective date of the New Law must include BO information in their initial registration dossier. Existing enterprises must supplement this information when next registering a change to their enterprise contents.
3. Enhanced Financial Integrity and Capital Management
The New Law implements several measures to ensure greater honesty and transparency in corporate finance and capital structure:
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Stricter Charter Capital Rules: The legislation explicitly prohibits falsely declaring charter capital by failing to fully contribute the registered amount. It emphasizes the mandatory requirement to register for a charter capital adjustment if the committed capital cannot be contributed in full by the deadline. This directly addresses the historical issue of enterprises “inflating” their capital for reputation without the underlying financial substance.
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Tighter Control on Asset Valuation: The law imposes stricter controls on the valuation of assets contributed as capital. We recommend using independent and objective appraisal mechanisms (e.g., engaging a professional valuation unit) to ensure transparency and objectivity.
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Debt-to-Equity Limit for Private Bonds: For non-public joint stock companies issuing corporate bonds through private placement, a new financial condition is imposed: the issuer’s total debt (including the value of the planned bond issuance) must not exceed five times the equity based on the previous year’s audited financial statements. This measure is intended to mitigate bond payment risks.
4. Modernizing Corporate Governance Mechanics
The New Law streamlines several aspects of internal corporate governance:
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Shareholder List Basis: The list of shareholders entitled to attend the General Meeting of Shareholders can now be established based on the Securities Owner Register, ensuring consistency with current market practices, in addition to the traditional Shareholder Register.
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Shareholder Rights to Convene Meetings: For joint stock companies operating without a Supervisory Board, the New Law clarifies that a shareholder or group of shareholders holding 5 percent or more of common shares (or a lower percentage specified in the Charter) may convene the General Meeting of Shareholders if the Board of Directors fails to do so within 30 days of a valid request.
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Dissolution Clarification: The conditions for enterprise dissolution due to falling below the minimum required number are corrected to explicitly include both members and shareholders, closing a previous loophole in the law.
The New Law on Enterprises ushers in an era of elevated corporate governance standards in Vietnam. Law firms must now advise clients to conduct a thorough review of their internal governance documents, operational procedures, and financial reporting mechanisms to ensure full compliance with these new, stringent requirements.
