While I have been examining minority shareholder rights in privately held corporations in Vietnam, I have failed to handle a vital piece of business regarding such. I have failed to discuss who, exactly, is a minority shareholder.
According to Merriam-Webster’s Dictionary, a minority shareholder is “a shareholder whose proportion of shares is too small to confer any power to exert control or influence over corporate action.” A minority shareholder in Vietnam, then, would be one who does not control enough shares to pass a vote in the general meeting of shareholders.
This seems clear, but the waters are muddied by the law on enterprises which sets out certain voting thresholds for different subject matters brought before the GMS. While most decisions of the GMS will pass with a simple majority of 50% plus one, and thus a minority shareholder would be a shareholder owning less than 50% of the shares of the company, the law provides for two different ratios: a supermajority and cumulative voting.
In the United States a supermajority is defined by charter, not law, but in Vietnam there are five specific instances where a supermajority of 65% of the “voting slips of all attending shareholders” is required to pass a resolution.
Before I go into the five instances, I want to address a point which affects both the simple majority and the supermajority votes. Unless a vote is taken by written submission (which requires an absolute ratio to form a majority) the ratios are established according to the number of votes represented at the GMS. And a GMS can be held with less than 100% of the votes represented in attendance.
I won’t go into discussions of quorum requirements to hold a legitimate GMS (see discussion here: https://www.vietnameselawblog.com/quorum-requirements-in-vietnam/), but suffice it to say that there is potential for very minimal attendance at a GMS and thus a resolution may be passed with only a few shares represented.
While the quorum allowances may create a situation in which a minority shareholder is no longer a minority shareholder for the duration of a single meeting, that does not change the legal definition. The supermajority is still required for specific decisions, and for those specific decisions, a shareholder is a minority if he holds less than 65% of the shares of the company.
Those specific decisions which require a supermajority ratio of shares represented at a GMS include those relating to:
(1) Classes of shares and the total number of shares of each class;
(2) Change of lines of business and business sectors;
(3) Change of the organizational and managerial structure of the company;
(4) Investment projects or sale of assets valued at equal to or more than 35% of the total value of assets recorded in the most recent financial statement of the company, or a smaller percentage or value as stipulated in the charter of the company; and
(5) Re-organization or dissolution of the company.
In addition to these five decisions, the law allows the founders, or subsequent majority shareholders who can amend the charter, to include other decisions as they deem fit.
The other instance in which the definition of a minority shareholder changes from less than 50% of the shares of the company, is cumulative voting. This is used when electing individuals to the board of management or the inspection committee of the company.
Cumulative voting originated in Europe and England in the last half of the Nineteenth Century where the problem of corporate governance initially developed. It was adopted in the United States a few decades later and has spread throughout countries—primarily common law—throughout the globe. In Vietnam, the concept was adopted at least by 2005 as it exists in that year’s version of the law on enterprises. The current iteration of the law is more detailed.
“Each shareholder shall have as its total number of votes the total number of shares it owns multiplied by the number of members to be elected to the Board of Management or the Inspection Committee, and each shareholder has the right to accumulate all or part of its total votes for one or more candidates.”
The persons receiving the highest number of votes, in descending order, are considered elected until the number of open positions are filled. Cumulative voting is a requirement of law, there is no allowance for a change in voting method provided by the charter.
This voting technique provides shareholders who would be considered in the minority for other decisions to bring to bear greater influence in determining the management of the company. While it does blur the meaning of minority for this specific decision type, it does not affect the overall definition. A shareholder is still a minority shareholder if he cannot “exert control or influence over corporate action,” and although cumulative voting enhances his rights, he is still likely to be unable to influence the election of a majority of members of the board or inspection committees.
Who is a minority shareholder, then? A minority shareholder, in most instances, is someone who holds less than 50% of the shares of the company. This definition can change, though, if an investor manages to supplement the charter with additional decisions that require a supermajority. For while most decisions require a simple majority, and the few exceptions don’t untowardly shift the balance, if the list requiring a supermajority becomes too long, a minority may become anyone who holds less than 65% of the shares of the company.