Vietnam Enterprise Law 2020: key changes for company owners

Vietnam enterprise law 2020 is the new Law on Enterprises, Law No. 59/2020/QH14. It passed the National Assembly on 17 June 2020, and it takes effect on the first day of next year, 1 January. It replaces the 2014 law. Company owners, directors and shareholders should read the changes before the new year.

What the new law is and when it starts

The law sets the rules for how companies are set up, run and closed in Vietnam. It covers limited liability companies, joint stock companies, partnerships and private enterprises. It was approved by the National Assembly on 17 June 2020 and begins on 1 January. Until then, the 2014 law still applies. Firms have a few months to review their charters, board rules and shareholder agreements, and to talk to their advisers about what must change in daily practice. Early planning avoids rushed edits in December.

Sources: Law No. 59/2020/QH14 on Enterprises, passed 17 June 2020 (Vietnamese text, Thu Vien Phap Luat); Allens, "Vietnam's Amended Law on Enterprises: top 10 changes you need to know", 4 August 2020.

A wider definition of state-owned enterprise

Under the 2014 law, a state-owned enterprise was a company that the State owned in full. The new law is wider. A state-owned enterprise now includes a company where the State holds more than 50% of the charter capital or of the voting shares.

This matters because state-owned firms face extra rules. For example, a state-owned limited liability company must still keep an inspection body, even where other limited liability companies no longer have to. A firm with mixed ownership should check which side of the 50% line it falls on.

Sources: Law No. 59/2020/QH14, Article 4 (definitions); Allens, 4 August 2020.

New rules for legal representatives

A legal representative is the person who can act for the company in law. A limited liability company or joint stock company may have more than one, as before. What is new is that the charter must state each person's rights and duties. If it does not, each representative has full authority, and all of them share liability for harm done to the company.

In a limited liability company with more than one representative, at least one must be the general director or the chairman. Every company must also keep at least one legal representative living in Vietnam at all times. If only one such representative is left and that person leaves the country, written authority has to go to another resident first. If a sole representative is away from Vietnam for more than 30 days without doing so, the owner, the Members' Council or the Board of Directors must name a replacement.

Sources: Law No. 59/2020/QH14, Article 12; Allens, 4 August 2020.

More power for minority shareholders

The law lowers some thresholds in joint stock companies. A shareholder with 5% of ordinary shares can ask for a general meeting, inspect company records or ask the inspection body to look into a matter. Under the old law the figure was 10%, held for six months. A holder of 10% can nominate members of the board and the inspection committee, with no six month wait.

A shareholder with 1% can bring a case against board members or the general director on the company's behalf. Before, that took 10% held for six months. Ordinary votes at general meetings now pass with more than 50%, down from 51%.

Sources: Allens, 4 August 2020; Law No. 59/2020/QH14, Articles 115, 148 and 166 (Vietnamese text, Thu Vien Phap Luat).

Simpler paperwork, seals and governance

Some filings are removed. A company no longer has to notify the registry about changes to management staff, about changing or using its seal samples, or about a private share placement before issuing shares. Multi-member limited liability companies no longer need an inspection committee, and single-member companies no longer need an inspector. State-owned firms still do.

Company seals may now be made by a seal-carving shop or take the form of a digital signature under the law on e-transactions. Further guidance on digital seals is expected.

Sources: Law No. 59/2020/QH14, Article 43; Allens, 4 August 2020.

What company owners should do now

The new rules are close, so a short checklist helps. Check whether the State holds more than 50% of your capital. Review your charter and list who your legal representatives are and what each may sign. Confirm that one of them lives in Vietnam. Look at your shareholder agreements in light of the lower thresholds. Watch for government guidance on points the law leaves open, such as digital seals.

This is general information, not legal advice. A corporate lawyer licensed in Vietnam can check Law No. 59/2020/QH14 against your own charter.

Sources: Law No. 59/2020/QH14; Allens, 4 August 2020.