Decree 102 Implementing the Law on Enterprises

Article by Dao Nguyen , Kevin B. Hawkins and Thinh Phu Dan

Originally published 9 November 2010

Keywords: Decree 102, Vietnam, Law on Enterprises,

On 1 October 2010 the Vietnamese Government issued Decree No. 102/2010/CP-ND providing detailed guidelines on implementation of the Law on Enterprises (Decree 102). Decree 102 replaces Decree No. 139/2007/ND-CP dated 5 September 2007 (Decree 139).

Decree No 102 is more comprehensive than Decree 139 in that it gives more detailed guidance on the procedures/operation of shareholders' meetings, members' councils and procedures for conversion of an enterprise.

The salient provisions of Decree 102 are presented below.

Scope and Applicability

Decree 102 provides detailed guidelines for implementation of a number of articles of the Law on Enterprises on establishment, managerial organisation, operation, reorganisation and dissolution of enterprises.

Decree 102 applies to:

Limited liability companies (LLCs), shareholding companies, partnerships and private enterprises, including LLCs and shareholding companies after conversion from enterprises with 100% State owned capital, enterprises of Party organisations and of socio-political organisations, and to joint venture enterprises and enterprises with 100% foreign owned capital.
Joint venture enterprises and enterprises with 100% foreign owned capital which have not re-registered pursuant to Decree No. 101/2006/ ND-CP (Decree 101).
Individual family household businesses.
Other organisations and individuals involved in the establishment, managerial organisation and operation, reorganisation and dissolution of enterprises.

Capital Contribution Using Intellectual Property Rights

Decree 102 provides for capital contribution using intellectual property rights. Intellectual property rights used for capital contribution comprise rights of authors and related rights of authors, industrial property rights, rights to plant varieties, and other intellectual property rights stipulated in legislation on intellectual property. Only individuals or organisations who are owners of such rights will have the right to use such assets for capital contribution.

Prohibited Lines of Business

The list of prohibited lines of business comprises:

Business in weapons, military equipment and technical facilities, ammunition and specialised facilities for the army and police; military paraphernalia; military supplies for the armed forces; and components, accessories and materials and technology used to manufacture the former items;
Business in all types of drugs of addiction;
Business in List I chemicals (stipulated in international treaties);
Business in products of reactionary culture and pornographic products; products serving superstitious purposes or products harmful to aesthetic education and personal development;
Business in all types of firecrackers;
Business in all types of games and toys dangerous or harmful to the personal development and health of children or to the security, order and safety of society;
Business in all types of rare wild animals and plants, including both living animals and processed matter taken from animals, on the lists in international treaties of which Vietnam is a member, and all types of rare wild animals and plants on the lists prohibiting the use and exploitation of such animals and plants;
Brothel businesses, organising prostitution, trafficking in women and children;
Business services being organised gambling or keeping a gambling house in any form;
Business services being investigation (private detective) services into infringement of State rights or the legitimate rights and interests of organisations and citizens;
Business services being marriage broking involving a foreign element;
Business services for foster parents or adoption involving a foreign element;
Business in all types of imported scrap causing environmental pollution;
Business in all types of products, goods and equipment prohibited from circulation or use, or not yet permitted to be circulated or used in Vietnam;
Other lines of business prohibited by specialised branch laws, ordinances and decrees.

Conditional Lines of Business and Business Conditions

The provisions of specialised branch laws will apply to conditional lines of business and to the business conditions which are applicable.

Business conditions are expressed in the following forms:

Business licences;
Certificates of satisfaction of business conditions;
Practising certificates;
Certificates of professional indemnity insurance;
Certification of legal capital;
Other approvals from competent State authorities;
Other requirements which an enterprise must implement or satisfy before it has the right to conduct business in such line of business.

Right to Establish Enterprises

All organisations being legal entities including enterprises with foreign owned capital in Vietnam irrespective of the place of registration of their head office and all individuals irrespective of their place of residence and nationality have the right to establish and to participate in the establishment of an enterprise in Vietnam under the Law on Enterprises.

An investor being a foreign organisation or individual establishing an enterprise in Vietnam for the first time must conduct investment registration associated with establishment of an economic organisation and will be issued with an investment certificate which also serves as the enterprise registration certificate.

An enterprise with foreign invested capital already established in Vietnam which proposes to establish a new enterprise in Vietnam must implement the following provisions:

If more than 49 percent of the charter capital of the enterprise proposed to be established will be owned by the foreign investor(s) establishing or participating in establishing it, then there must be an investment project and registration of such investment associated with establishment of an economic institution in accordance with the law on investment. In this case the enterprise will be issued with an investment certificate which will concurrently be the enterprise registration certificate.
If the foreign investor(s) establishing or participating in establishing the new enterprise will not own more than 49 percent of its charter capital, then establishment of the enterprise will be implemented in accordance with the provisions of the Law on Enterprises. In this case the same regulations which apply to domestic investment projects will apply to registration of the investment.

Right to Business Registration and to Carry Out Business Activities

Enterprises are entitled to conduct business registration and business activities without applying for permission or approval from, and without seeking the opinion of any State administrative body, if such line of business is not prohibited and not conditional.

An enterprise will have the right to conduct business in a conditional line of business as from the time it satisfies all the stipulated conditions.

Unless otherwise specified in a specialised branch law or an international treaty of which Vietnam is a member:

investment and business conditions which are the same as those applicable to domestic investors will apply to an enterprise already established in Vietnam with foreign ownership not exceeding 49 percent of the charter capital; and
investment and business conditions which are the same as those applicable to foreign investors will apply to an enterprise already established in Vietnam with foreign investor ownership exceeding 49 percent of the charter capital.

These ownership ratios will apply throughout the entire process of an enterprise implementing investment and business in the relevant sector.

Offer of Shares for Sale

A shareholding company may offer shares for sale by one of the following methods:

Via the mass media, including internet;
Offer for sale to one hundred or more investors exclusive of professional securities investors;
Offer for sale to a number of unidentified investors;
Offer for sale to less than one hundred identified investors.

The file, order, procedures and conditions for offering shares for sale must comply with the relevant provisions of the Law on Securities.

Disclosure of Related Persons and their Transactions with Company

Unless otherwise stipulated by the company charter, disclosure of related persons and their transactions with the company must be carried out as follows:

The company will collate and update a list of related persons of the company and their corresponding transactions with the company. Such list must be kept at the head office of the company; where necessary, all or part of the contents of such list may be kept at branches of the company.
All shareholders, managers, members of the inspection committee of the company and their authorised representatives are entitled to sight and make an extract or copy all or part of the contents of such list during working hours.

Investor Derivative Action

Decree 102 stipulates that members of LLCs and shareholders of shareholding companies have the right to institute legal proceedings in the name of the company against the chairman of the members' council or a member of the board of management or a director.

Where a director fails to properly exercise his/her duties or abuses his/her position or assets of the company or uses business opportunities of the company for his/her personal benefit or for that of another organisation or individual, a member of an LLC can institute proceedings either in their own name or in the name of the company. For shareholders in a shareholding company there are some more requirements: (1) the shareholder (or group of shareholders) must hold at least 1 percent of the ordinary shares for at least six months; and (2) they must first request the board of controllers to initiate legal action. Only after the board of controllers fails to do so may the individual shareholder (or group of shareholders) directly institute the proceedings.

Charter Capital and Timing for Capital Contribution

Decree 102 contains the first formal definition of the charter capital in a joint stock company. Charter capital is defined as the total value of shares that both founding and regular shareholders commit to buy, not including shares the company has authorised to issue at the time of its formation.

For LLCs, a three-year deadline applies for payment of undertaken contributions, either from the date of issuance of the registration certificate or from the date of registration of any addition or change of member(s).

For shareholding companies, on the date of registration, the charter capital will be the total value of shares for which founding and other shareholders have subscribed. The entire charter capital must be paid in full within 90 days from business registration.

A company's legal representative is required to report to the licensing authority on the status of capital contributions within 15 days from the date such contributions are due. Pending the completion of capital contributions, a member/shareholder will only enjoy voting rights and dividends in proportion to the capital actually contributed to the company.

Supplementary Guidelines on Rights and Obligations of Members of an LLC

Where a member of an LLC who is an individual is subject to temporary detention or imprisonment, or has his or her practising certificate (if applicable) withdrawn by a court, such member must appoint another person to participate in the members' council managing the company.

In the case of a two-member LLC, if a member who is an individual and legal representative of the company is subject to temporary detention or imprisonment, absconds from his or her place of residence, loses capacity for civil acts or has his or her capacity for civil acts restricted, or has his or her practising certificate (if applicable) withdrawn by a court, the other individual member will automatically become legal representative of the company until there is a new decision made by the members' council on the legal representative of the company.

Where a company fails to redeem a capital contribution portion, fails to pay for such redeemed portion or fails to agree on a price for the redemption, the member which demanded that the company redeem its capital contribution portion will have the right to assign such portion to another person.

Authorisation of Legal Representative of Enterprise

In comparison with Decree 139, the authorisation of the legal representative of the enterprise (legal representative) in Decree 102 is much simpler. The legal representative is required to reside in Vietnam, and if absent from Vietnam for more than 30 days, he or she must provide written authorisation to another person (attorney) to perform the rights and obligations of the legal representative. If at the expiry of the term of authorisation, the legal representative has not returned to Vietnam and has not authorised another person, the attorney will continue to perform such rights and obligations until the legal representative returns or until another person is appointed to act as legal representative.

In the case of absence from Vietnam for more than 30 days without authorisation, the members' council, the company owner, the board of management or the partners' council of the partnership, as the case may be, will appoint another person to act as legal representative of the company.

Joint Venture Enterprises and Enterprises with 100% Foreign Owned Capital Which Have Not Re-Registered Pursuant to Decree 101

Internal managerial organisation and the operation of the enterprise will comply with the provisions in the enterprise charter. If the charter does not contain such provisions, the corresponding provisions of the Law on Enterprises and its implementing guidelines will apply. Note that under Law 38/2009/QH12 dated 19 June 2009, the window for re-registration will expire by 1 July 2011.

Effectiveness

Decree 102 takes effect on 15 November 2010.

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