I. Overview of share transfer agreements 

A share transfer agreement plays an essential role in share transactions on the securities market, facilitating the lawful transfer of share ownership from one party to another. In order to ensure legal validity and legal safety for the parties involved, such agreements must strictly comply with applicable legal regulations, including requirements relating to both their contents and the procedures for implementing share transfers.

II. Legal regulations governing share transfer agreements

1. What is a share transfer agreement?

A share transfer agreement is an agreement between a transferor and a transferee to establish a change in ownership of issued shares of a joint-stock company.

Under such an agreement, the parties agree to transfer the rights and interests attached to the shares, ensuring that the transferee becomes the new owner and enjoys the corresponding rights and obligations in respect of the transferred shares.

2. Essential contents of the share transfer agreement

Pursuant to Article 398 of the Civil Code 2015, the essential contents of the share transfer agreement include main elements intended to ensure legal validity and clarity between the transferor and the transferee, specifically as follows:

  • Subject matter of the agreement: The subject matter of the share transfer agreement is the shares being transferred. The agreement must clearly specify the type of shares, quantity, share code, and any attached rights and interests.
  • Quantity and quality of shares: The agreement must clearly state the number of shares to be transferred. Where there are special conditions relating to the type of shares, such conditions must be clearly indicated to avoid disputes.
  • Price and payment method: The transfer price of the shares is a crucial element and must be agreed upon by the parties and stated in the agreement. The payment method must also be clearly specified, including the time, form of payment (bank transfer, cash, or other methods).
  • Time limit, place, and method of execution: The agreement may specify the time and place for completion of the share transfer, as well as the implementation procedures (such as recording the change of ownership in the company’s register of shareholders).
  • Rights and obligations of the parties: The agreement should define the rights and obligations of the transferor (e.g., representations and warranties regarding lawful ownership) and the transferee (e.g., timely and full payment).
  • Liability for breach of contract: If either party breaches the agreement, the agreement should clearly provide for liability, including compensation for damages or contractual sanctions.
  • Dispute resolution: The parties may agree on methods for resolving disputes, typically through negotiation, mediation, or litigation before a competent court. It helps mitigate legal risks and protect the legitimate interests of both parties.

These contents not only ensure that the share transfer agreement complies with legal regulations but also serve as a basis for protecting the rights and interests of the parties, thereby facilitating transparent and lawful share transfers.

3. Conditions for the validity of the share transfer agreement

For the share transfer agreement to be valid, the following conditions must be satisfied:

  • Contracting parties: The parties must have full legal capacity and civil act capacity.
  • Voluntariness: The agreement must be entered into voluntarily, without coercion or fraud.
  • Subject matter of the agreement: The agreement must clearly identify the transferred shares, their value, and any related conditions.
  • Form of the agreement: The agreement may be executed directly between the parties or conducted through transactions on the securities market.
  • Registration of shareholder changes: Information regarding the transferee must be updated in the company’s register of shareholders.
  • Compliance with transfer restrictions (if any): Where the company’s charter or applicable laws impose transfer restrictions, the parties must comply with such restrictions.

These conditions safeguard the interests of the parties and ensure the legality of the agreement.

III. Questions regarding share transfer agreements

1. May a company pay employees’ salaries in shares?

A company may pay employees in shares in certain cases, provided that it complies with applicable laws. Under the Labor Code 2019, wages must be paid in Vietnamese Dong, except where the employee is a foreign national working in Viet Nam, in which case wages may be paid in foreign currency.

However, with respect to shares, a company may implement employee share-based incentive programs, such as Employee Stock Ownership Plans (ESOPs) or Employee Stock Purchase Plans (ESPPs). Such programs must be approved by the General Meeting of Shareholders and may allow employees to purchase shares at discounted prices or receive bonus shares as performance incentives.

Pursuant to Article 64 of Decree No. 155/2020/ND-CP, if a company intends to issue shares under an employee stock option program, it must have an issuance plan approved by the General Meeting of Shareholders. Such a program may include rights to purchase shares or to receive bonus shares from the company.

Accordingly, paying employees in shares is lawful where shareholder approval is obtained and the issuance of shares complies with applicable legal regulations.

2. Are all share transfer transactions subject to personal income tax?

Pursuant to Article 28 of Decree No. 65/2013/ND-CP, income derived from the transfer of securities is generally subject to personal income tax (PIT). However, not all share transfer transactions are subject to PIT withholding. In certain special cases, income from share transfers may be exempt or not subject to PIT withholding, for example, depending on the residency status of the individual.

Accordingly, transfers of securities by resident individuals are subject to PIT at the prescribed rates. For non-resident individuals in Viet Nam, income from securities transfers is also subject to PIT withholding.

In addition, tax rates and withholding methods depend on specific regulations issued by the Ministry of Finance and may vary depending on individual circumstances.

In summary, while not all share transfers are subject to PIT, in most cases, share transfers are subject to PIT in accordance with prevailing regulations.

3. Is notarization of a share transfer agreement required?

Notarization of the share transfer agreement is not mandatory under Vietnamese law. The Civil Code 2015 and the Law on Enterprise 2020 do not require notarization of share transfer agreements. However, the parties may voluntarily notarize the agreement to enhance legal certainty and protect their interests in the event of a dispute. Certain companies may require confirmation by the legal representative, but notarization itself is not a compulsory procedure.

4. What documents are required for the transfer of shares by founding shareholders during the restricted transfer period?

The required documents include: The resolution and minutes of the General Meeting of Shareholders regarding the share transfer; the list of founding shareholders of the joint-stock company; the company charter (as amended and supplemented); the share transfer agreement; the minutes of liquidation of the share transfer agreement; share certificates of the company’s shareholders; and the register of shareholders.

5. May the share transfer agreement be rescinded?

The share transfer agreement may be rescinded in the following cases according to Article 423 of the Civil Code 2015:

  • Rescission of contractual agreement: Where the parties have agreed on conditions for rescission, the injured party may rescind the agreement without compensation.
  • Serious breach of contractual obligations: Where one party commits a serious breach that prevents the other party from achieving the purpose of entering into the agreement, the non-breaching party has the right to rescind the agreement without compensation.
  • Other cases as prescribed by law: Where other legal grounds exist allowing rescission without compensation.

The parties must promptly notify each other upon deciding to rescind the agreement, and rescission shall not give rise to liability for damages where legitimate grounds exist in accordance with the above provisions.

IV. Legal consultancy services relating to share transfer agreements

The above constitutes all detailed information provided by NPLaw to assist clients with issues relating to share transfer agreements. Should you have any questions regarding the above matters or other legal issues, please contact NPLaw promptly so that our team may directly provide consultation and guidance.