Ordinary shares represent the most fundamental class of shares in a joint stock company, embodying shareholders’ ownership and voting rights. Legal regulations on ordinary shares are essential to protect shareholders’ interests and to ensure transparency and efficiency in corporate governance. Below, NPLaw invites readers to explore the main legal aspects relating to ordinary shares.

I. Understanding ordinary shares

Ordinary shares are the most basic and widely issued type of shares in a joint stock company. Holders of ordinary shares, known as ordinary shareholders, have the right to participate in the management of the company through voting rights at General Meetings of Shareholders.

They are also entitled to receive dividends when the company earns profits and to receive a portion of residual assets upon the company’s dissolution after all debts have been settled. However, dividends on ordinary shares are not fixed and depend on the company’s business performance. Such a class of shares reflects ownership and long-term commitment between the shareholder and the enterprise.

II. Legal regulations on ordinary shares

1. Definition of ordinary shares

Ordinary shares are the fundamental class of shares in a joint stock company, representing ownership and voting rights of shareholders. Holders of ordinary shares are entitled to vote at the General Meeting of Shareholders, receive dividends in proportion to their ownership ratio, and enjoy the remaining assets of the company upon dissolution after all debts and preferential payments to preferred shareholders (if any) have been made.

2. Conditions for becoming a holder of ordinary shares

Pursuant to Article 120 of the Law on Enterprise 2020, the conditions for becoming an ordinary shareholder include: 

  • Being listed in the register of shareholders (founding or non-founding);
  • Owning at least one (01) ordinary share;
  • In the case of founding shareholders, collectively subscribing to at least 20% of the total shares offered for sale upon incorporation, and being restricted from transferring shares within the first three (03) years.

Thus, to qualify as an ordinary shareholder, one must meet the conditions stipulated in Article 120 of the Law on Enterprise 2020.

3. Rights and obligations of ordinary shareholders

Under Articles 115 and 119 of the Law on Enterprise 2020, ordinary shareholders have the following rights and obligations:

(1) Rights of Ordinary Shareholders:

  • Attending, speaking, and voting at the General Meeting of Shareholders;
  • Receiving dividends as determined by the General Meeting of Shareholders;
  • Having pre-emptive rights to purchase newly issued shares in proportion to their ownership;
  • Freely transferring shares (except in cases subject to restrictions);
  • Accessing and extracting information on shareholders, the company charter, minutes, and resolutions;
  • Receiving remaining assets upon dissolution or bankruptcy, proportionate to their ownership ratio.

Shareholders or groups holding 5% or more of total ordinary shares also have the right to:

  • Review management documents, financial statements, and contracts;
  • Request the convening of the General Meeting of Shareholders;
  • Request the Supervisory Board to inspect the company’s operations.

Shareholders or groups holding 10% or more of ordinary shares are further entitled to:

  • Nominate candidates for the Board of Directors and the Supervisory Board;
  • Exercise other rights in accordance with law and the company’s charter.

(2) Obligations of ordinary shareholders:

  • Fully and punctually paying for the shares subscribed;
  • Refraining from withdrawing contributed capital by any means (except in cases of lawful repurchase);
  • Complying with the company’s charter and internal regulations;
  • Adhering to resolutions and decisions of the General Meeting of Shareholders and the Board of Directors;
  • Keeping company-provided information confidential and use it only for legitimate purposes;
  • Performing other duties as prescribed by law and the company’s charter.

III. Questions on ordinary shares

1. What is the minimum ownership ratio of founding shareholders?

According to Clause 2, Article 120 of the Law on Enterprise 2020, upon incorporation, founding shareholders must collectively subscribe to at least 20% of the total ordinary shares authorized for sale at the time of registration. This 20% represents the minimum total ratio for all founding shareholders, not for each individual shareholder.

2. Can ordinary shares be converted into other classes of shares?

Under Clause 5, Article 114 of the Law on Enterprise 2020, ordinary shares cannot be converted into preferred shares. Conversely, preferred shares may be converted into ordinary shares with the approval of the General Meeting of Shareholders. This regulation ensures stability in the rights and position of ordinary shareholders while allowing flexibility in adjusting preferred share structures as determined collectively by shareholders.

3. Can founding shareholders freely transfer their ordinary shares?

According to Clause 3, Article 120 of the Law on Enterprise 2020, within three (03) years from the date the enterprise registration certificate is issued, founding shareholders may freely transfer their ordinary shares to other founding shareholders. Transfers to non-founding shareholders require approval by the General Meeting of Shareholders, and in such cases, the transferring founding shareholder is not entitled to vote on the transfer.

Therefore, within the initial three-year period, founding shareholders may only freely transfer shares among themselves, and may transfer to outsiders only with approval from the General Meeting of Shareholders.

4. What are the fundamental rights of ordinary shareholders?

Pursuant to Article 115 of the Law on Enterprise 2020, ordinary shareholders have the following key rights:

  • Attending, speaking, and voting at the General Meeting of Shareholders, with each ordinary share carrying one vote;
  • Receiving dividends as determined by the General Meeting of Shareholders;
  • Having pre-emptive rights to subscribe for newly issued shares;
  • Freely transferring their shares, except in cases restricted by law;
  • Reviewing and extracting documents such as the register of shareholders entitled to vote, company charter, meeting minutes, and resolutions of the General Meeting of Shareholders;
  • Receiving residual assets upon dissolution or bankruptcy in proportion to their ownership.

Additionally, shareholders or groups holding 5% or more of total ordinary shares may:

  • Review management records, financial statements, and significant company transactions;
  • Request the convening of the General Meeting of Shareholders;
  • Request the Supervisory Board to inspect company operations.

If holding 10% or more of total ordinary shares, shareholders may also:

  • Nominate candidates for the Board of Directors and the Supervisory Board.

5. What legal restrictions apply to the transfer of ordinary shares?

According to Clauses 3 and 4, Article 120 of the Law on Enterprises 2020, within three (03) years from the issuance of the Enterprise Registration Certificate, founding shareholders may only transfer ordinary shares as follows:

  • Transfers to non-founding shareholders must be approved by the General Meeting of Shareholders;
  • The above restriction does not apply to:
    + Shares purchased by founding shareholders after incorporation (not initial founding shares);
    + Shares already transferred to non-founding shareholders (no longer considered founding shares).

IV. Legal consultancy services on ordinary shares

The foregoing article by Ngoc Phu Law Company Limited (NPLaw) provides an overview of legal issues concerning ordinary shares. With an experienced team of lawyers and legal experts, NPLaw is always ready to accompany, advise, and assist clients on matters relating to ordinary shares and other corporate legal issues.