Internal disputes among shareholders are a common issue in corporate governance, significantly affecting the stability and development of a company. Such disputes typically arise from conflicts concerning the rights and obligations of shareholders. Below, NPLaw respectfully provides our readers with the legal issues relating to internal disputes among shareholders. 

I. Current situation of internal disputes among shareholders

At present, internal disputes among shareholders of companies in Vietnam occur quite frequently and take various forms with diverse causes. The primary causes usually arise from conflicts of interests, disagreements in corporate governance and management, or breaches of shareholders’ agreements, particularly in joint stock companies where multiple shareholders hold differing interests and viewpoints.

In addition, ambiguities in the company charter, unclear regulations on shareholders’ rights and obligations, or a lack of transparency in management and operations also contribute to disputes. Such situations negatively affect business operations, undermine internal stability, erode shareholders’ trust, and adversely impact the sustainable development of enterprises. The resolution of such disputes also encounters many difficulties, as parties often lack clear agreements on dispute resolution mechanisms or delay addressing disputes, resulting in prolonged proceedings, increased costs, and damage to the company’s reputation.

II. Regulations on internal disputes among shareholders

1. How are internal disputes among shareholders understood?

Internal disputes among shareholders refer to conflicts or disagreements arising within a company, typically relating to the rights and obligations of shareholders in management, administration, capital utilization, profit distribution, or other matters associated with the company’s operations. Such disputes may arise among shareholders themselves, between shareholders and the executive management, or between shareholders and the company.

2. Methods for resolving internal disputes among shareholders

Methods for resolving internal disputes among shareholders include:

  • Commercial mediation: Pursuant to Article 2 of Decree No. 22/2017/NĐ-CP, disputes among shareholders arising from commercial activities or other disputes permitted by law may be resolved through commercial mediation.
  • Commercial arbitration: In accordance with Article 2 of the Law on Commercial Arbitration 2010, internal disputes among shareholders may also be resolved by arbitration, provided that there is an arbitration agreement stipulated in the company charter or in contracts/agreements among shareholders.
  • Initiation of legal proceedings before the People’s Court: Where mediation or arbitration fails, the parties may initiate a lawsuit before the People’s Court according to Clause 4, Article 30 of the Civil Procedure Code 2015. 

In summary, methods for resolving internal shareholder disputes include commercial mediation, commercial arbitration, and litigation before the Court.

3. Competence to resolve internal disputes among shareholders

The competent authorities for resolving internal disputes among shareholders include:

  • Commercial mediation organizations in accordance with Article 2 of Decree No. 22/2017/NĐ-CP;
  • Arbitration centers: If an arbitration agreement exists in the company charter or shareholders’ agreements (Article 2 of the Law on Commercial Arbitration 2010);
  • The People’s Court (Clause 4, Article 30 of the Civil Procedure Code 2015).

III. Certain questions regarding internal disputes among shareholders

1. Causes of internal disputes among shareholders

Common causes of internal disputes among shareholders include:

  • Conflicts over power and corporate control: One of the main causes of disputes is disagreement over power and control within the company. When one or a group of shareholders feels disadvantaged in decision-making or excluded from main management activities, dissatisfaction easily arises. It often occurs in the absence of transparency in the allocation of authority or when major shareholders impose their will on minority shareholders.
  • Disagreements on the company’s development orientation: Shareholders may hold differing views on business strategies, investment expansion, or operational models. Failure to reach consensus may turn these differences into sources of dispute, especially during periods of restructuring or significant change.
  • Lack of financial transparency and governance: If a company fails to transparently disclose financial statements, profits, expenses, or the use of invested capital, shareholders may suspect fraud or unfair practices. It undermines trust between shareholders and management, leading to internal conflicts.
  • Unfair profit distribution: Profit allocation is a particularly sensitive issue. When shareholders perceive dividend distribution or profit allocation as inconsistent with their ownership ratio or contributions, disputes are likely to arise. In the absence of clear initial agreements or specific provisions in the company charter, conflicts can easily occur.
  • Personalization of interests and their conflicts: Certain shareholders may act contrary to the company’s common interests to achieve their own personal interests, such as using insider information for external investments or prioritizing contracts beneficial to their own businesses. Such conduct creates conflicts of interest and disrupts internal unity.

2. How should internal shareholder disputes be resolved to ensure the rights and interests of the parties?

When internal disputes among shareholders arise, the following approaches should be considered to protect the interests of all parties:

  • Prioritizing negotiation and internal mediation: First, it should organize meetings among the relevant parties to jointly analyze the causes and seek common ground. Resolution through mediation helps save time and costs and preserves relationships among shareholders.
  • Relying on the company charter and shareholders’ agreements: Fair dispute resolution should be based on the company charter and agreements signed among shareholders. These documents constitute essential legal grounds for determining rights, obligations, and resolution mechanisms.
  • Convening an extraordinary General Meeting of Shareholders (if necessary): Where disputes seriously affect company operations, an extraordinary general meeting may be convened to obtain collective opinions and adopt official decisions, ensuring transparency and legality.

3. Main considerations to prevent internal disputes among shareholders

To prevent internal disputes among shareholders, enterprises should note the following:

  • Drafting clear and comprehensive company charters and shareholders’ agreements: From the outset, these documents should clearly define authority, obligations, shareholding ratios, profit distribution methods, voting rights, and dispute resolution mechanisms.
  • Establishing transparent and fair decision-making mechanisms: Clear procedures should be stated regarding who has decision-making authority, voting thresholds, and circumstances requiring unanimous consent.
  • Ensuring regular information disclosure and financial transparency: Shareholders should be fully informed about operations, financial status, and strategic matters. Transparency fosters trust and reduces suspicion, thereby preventing conflicts.
  • Regularly reviewing and updating internal documents: When changes occur in shareholder structure, development strategies, or management personnel, internal documents should be promptly updated to reflect the new circumstances.

4. May the Court be requested to intervene in internal shareholder disputes?

Pursuant to Clause 4, Article 30 of the Civil Procedure Code 2015, disputes among company members or between shareholders and the company relating to establishment, organizational structure, operations, management, administration, division, merger, capital transfer, dissolution, asset handover, and related matters fall within the jurisdiction of the Court. In practice, shareholder disputes may arise from non-transparent profit distribution, breaches of shareholders’ agreements, abuse of managerial power, or unlawful share transfers. Where negotiation or internal mediation fails, shareholders have the right to initiate legal proceedings before the Court to protect their lawful rights and interests.

Accordingly, when internal disputes among shareholders occur, requesting judicial intervention is entirely permissible under the law.

5. How do internal shareholder disputes affect business operations?

Internal disputes among shareholders may seriously affect business operations in several respects, including:

  • Disruption of management and administration: Disputes involving management authority or appointment/dismissal of main personnel, may paralyze corporate governance. Important decisions may be delayed or blocked due to lack of consensus, directly impacting production, business activities, and market responsiveness.
  • Disruption of cash flow and financial strategy: In many cases, disputes delay or halt the approval of budgets, investments, or disbursements. Shareholders may refuse capital contributions, withdraw capital, or obstruct main financial decisions, causing liquidity shortages or missed development opportunities.

IV. Legal consulting services on internal disputes among shareholders

The above is NPLaw’s article on internal disputes among shareholders. With a team of experienced lawyers and legal consultants, NPLaw is always willing to accompany, advise, and support our valued clients in addressing legal issues related to internal shareholder disputes. Should you require assistance with other legal matters, please contact NPLaw.