In the context of the rapid development of Vietnam’s financial market, equity investment has emerged as a crucial capital mobilization channel for enterprises and an attractive opportunity for investors to generate returns. However, to ensure both safety and effectiveness, investors must have a solid understanding of the legal regulations governing equity investment. The following article by NPLaw provides an overview of the concept and role of equity investment, a detailed analysis of key legal provisions, and answers to frequently asked questions to help investors carry out equity transactions confidently, securely, and lawfully, avoiding unnecessary legal risks.

I. Concept and role of equity investment

Equity investment refers to the act of an investor using their capital to purchase a certain number of shares in a joint-stock company. Through share ownership, the investor becomes a shareholder of the company, with corresponding legal rights and obligations based on the number of shares held, as prescribed by law and the company's charter.

This is a form of direct capital investment into an enterprise. Accordingly, equity investment plays specific roles as follows:

  • For enterprises: Equity investment serves as an efficient method of raising capital, enabling companies to expand operations, invest in research and development, or restructure their finances without incurring the debt burden typically associated with bank loans. Issuing shares enhances financial capacity and attracts experienced investors who may bring added value to the company’s growth.
  • For investors: Equity investment offers opportunities to increase wealth through dividend income when the company earns profits and through capital gains from share price appreciation in the market. Compared to other investment forms, equity investment typically presents higher earning potential and allows investors, depending on share type and ownership ratio, to participate in corporate governance, thereby contributing to the enterprise's development. It also enables portfolio diversification, risk mitigation, and increased chances of earning stable returns.

II. Legal framework governing equity investment

1. Legal definition of equity investment

Under Vietnamese law, the concept of equity investment is closely linked to the definition of charter capital and shares in a joint-stock company. Specifically, point (a), Clause 1, Article 111 of the Law on Enterprise 2020 states: Charter capital shall be divided into equal parts called shares, indicating that a share is the smallest unit of the charter capital of a joint-stock company. Therefore, equity investment entails the act of purchasing and holding shares, through which an investor becomes a shareholder of the company.

Owning shares entitles the investor to participate in the company’s key decisions (depending on share type and ownership ratio), and to benefit from the company’s business performance via dividends and long-term share value appreciation.

2. Conditions for conducting equity investment

Investment conditions vary depending on whether the investor purchases shares in a listed company or an unlisted (private) company:

  • For listed companies:
    + Investors may purchase shares through trading activities on the stock exchanges (Hanoi Stock Exchange - HNX and Ho Chi Minh City Stock Exchange - HOSE)
    + To engage in such transactions, investors must open a securities trading account with a licensed brokerage firm and comply with the trading rules of the respective exchange.
  • For unlisted companies:
    + Equity investment typically takes place via private agreements between the investor and the company or existing shareholders.
    + These transactions must comply with the Law on Enterprise 2020, specifically Article 123 (Share Offering) and Article 127 (Share Transfer). In such cases, investors are advised to conduct thorough due diligence on the company’s financial standing, growth potential, management team, and associated risks before proceeding.

Generally, Vietnamese law does not impose significant restrictions on equity investment by individuals or organizations, except in specific sectors where foreign ownership limits apply, as provided in the Law on Investment 2020 and its implementing regulations.

3. Rights and obligations of equity investors

When an investor decides to invest in shares and becomes a shareholder, they are granted certain rights while also assuming legal obligations under the Law on Enterprise 2020 (Article 115 on rights of ordinary shareholders and Article 119 on shareholder obligations), including:

Investor rights include:

  • Attending and voting at the General Meeting of Shareholders
  • Receiving dividends from post-tax profits
  • Preemptive rights to purchase new shares in additional offerings
  • Freely transferring shares to others
  • Accessing and reviewing information on company operations and finances
  • Requesting extraordinary shareholder meetings under lawful circumstances
  • Filing lawsuits to annul resolutions of the General Meeting or Board of Directors if unlawful or against the company charter
  • Receiving a proportionate share of remaining assets upon company dissolution or bankruptcy

Shareholders or shareholder groups owning 5% or more of total ordinary shares are also entitled to additional rights, such as: reviewing minutes, resolutions, and financial reports; requesting General Meetings; and requiring the Supervisory Board to inspect specific management or operational issues, as detailed in Clause 2, Article 115.

Investor obligations include:

  • Fully and promptly paying for subscribed shares
  • Not withdrawing capital contributed in ordinary shares from the company in any unauthorized manner
  • Complying with the company’s charter and internal regulations
  • Abiding by resolutions and decisions of the General Meeting and Board of Directors
  • Keeping company-provided information confidential, using it only to protect their legal rights and interests; and refraining from disseminating or sharing such information with unauthorized parties
  • Fulfilling other obligations as stipulated by law and the company’s charter

III. Questions on equity investment

1. What are the permissible forms of share acquisition?

Under Article 25 of the Law on Investment 2020, investors may acquire shares in the following ways:

  • First: By purchasing shares issued for the first time or additional shares from the joint-stock company (Point a, Clause 1, Article 25). This includes buying shares directly from the company during an initial public offering (IPO) or during a capital increase.
  • Second: By purchasing shares from the company itself or from existing shareholders (Point a, Clause 2, Article 25). This includes acquiring already issued shares from the company or from current shareholders.

2. Is share transfer freely permitted?

According to Clause 1, Article 127 of the Law on Enterprise 2020, shareholders are generally free to transfer their shares to others, except in the following cases:

  • Founding shareholders’ ordinary shares: Within the first 3 years from the issuance of the Enterprise Registration Certificate, founding shareholders may only transfer their ordinary shares to other founding shareholders. Transfers to non-founding shareholders during this period must be approved by the General Meeting of Shareholders.
  • The company charter may impose additional restrictions on share transfers, but such restrictions are only enforceable if explicitly stated on the respective share certificates.

3. What are the risks of equity investment?

Risks associated with equity or securities investment are not comprehensively codified in law but are derived from market practice and financial principles. Notable risks include:

  • Market risk: Share prices may fluctuate sharply due to macroeconomic factors, industry trends, or investor sentiment.
  • Corporate risk: Poor company performance may lead to reduced profits and lower share value.
  • Liquidity risk: Difficulty in quickly selling shares at the desired price, especially for thinly traded stocks.
  • Dilution risk: Issuance of additional shares may dilute ownership and earnings per share for existing shareholders.
  • Information risk: Incomplete or inaccurate company information may negatively affect investment decisions.
  • Legal risk: Changes in laws or regulations may impact company operations and stock value.

Investors should conduct thorough due diligence on companies, market conditions, and risk factors prior to making investment decisions.

IV. Legal advisory services on equity investment

To assist investors in conducting equity investments safely, effectively, and in compliance with the law, NPLaw offers comprehensive and professional legal consulting services, including:

  • Advising on current legal provisions related to equity investment
  • Conducting legal due diligence on target companies to ensure transparency
  • Recommending appropriate share acquisition and transfer methods in compliance with applicable laws
  • Drafting share transfer agreements and shareholder agreements with robust legal terms
  • Representing clients in registering transactions with the Department of Planning and Investment, ensuring expedited processing
  • Resolving disputes concerning dividends, voting rights, or corporate governance issues

Contact NPLaw today for expert legal support and personalized consultation. We are committed to being your trusted partner in safe and successful investments.