Share transfer agreements in Vietnam typically require a written contract to ensure legal validity. However, in practice, there are situations where the courts recognize such transactions even without a formal written agreement. Based on a recent appellate judgment in Commercial Case No. 30/2022/KDTM-PT, this article will analyze the conditions and legal basis involved.
Why must a share transfer agreement be in writing?
According to Article 127 of the 2020 Enterprise Law, the transfer of shares by founding shareholders must be documented in writing and signed by both the transferor and transferee. This requirement ensures transparency in the transaction and facilitates the registration of shareholder changes with the Department of Planning and Investment.
What is the judgment on a share transfer without a written agreement in Vietnam?
In Commercial Case No. 30/2022/KDTM-PT, a dispute arose from a debt settlement among parties without a formal written share transfer agreement. Specifically, due to Mr. Nguyễn Đức T8’s inability to repay his debt to Ms. Hoàng Thị Kim V, on August 26, 2017, Ms. Ngô Thị Mỹ H4 and Ms. Nguyễn Thu T agreed to transfer their shares in Company H8 to Ms. V as debt settlement. Although there was no official share transfer agreement, the court recognized the transaction based on the fulfillment of obligations and other material evidence.
The court considered factors such as debt acknowledgment records, share certificates, and the parties’ fulfillment of payment obligations before concluding that the transaction was valid despite the lack of a written agreement.
In what cases can a share transfer agreement be recognized without a written document?
Article 129, Clause 2 of the 2015 Civil Code stipulates that a civil transaction that fails to comply with the formality requirements may still be recognized if one or both parties have fulfilled at least two-thirds of their obligations under the transaction.
In the case we analyzed, although there was no written agreement, Ms. Hoàng Thị Kim V received the majority of the payment (8.5 billion VND) from Ms. Nguyễn Thị N1 according to the share transfer agreement. This indicates that Ms. V had substantially fulfilled her obligations under the transaction. Therefore, the court likely relied on this to recognize the validity of the share transfer despite the absence of a written contract.
What evidence can replace a written share transfer agreement?
In the absence of a written share transfer agreement, other material evidence can be used to prove that the transaction occurred and is legally valid. Such evidence includes:
- Debt settlement agreement: On August 26, 2017, the parties signed an agreement in which Ms. H4 transferred 25% of the capital and Ms. T transferred 5% of the capital in Company H8 to Ms. V.
- Debt acknowledgment and transactions between Ms. N1 and Ms. V: On October 16, 2017, Ms. N1 and Ms. V signed an acknowledgment in which Ms. N1 would repurchase 30% of the contributed capital in Company H8 from Ms. V for 10 billion VND.
- Debt acknowledgment record: On December 11, 2019, Ms. N1 and Ms. V signed a debt acknowledgment, confirming that Ms. N1 had paid Ms. V 8.5 billion VND related to the transfer of 30% of the shares.
- Debt reconciliation record: On August 30, 2018, the debt reconciliation record between Ms. T and Mr. T8 confirmed that Ms. N1 had paid Ms. V 10 billion VND on behalf of Mr. T8 by repurchasing 30% of Company H8’s shares from Ms. V.
In Ms. V’s case, documents such as share certificates, debt acknowledgment records, and payment receipts played a crucial role in the court’s determination that the share transfer had occurred and was legally valid. Both the plaintiff and the defendant acknowledged that the share transfer took place and that payment was made, weakening the argument that the transaction was invalid due to the lack of a written agreement.
What should foreign investors note when conducting share transfers in Vietnam?
For foreign investors, it is crucial to have a written share transfer agreement to ensure the legality of the transaction. However, as demonstrated in Ms. V’s case, the fulfillment of obligations and the acknowledgment by the parties involved may be sufficient for the court to recognize the transaction.
Investors should ensure that all agreements and transactions are supported by clear legal documentation and should complete the necessary registration procedures with the Department of Planning and Investment to avoid legal risks.
What are the legal consequences of not having a written share transfer agreement?
The absence of a written share transfer agreement can lead to serious legal consequences. The transaction may be declared invalid by the court if there is insufficient evidence to prove its validity. In Ms. V’s case, the lack of a written agreement led to a complex dispute requiring court intervention to determine the legality of the transaction. This highlights that the absence of a written contract not only complicates the protection of the parties’ rights but also poses the risk of the transaction being nullified if a dispute arises.
Moreover, non-compliance with legal requirements can make it difficult to prove share ownership, putting the transferor or transferee at a disadvantage during dispute resolution.
How can you ensure that share transfers are legally recognized in Vietnam?
To ensure that share transfers are legally recognized, parties must comply with legal requirements, particularly the drafting of a written share transfer agreement. This agreement should include all necessary information and be signed by both the transferor and transferee.
In addition, all legal procedures such as shareholder change registration with the Department of Planning and Investment should be duly completed, and all related documents, including share certificates, shareholder meeting minutes, and financial evidence, should be retained. This not only helps protect the parties’ rights but also ensures the legality of the transaction in the event of a dispute.
Furthermore, Article 404 of the 2015 Civil Code provides for the interpretation of contracts based on the true intentions of the parties, ensuring that transactions are not unjustly invalidated due to the lack of written documentation. This allows the courts to prioritize protecting the actual rights of the parties based on what they have agreed to and performed, rather than rigidly applying formal contract requirements.
If you have any questions regarding share transfers or require legal assistance with business matters, please contact Unilaw for professional and dedicated advice. We are always ready to assist you.
Contact Information: Website: www.unilaw.vn | Email: info@unilaw.vn | Phone: +84 (0) 912266811
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