WHAT LEGAL PROCEDURES ARE REQUIRED FOR FOREIGN INDIRECT INVESTMENT IN VIETNAM?

Notification Procedure for Change of Shareholders

In recent years, Vietnam has become an attractive destination for foreign indirect investment in Vietnam due to rapid economic growth and a favorable investment environment. A notable example is the investment by SCG Packaging in Duy Tan Plastic Manufacturing Corporation, an unlisted company that has drawn significant attention from international investors. This case illustrates how indirect investment in Vietnam can bring substantial capital to companies, fostering the development of industries such as plastics.

Cases Where Foreign Investors Can Purchase Shares

Foreign investors can engage in foreign indirect investment in Vietnam by purchasing shares in various scenarios:

1. Buying shares in an established joint-stock company:
   • Foreign investors can purchase shares from the initial issuance or acquire them from existing shareholders. This type of foreign indirect investment allows entry into the Vietnamese market without the need to establish a new enterprise.
2. Capital contribution to limited liability companies and partnerships:
   • By contributing capital, foreign investors can become members and participate directly in the management of the company.
3. Transfer of capital between foreign investors:
   • Foreign investors can acquire capital from another foreign investor in a Vietnamese company, providing flexibility in managing and reallocating investments.
4. Purchase of shares or capital contribution in enterprises within investment incentive zones:
   • Foreign indirect investment in Vietnam may qualify for investment incentives when capital is contributed or shares are purchased in economic zones, industrial parks, or areas encouraged by the government.

Procedure for Purchasing Shares in Unlisted Companies

When foreign investors engage in indirect investment in Vietnam by purchasing shares in unlisted companies, they must follow strict legal procedures, particularly the notification procedure for a change of shareholders. The process includes:

Case 1: Foreign Investor Purchases Less Than 51% of Charter Capital

1. Submit documents for business registration amendment: The documents include the company’s resolution, meeting minutes, share transfer agreement, and an updated list of shareholders. Updating shareholder information ensures transparency and legal compliance in foreign indirect investment.
2. Complete the business registration amendment: Once valid documents are received, the business registration authority issues a new enterprise registration certificate within three working days, officially confirming the change in shareholders and foreign indirect investment.

Case 2: Foreign Investor Purchases More Than 51% of Charter Capital or in Conditional Sectors

1. Register capital contribution or share purchase with the investment registration authority: Foreign indirect investment in Vietnam requires submitting a registration dossier, including details of the economic organization, expected ownership ratio, and relevant legal documents.
2. Complete registration and capital contribution: Upon receiving confirmation from the investment registration authority, foreign investors contribute capital, and the company finalizes the business registration amendment, as in Case 1.
3. Open a direct investment capital account: When foreign indirect investment in Vietnam results in ownership exceeding 51% of the charter capital, the company must open a direct investment capital account to manage funds from the investment or share transfer, ensuring legal and transparent transactions.

Important Notes on Share Transfer via Agreement

Foreign indirect investment in Vietnam through share transfer agreements, particularly in unlisted companies, must comply with strict legal regulations. Key points include:

• Restrictions on share transfer: Within three years of the enterprise registration certificate issuance, founding shareholders may only transfer shares to non-founding shareholders with the approval of the general meeting of shareholders, protecting the rights of founding shareholders and maintaining the company’s ownership structure during foreign indirect investment.
• Share transfer procedure: As per Article 127.2 of the Law on Enterprises 2020, the share transfer agreement must be signed by both the transferor and transferee, clearly detailing the type of shares, value, and associated rights.
• Updating the shareholder register: Upon completion of the share transfer, the shareholder register must be updated to reflect the new shareholder, ensuring transparency and accuracy in shareholder management and completing the foreign indirect investment process.

Conclusion

The notification procedure for a change of shareholders in indirect investment in Vietnam is a crucial step in the process of purchasing shares in unlisted companies. Compliance with share transfer agreements and updating shareholder information not only ensures the legality of the transaction but also protects the rights of the investors. This process facilitates foreign indirect investment in Vietnam, contributing to the sustainable development of domestic enterprises.

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