The Securities Law 2019 is not clear whether the number of preference shareholders will be taken into account when determining whether a company is a public company. Under the Securities Law 2019 a joint stock company (Company) would be considered a public company if:

• Its paid-up charter capital is at least VND 30 billion; and

• At least 10% voting shares (cổ phiếu có quyền biểu quyết) if the Company is held by at least 100 investors who are not major shareholders.

The first requirement is clear and intelligible. However, the second requirement is not clear whether:

(1)        each and every of the 100 investors who are not major shareholders must hold ordinary shares; or

(2)        only some (but not all) of the 100 investors who are not major shareholders could hold ordinary shares and the rest of these 100 investors could hold preference shares.

A literal reading of the law tends to support the first interpretation (i.e., all investors must hold ordinary shares). However, a closer look suggests that the second interpretation is more reasonable. This is because:

• Under the Enterprise Law 2020, holders of preference shares still have some limited voting rights regarding matters relating to rights and obligations of the preference shares. Accordingly, technically, preference shares can still qualify as “voting shares”;

• The second requirement does not expressly exclude shareholders not holding ordinary shares (non-ordinary shareholders) from the calculation of 100-investor threshold and does not expressly require each investor to hold ordinary shareholders. Therefore, if there are 50 ordinary shareholders holding 10% voting shares and 50 non-ordinary shareholders holding preference shares only then technically, one can still make an argument that the 100-investor as a group still holds 10% voting shares; and

• If non-ordinary shareholders are not counted towards the 100-investor threshold then a Company could circumvent the application of the Securities Law 2019 by issuing preference shares to unlimited number of investors. In general, securities regulations are designed to protect investors which should include both ordinary and preference shareholders. Accordingly, the first interpretation could lead to unwanted consequences (i.e., no protection for preference shareholders).

This post is written by Le Thanh Nhat and Nguyen Quang Vu.