Decree No. 38/2003/ND-CP On the Conversion of Certain Foreign-Invested Enterprises to Joint Stock Companies

DECREE

Regarding the conversion of some enterprises with foreign investment capital to operate under the form of Joint Stock Companies

Conversion of enterprises with foreign investment capital to operate under the form of Joint Stock Companies

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THE GOVERNMENT

Pursuant to the Law on Organization of the Government dated December 25, 2001;

Pursuant to the Enterprise Law dated June 12, 1999;

Pursuant to the Law on Foreign Investment in Vietnam dated November 12, 1996; the Law Amending and Supplementing Certain Provisions of the Law on Foreign Investment in Vietnam dated June 9, 2000;

Pursuant to the opinion of the Standing Committee of the National Assembly in document number 08/UBTVQH dated January 13, 2003 regarding the issuance of the Government's Decree on the conversion of some enterprises with foreign investment capital to operate under the form of Joint Stock Companies;

At the proposal of the Minister of Planning and Investment,

DECREE:

Chapter 1:

GENERAL PROVISIONS

Article 1. Scope of Application

This Decree stipulates the conversion of some enterprises with foreign investment capital currently operating under the Law on Foreign Investment in Vietnam into Joint Stock Companies with foreign investment capital.

Joint Stock Companies with foreign investment capital shall operate in accordance with this Decree and relevant laws.

Article 2. Objectives of conversion

The conversion of some enterprises with foreign investment capital to operate under the form of Joint Stock Companies aims at:

1. Enhancing the operational efficiency of enterprises with foreign investment capital.

2. Mobilizing capital from domestic and foreign investors for technological innovation, job creation, and business development.

3. Diversifying investment forms, improving the investment environment, and attracting foreign direct investment.

4. Increasing the supply of securities for the Vietnamese stock market.

Article 3. Definitions

In this Decree, the following terms are understood as follows:

"Conversion of enterprise" refers to the transformation of the management structure of foreign-invested enterprises established and operating under the Law on Foreign Investment in Vietnam into Joint Stock Companies with foreign investment capital.

"Joint Stock Company with foreign investment capital" (hereinafter referred to as Joint Stock Company) is a company with a registered capital divided into equal parts called "shares," where foreign founding shareholders hold at least 30% of the registered capital; it operates according to the Joint Stock Company form prescribed in this Decree and enjoys guarantees and incentives provided by the State of Vietnam under the Law on Foreign Investment in Vietnam.

"Enterprise with foreign investment capital" (hereinafter referred to as enterprise) is a joint venture or wholly foreign-owned enterprise established under the Law on Foreign Investment in Vietnam.

"Registered capital" is the amount of capital contributed by shareholders and recorded in the Articles of Association of the Joint Stock Company with foreign investment capital.

"Voting capital" is the portion of contributed capital that entitles the holder to vote on matters decided by the General Meeting of Shareholders.

"Foreign shareholder" is a foreign organization or individual owning shares in the Joint Stock Company.

"Vietnamese shareholder" is a Vietnamese organization or individual owning shares in the Joint Stock Company.

"Founding shareholder of the Joint Stock Company" is the principal investor contributing the statutory capital of the enterprise before conversion or an organization or individual holding founding shareholder shares.

"Dividend" is the annual amount of money allocated from the profits of the Joint Stock Company with foreign investment capital to be paid per share.

"Enterprise manager" is a member of the Board of Directors, Director (General Director), or other important managerial positions as prescribed in the Articles of Association of the Joint Stock Company.

Article 4. Forms of conversion

Enterprises may be converted through the following forms:

1. Maintaining the value of the enterprise and the investor.

2. Transferring part of the enterprise's value to new shareholders.

3. Maintaining the value of the enterprise or transferring part of the capital and issuing additional shares to attract investment.

Article 5. Shareholders purchasing shares

Shareholders purchasing shares of the Joint Stock Company include:

1. Organizations and individuals of Vietnam.

2. Enterprises with foreign investment capital in Vietnam; organizations and individuals of foreign countries.

3. Overseas Vietnamese. This category has the right to independently decide whether to be a foreign shareholder or a Vietnamese shareholder but must register when purchasing shares and enjoy corresponding rights and fulfill corresponding obligations.

Article 6State guarantees for shareholders and Joint Stock Companies with foreign investment capital

The ownership of capital and all legitimate rights and interests of shareholders and of Joint Stock Companies are protected by the State of Vietnam in accordance with the provisions of the law.

In cases where the Government of Vietnam concludes international treaties with other countries on encouraging and protecting investment which contain provisions different from those stipulated in this Decree, such provisions shall be applied in accordance with the provisions of the international treaty.

Chapter 2:

TRANSFORMATION CONDITIONS

Article 7. Transformation Conditions

Enterprises eligible for transformation must meet the following conditions:

1. They have fully contributed the statutory capital as stipulated in the Investment License.

2. They have been officially operating for at least three years, with the last year before transformation being profitable.

3. They possess a proposal for transformation.

The Ministry of Planning and Investment shall take the lead and coordinate with the Ministry of Finance and relevant agencies to select foreign-invested enterprises operating in industries, agriculture, services, and meeting the aforementioned conditions, and submit them to the Prime Minister for consideration and decision.

Article 8. Responsibilities and authorities of enterprises during the transformation process

1. Enterprises shall continue to maintain their organizational structure and operations in accordance with the Law on Foreign Investment in Vietnam until they obtain an amended Investment License approving the enterprise transformation.

2. Enterprises must ensure normal business operations and protect the rights and interests of workers in accordance with labor laws.

3. The State of Vietnam encourages enterprises to sell shares under preferential conditions to managers, employees, and workers based on their contributions to the company's production and business results.

Article 9. Enterprise value for transformation

1. The enterprise value for transformation is the total asset value recorded in the books of the enterprise, audited within six months prior to submitting the transformation application. This value serves as the basis for determining the minimum selling price of shares and the issuance price of stocks.

2. In the case of joint ventures, the holding ratio of capital among the joint venture parties after reassessing the enterprise value shall be the statutory capital contribution ratio stipulated in the Investment License.

3. For joint ventures where the Vietnamese party contributes capital through land use rights, the value of the land use rights and the period of capital contribution through land use rights shall remain unchanged as specified in the Investment License and included in the enterprise value for transformation. Upon expiration of the Vietnamese party's capital contribution period through land use rights, the joint-stock company will switch to leasing land from the State of Vietnam.

Enterprises may engage domestic or foreign consulting companies, financial companies, auditing companies, and securities companies to determine the enterprise value, share selling price, or stock issuance price.

Chapter 3:

ORGANIZATION OF ACTIVITIES OF JOINT-STOCK COMPANIES WITH FOREIGN INVESTMENT CAPITAL

VỐN ĐẦU TƯ NƯỚC NGOÀI ||| FOREIGN DIRECT INVESTMENT CAPITAL

Article 10. Shareholders of Joint-Stock Companies with Foreign Investment Capital

1. Joint-Stock Companies must have at least one foreign founding shareholder, whose total shareholding value must ensure at least thirty percent of the registered capital throughout the company's operation.

2. Shareholders of Joint-Stock Companies are only liable for the company's debts and other financial obligations within the scope of their capital contributions to the company.

3. Shareholders have the right to transfer their shares in accordance with this Decree.

4. Shareholders can be organizations or individuals; the minimum number of shareholders is three, with no maximum limit.

5. Foreign shareholders have the right to participate in managing the Joint-Stock Company.

Article 11. Shareholder Register

1. Joint-Stock Companies must establish and retain a shareholder register. The shareholder register can be in written form, electronic data, or both.

2. The shareholder register must include the following main contents:

a) Name and headquarters of the Joint-Stock Company;

b) Total number of shares available for sale, types of shares available for sale, and the number of each type of shares available for sale; total number of shares held by foreign shareholders;

c) Total number of sold shares of each type and the contributed capital value;

d) Name of shareholder, nationality, address, quantity of each type of shares held by each shareholder, date of registration of shares.

3. The shareholder register must be kept at the headquarters of the Joint-Stock Company or another location, but it must be notified in writing to the Ministry of Planning and Investment and all shareholders.

Article 12. Shares

1. Joint-Stock Company shares are certificates issued by the Joint-Stock Company confirming ownership of one or more shares by shareholders who have invested in the company.

2. The face value of Joint-Stock Company shares can be denominated in Vietnamese Dong or freely convertible foreign currency. All shares traded in Vietnam must be denominated in Vietnamese Dong. The exchange rate between Vietnamese Dong and foreign currency is the average inter-bank foreign exchange market rate published by the State Bank of Vietnam at the time of conversion.

3. Foreign founding shareholders must hold registered shares corresponding to the share value stipulated in Clause 1, Article 10 of this Decree.

4. Shares must include the following main contents:

a) Name and headquarters of the company;

b) Number and date of issuance of the amended investment license approving the enterprise transformation;

c) Quantity of shares;

d) Type of shares;

đ) Face value of each share and total face value of the number of shares recorded on the share;

e) Name of shareholder and nationality of the shareholder holding the share for registered shares;

g) Summary of share transfer procedures;

h) Signature sample of the legal representative and company seal;

i) Registration number in the company's shareholder register and date of issuance of the share;

k) For preference shares, additional contents as stipulated in Clause 3, Article 19 of this Decree.

Article 13. Rights and Obligations of Joint-Stock Companies with Foreign Investment Capital

1. Exemption from stamp duty for the transfer of property ownership of the enterprise to the ownership of the Joint-Stock Company.

2. Succession of the rights and obligations of the transformed enterprise towards the State of Vietnam, third parties, and workers.

3. Continue implementing approved investment projects, unpaid debts, and other financial obligations of the transformed enterprise.

4. Shareholders of the Joint-Stock Company shall fulfill tax obligations in accordance with the law.

5. The Joint-Stock Company shall enjoy corporate income tax benefits, resolve disputes arising, and other rights and obligations as prescribed in the Law on Foreign Investment in Vietnam and the Investment License issued before transformation.

Article 14. Listing on the Stock Market

1. A joint-stock company may participate in listing on the domestic securities market in accordance with the provisions of the Securities Law.

2. A joint-stock company may be listed on foreign securities markets after being approved by the competent Vietnamese state agency.

Article 15. Transfer of shares held by foreign founding shareholders

1. During its operation, foreign founding shareholders are permitted to transfer their shares to organizations or individuals from abroad.

2. The transfer of shares held by foreign founding shareholders to Vietnamese organizations or individuals must be approved by the Ministry of Planning and Investment and must comply with the provisions of Clause 1, Article 10 and Clause 3, Article 12 of this Decree. The proceeds from such transfers must be reinvested in Vietnam; if transferred out of Vietnam, it must be approved by the competent authority.

Article 16. Dissolution of Joint-Stock Companies with Foreign Investment Capital

A joint-stock company shall be dissolved in the following cases:

1. Upon expiration of the operating term specified in the Articles of Association without an extension decision;

2. Pursuant to a decision of the General Meeting of Shareholders;

3. If the company does not have the minimum number of shareholders for six consecutive months;

4. If its investment license is revoked.

Article 17. Procedure for Ceasing Operations, Liquidation, and Dissolution

The cessation of operations, liquidation, and dissolution of a joint-stock company shall be carried out in the following sequence:

1. The Ministry of Planning and Investment issues a decision to cease operations for the joint-stock company;

2. The joint-stock company is responsible for establishing a liquidation committee to proceed with the liquidation of the company's assets;

3. After completing the liquidation process, the joint-stock company submits a liquidation dossier to the Ministry of Planning and Investment for review and decision.

Article 18. Bankruptcy of Joint-Stock Companies

The bankruptcy of joint-stock companies shall be carried out in accordance with the provisions of Vietnamese law on enterprise bankruptcy.

Article 19. Application of Certain Provisions of the Enterprise Law to Joint-Stock Companies with Foreign Investment Capital

1. Types of shares are classified according to the provisions of Article 52 of the Enterprise Law.

2. The rights and obligations of ordinary shareholders are implemented in accordance with the provisions of Articles 53 and 54 of the Enterprise Law.

3. The rights of preferred shareholders are implemented in accordance with Articles 55, 56, and 57 of the Enterprise Law.

4. The issuance, transfer, purchase, and repurchase of shares; conditions for payment and handling of repurchased shares; dividend payments, recovery of share purchase payments or dividends are carried out in accordance with the provisions of Articles 61, 63, 64, 65, 66, 67, and 68 of the Enterprise Law and Article 15 of this Decree.

5. The organizational structure of management of joint-stock companies, the General Meeting of Shareholders, and the organization of General Meetings of Shareholders are implemented in accordance with the provisions of Articles 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, and 87 of the Enterprise Law.

6. The appointment, rights, and obligations of the General Director (General Manager) and other managers of the joint-stock company are implemented in accordance with the provisions of Articles 85 and 86 of the Enterprise Law.

7. The rights and duties of the Board of Supervisors of the joint-stock company are implemented in accordance with Articles 88, 89, 90, and 91 of the Enterprise Law.

8. Auditing, disclosure of information, and record-keeping procedures of the joint-stock company are implemented in accordance with the provisions of Articles 92, 93, and 94 of the Enterprise Law.

9. The application of certain provisions of the Enterprise Law to joint-stock companies with foreign investment capital.

Chapter 4:

IMPLEMENTATION

Article 20. Dossier for Requesting Conversion

The conversion request dossier shall be submitted to the Ministry of Planning and Investment in eight (8) copies, at least one (1) of which must be the original; each copy shall include:

1. A conversion request letter signed by the General Director of the enterprise;

2. The conversion plan;

3. Report on the business situation of the enterprise before conversion;

4. Draft Articles of Association of the joint-stock company;

5. Resolution of the Board of Directors or the investor approving the conversion plan.

Article 21. Contents of the Conversion Plan and Business Situation Report

1. The conversion plan includes the following contents:

a) Objectives and requirements for the conversion;

b) Scale and form of the proposed conversion: registered capital, number of shares, value of one share, percentage of shares held by founding shareholders, percentage of shares held by other shareholders;

c) Timeframe for implementing the conversion, time of issuance and location of sale of shares (if applicable);

d) Employee utilization plan and preferential measures (if any) for employees working at the enterprise in purchasing shares of the enterprise (discounts, deferred payments, deductions from salary and bonuses...);

đ) Expected issuance of shares on domestic and foreign securities markets including quantity, control mechanisms, and management;

e) Results of determining the enterprise's value.

2. The report on the business situation of the enterprise includes the following contents:

a) Implementation of the project, including investment capital, statutory capital, business performance over the years;

b) Debt situation, assets, inventory, goods in stock, analysis of causes and solutions;

c) Labor situation;

d) Inventory of assets, materials, funds, debts of the enterprise;

đ) Financial statements audited for the last three years up to the date of requesting conversion.

3. The draft Articles of Association of the joint-stock company includes the following main contents:

a) Name, address of headquarters, branch offices, representative offices (if any);

b) Objectives and business sectors;

c) Charter capital;

d) Full name, nationality, address of all founding shareholders;

đ) Number of shares that founding shareholders commit to purchase, type of shares, par value of shares, and total number of shares available for public offering of each type;

e) Rights and obligations of shareholders;

f) Organizational structure of management;

g) Legal representative;

h) Procedures for passing decisions of the joint-stock company, principles for resolving internal disputes;

i) Situations where shareholders can request the joint-stock company to repurchase shares;

k) Types of reserves and limits for each reserve established at the joint-stock company; profit distribution principles, dividend payments, and bearing losses in business;

l) Cases of dissolution, dissolution procedures, and asset liquidation procedures;

m) Procedures for amending and supplementing the Articles of Association of the joint-stock company;

n) Signature of the legal representative or all founding shareholders.

Other contents of the Company Charter of a joint-stock company shall be agreed upon by shareholders but shall not contravene the provisions of the law.

Article 22. Authority to decide on conversion

1. Based on the provisions of this Decree, the Ministry of Planning and Investment shall guide enterprises in preparing and submitting applications for conversion.

Within thirty days from receiving valid application files, the Ministry of Planning and Investment shall take the lead, seek opinions from relevant ministries and sectors, and submit to the Prime Minister for consideration and approval.

2. After being approved by the Prime Minister, the Ministry of Planning and Investment shall notify the enterprise to carry out the tasks stipulated in Article 23 of this Decree and report the results to the Ministry of Planning and Investment to obtain an amended investment permit approving the enterprise conversion. The amended investment permit shall have the same effect as a business registration certificate.

Article 23. Implementation of Conversion

After the enterprise's conversion plan has been announced as approved by the Ministry of Planning and Investment, the enterprise shall proceed with the following tasks:

1. Announce widely about the conversion through mass media and inform the creditors of the enterprise.

2. Organize the sale of shares or issuance of stocks.

3. Convene the first General Meeting of Shareholders to approve the Company Charter and elect the Board of Directors of the joint-stock company.

4. The Board of Directors appoints the General Director or Director.

5. Conduct handover between the Board of Directors or the enterprise's investor and the Board of Directors of the joint-stock company regarding capital, assets, labor, debts...

Article 24. Announcement of activities under the form of a joint-stock company

1. Within thirty days from the date of issuance of the amended investment permit for the enterprise conversion, the joint-stock company must publish in local newspapers or central daily newspapers for three consecutive issues the main contents as follows:

a) Enterprise name;

b) Number and date of the amended investment permit;

c) Address of the main office of the enterprise, branch offices, representative offices (if any);

d) Objectives and business fields;

đ) Registered capital;

e) Names and addresses of the founding shareholders;

f) Name and place of residence of the legal representative of the joint-stock company.

2. When there are changes in the above contents, the joint-stock company must announce such changes according to the provisions of Clause 1 of this Article.

Article 25. Responsibilities of state management agencies

State management agencies shall perform their functions in managing the conversion of enterprises and the operations of joint-stock companies according to their authority, in accordance with the provisions of the law.

Every six months, the Ministry of Planning and Investment shall report to the Government and, on behalf of the Government, report to the Standing Committee of the National Assembly on the implementation of converting foreign-invested enterprises into joint-stock companies.

Chapter 5:

IMPLEMENTING PROVISIONS

Article 26. Effectiveness

This Decree shall take effect fifteen days from the date of publication in the Official Gazette.

Selection of enterprises for conversion shall be carried out within one year from the date this Decree takes effect.

Two years after the date this Decree takes effect, the Ministry of Planning and Investment shall take the lead, together with relevant ministries and sectors, in summarizing the implementation of this Decree and reporting the results to the Government for submission to the Standing Committee of the National Assembly and the National Assembly.

Article 27. Implementation

1. The Ministries of Planning and Investment, Finance, State Bank of Vietnam, and other related agencies shall be responsible for guiding the implementation of this Decree.

2. Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairpersons of People's Committees of provinces and centrally-administered cities shall be responsible for implementing this Decree.