Decree No. 44/1998/ND-CP On Converting State-Owned Enterprises into Joint Stock Companies

DECREE OF THE GOVERNMENT

On the conversion of state-owned enterprises into joint-stock companies

THE GOVERNMENT

Pursuant to the Government Organization Law dated September 30, 1992;

Pursuant to the State Enterprise Law on April 20, 1995;

At the proposal of the Minister of Finance,

DECREE:

PART I
GENERAL PROVISIONS

Article 1. The subjects to which this Decree applies are the enterprises listed in Article 1 of the Law on State-Owned Enterprises that the State does not need to continue holding 100% of the capital investment, as determined in the Appendix attached to this Decree.

Article 2. Converting state-owned enterprises into joint-stock companies (hereinafter referred to as "stock privatization") aims at the following objectives:

1. Mobilizing capital from the entire society, including individuals, economic organizations, social organizations within and outside the country, for investment in technological innovation, creating more jobs, developing enterprises, enhancing competitiveness, and changing the structure of state-owned enterprises.

2. Creating conditions for workers in the enterprise to become real owners through shares and those who have contributed capital; changing management methods to create motivation to promote effective business operations, increase state assets, raise workers' income, and contribute to national economic growth.

Article 3.

1. Economic organizations, social organizations, Vietnamese citizens, overseas Vietnamese, and foreigners residing in Vietnam all have the right to purchase shares in state-owned enterprises undergoing stock privatization.

2. The sale of shares to foreign organizations and individuals shall be carried out in accordance with the provisions of the Prime Minister.

Article 4. Ownership rights and all legitimate benefits of organizations and individuals purchasing shares in privatized enterprises shall be protected by the State in accordance with the provisions of the law.

Article 5. Shares shall be publicly announced for sale at the privatized enterprises or sold through commercial banks, financial companies, and securities exchanges and trading centers.

Article 6. Enterprises conducting stock privatization shall be responsible for arranging and utilizing all current labor force in the enterprise. For employees voluntarily terminating their labor contracts, they shall be resolved according to the current regulations.

Article 7. Stock privatization shall be conducted in the following forms:

1. Maintaining the existing value of state capital in the enterprise, issuing stocks to attract additional capital for development;

2. Selling part of the existing value of state capital in the enterprise;

3. Separating a portion of the enterprise meeting the conditions for stock privatization;

4. Selling the entire existing value of state capital in the enterprise to convert it into a joint-stock company.

Article 8. Right to purchase shares for the first time when conducting stock privatization.

1. Type of enterprise where the State holds controlling shares, special shares:

a) A legal entity may purchase no more than 10% of the total number of shares of the enterprise;

b) An individual may purchase no more than 5% of the total number of shares of the enterprise.

2. Type of enterprise where the State does not hold controlling shares, special shares:

a) A legal entity may purchase no more than 20% of the total number of shares of the enterprise;

b) An individual may purchase no more than 10% of the total number of shares of the enterprise.

3. Type of enterprise where the State does not participate in shares:

There is no limit on the number of shares each legal entity and individual can purchase, but it must ensure the minimum number of shareholders in accordance with the provisions of the Company Law.

4. The portion of enterprise debt to workers before stock privatization, if agreed upon by the workers, may be converted into shares of the company.

5. The objects specified in Clause 2, Article 13 of the Ordinance on Combating Corruption are only allowed to purchase discounted shares not exceeding the average shareholding of other shareholders in the enterprise.

Article 9. Using proceeds from the sale of state-owned shares:

The proceeds from the sale of state-owned shares in the enterprise, after deducting the costs of stock privatization by the People's Committee of the province or centrally administered city (for enterprises under local jurisdiction), the Ministry of Finance (for enterprises under ministries and general departments), and the Management Board of Total Corporation 91 (for member enterprises of Total Corporation) shall be used for:

1. Training and retraining to provide new job opportunities for workers.

2. Subsidies for surplus workers.

3. Supplementing capital for state-owned enterprises in need of consolidation and investment in state-owned enterprises that have been privatized according to approved plans.

Article 10. The Ministry of Finance shall uniformly manage the printing and supply of share certificates in privatized enterprises; ensuring that shareholders receive their certificates no later than 30 days after the end of the issuance period of the privatized enterprise.

PART II
PRINCIPLES FOR DETERMINING THE VALUE OF ENTERPRISES.
ADVANTAGES FOR ENTERPRISES AND WORKERS IN STOCK PRIVATIZATION
PRINCIPLES FOR DETERMINING THE VALUE OF ENTERPRISES.

Article 11. ADVANTAGES FOR ENTERPRISES AND WORKERS IN STOCK PRIVATIZATION

1. The actual value of the enterprise is the total value of its current assets at the time of stock privatization, accepted by both the buyer and seller of shares. The actual value of state capital in the enterprise is the actual value of the enterprise minus the liabilities payable.

2. Factors determining the actual value of the enterprise:

a) Accounting records of the enterprise at the time of stock privatization.

b) The actual value of assets in the enterprise based on the quality, technical performance, usage needs of the asset purchaser, and market prices at the time of stock privatization.

3. Business advantages of the enterprise regarding geographical location and product reputation (if any). This advantage is reflected in the profit margin realized over the average operating capital of three years prior to stock privatization. The value of such an advantage shall be counted at a maximum of 30% of the actual value of the enterprise.

Article 12. When determining the actual value of the enterprise, it is not necessarily required to hire an independent auditor. Enterprises that do not comply with accounting and statistical laws shall have the authority determining the enterprise's value consider hiring an independent auditing organization. The cost of hiring an auditor shall be included in the privatization expenses.

Article 13. Privatized enterprises shall enjoy the following advantages:

1. State-owned enterprises converted into joint-stock companies are a new form of investment and shall enjoy incentives as prescribed by the Law on Encouraging Domestic Investment (amended).

In cases where enterprises do not meet the conditions for enjoying incentives under the Law on Encouraging Domestic Investment, they shall be granted a 50% reduction in corporate income tax for two consecutive years following the transition to operations under the Company Law.

2. Be exempted from stamp duty for the transfer of assets under the management and use of state-owned enterprises undergoing shareholding reform to become the property of joint-stock companies.

3. Shall continue to borrow funds from commercial banks, finance companies, and other credit organizations of the State under the mechanisms and interest rates applied to state-owned enterprises.

4. Shall continue to import and export goods according to the current regulations applicable to state-owned enterprises before their shareholding reform.

5. Prior to the shareholding reform, may proactively use surplus bonus and welfare funds (in cash) allocated to employees currently working there (without having to pay income tax) to purchase shares.

Shall maintain and develop welfare funds in the form of physical assets, cultural facilities, clubs, clinics, and rest homes to ensure welfare for employees in the joint-stock company. These assets belong to the collective of employees managed by the joint-stock company with the participation of the Trade Union organization.

6. Actual, reasonable, and necessary expenses incurred during the process of converting a state-owned enterprise into a joint-stock company shall be deducted from the proceeds of the sale of state-owned shares according to the level prescribed by the Ministry of Finance.

In the case of shareholding reform pursuant to Clause 1, Article 7 of this Decree, existing state capital at the enterprise may be utilized to cover costs.

Article 14. Employees in enterprises undergoing shareholding reform shall enjoy the following preferential treatments:

1. The State shall sell shares to employees at a preferential price depending on each employee's years of service. One year of work for the State entitles an employee to purchase up to ten shares (each share valued at VND 100,000) with a discount of 30% compared to other categories. The total value of preferential treatment for employees shall not exceed 20% of the value of state capital at the enterprise. For enterprises with accumulated self-funded capital of 40% or more of the enterprise's value, the total value of preferential treatment for employees shall not exceed 30% of the value of state capital at the enterprise.

In the case of shareholding reform pursuant to Clause 1, Article 7 of this Decree, the value of preferential treatment for employees shall be deducted from the existing state capital at the enterprise.

Employees holding such shares have the right to transfer, inherit, and other shareholder rights as stipulated by law and the Articles of Association of the joint-stock company.

2. Poor employees in the enterprise who purchase shares at a preferential price shall be allowed to defer payment for three years to enjoy dividends and repay gradually over a maximum period of ten years without interest. The number of shares purchased on deferred payment for poor employees shall not exceed 20% of the total number of state shares sold at the preferential price specified in Clause 1 of this Article. Shareholders with deferred payments shall not be allowed to transfer their shares until they have fully repaid the State.

3. Within twelve months from the date when the state-owned enterprise becomes a joint-stock company, if restructuring business operations or changing technology leads to job losses, policies for these employees shall be resolved according to the current regulations of the Government.

CHAPTER III
IMPLEMENTATION

Article 15. Authority to select and decide on enterprises for shareholding reform:

1. Based on the conditions set forth in Article 1 of this Decree, Ministers, Heads of agencies equivalent to ministries, and Heads of government agencies (hereinafter collectively referred to as Ministers), Chairpersons of People's Committees of provinces and centrally-administered cities (hereinafter collectively referred to as Chairpersons of People's Committees of provinces) shall select and decide on enterprises for shareholding reform.

2. The Board of Directors of state-owned corporations established by the Prime Minister (referred to as Corporation 91) shall prepare a list of member enterprises for shareholding reform and report to the Prime Minister for approval before implementation.

3. The Board of Directors of state-owned corporations established by the Prime Minister and authorized by Ministers, Chairpersons of People's Committees of provinces and centrally-administered cities (referred to as Corporation 90) shall select a list of member enterprises for shareholding reform and report to Ministers and Chairpersons of People's Committees of provinces for decision.

Article 16. Authority to guide and decide on the value of enterprises:

1. The Minister of Finance shall provide general guidance on the method for determining the value of enterprises for shareholding reform.

2. Authority to decide on the value of enterprises:

a) The Minister of Finance shall decide on the value of enterprises with state capital recorded in accounting books exceeding VND 10 billion at the time of shareholding reform, after consultation with the relevant ministry, provincial or centrally-administered city people's committee, and the Board of Directors of Corporation 91.

b) Based on the guidance of the Minister of Finance, Ministers, Chairpersons of People's Committees of provinces and centrally-administered cities, and the Board of Directors of Corporation 91 shall decide on the value of enterprises with state capital recorded in accounting books up to VND 10 billion at the time of shareholding reform.

Article 17. Authority to approve the shareholding reform plan and decide on the conversion of state-owned enterprises into joint-stock companies:

1. For enterprises with state capital exceeding VND 10 billion (as decided in Clause 2, Article 16 of this Decree), Ministers, Chairpersons of People's Committees of provinces, and the Board of Directors of Corporation 91 shall draft the shareholding reform plan and submit it to the Prime Minister for approval and decision to convert state-owned enterprises into joint-stock companies.

2. For enterprises with state capital up to VND 10 billion, Ministers and Chairpersons of People's Committees of provinces shall approve the plan, decide on the conversion of state-owned enterprises into joint-stock companies, and direct the implementation of shareholding reform based on this Decree and the guidance and inspection of relevant ministries.

Documents on shareholding reform issued by Ministries, provinces, and the Board of Directors of Corporation 91 must be sent to the Office of the Government, the Ministry of Finance, and the Ministry of Planning and Investment for monitoring.

Article 18. The decision of the competent authority to convert a state-owned enterprise into a joint-stock company as stipulated in Article 17 of this Decree shall replace the Business Registration Certificate for a joint-stock company as provided in Article 16 of the Law on Enterprises.

Article 19. Business registration of joint-stock companies:

1. After shareholding reform, enterprises shall operate in accordance with the Law on Enterprises and register their business with the Department of Planning and Investment of the province or centrally-administered city where the enterprise's headquarters is located.

2. Within seven days from the date of receiving complete business registration files, the Department of Planning and Investment shall issue a Business Registration Certificate to the joint-stock company.

3. The business registration file includes:

a) The decision on converting state-owned enterprises into joint-stock companies issued by the competent authority as stipulated in Article 17 of this Decree.

b) The charter of organization and operation of the joint-stock company approved by the Shareholders' Meeting.

c) Minutes of the election of the Board of Directors and appointment of the General Director.

d) The business registration certificate of the state-owned enterprise prior to the process of shareholding (if available).

Business licenses for industries managed by ministries that are still valid need not be replaced.

Article 20. State capital management at joint-stock companies:

1. In the case of converting an independent enterprise entirely into a joint-stock company:

The Ministers of Ministries, Chairmen of Provincial People's Committees, and Boards of Directors of State-Owned Corporations 91 shall consult with the Ministry of Finance regarding the appointment of individuals directly managing the state capital at the joint-stock company.

2. In the case of converting a part of an independent enterprise (State-Owned Corporation, independent enterprise with a Board of Directors, or without a Board of Directors) into a joint-stock company:

The Boards of Directors of state-owned enterprises with a Board of Directors or the General Directors of independent state-owned enterprises without a Board of Directors shall appoint individuals directly managing the state capital at the joint-stock company established through the shareholding of a part of their own enterprise.

3. Individuals directly managing the state capital at the joint-stock company shall perform their rights and obligations according to Articles 50 and 54 of the Law on State-Owned Enterprises.

4. Dividends from the state capital at the joint-stock company belong to the state and shall be remitted as follows:

a) To the state budget in accordance with Clause 1 of this Article;

b) To the state-owned enterprise managing the state capital in the joint-stock company in accordance with Clause 2 of this Article.

PART IV
IMPLEMENTING PROVISIONS

Article 21. This Decree takes effect fifteen days from the date of signature, replacing Decree No. 28/CP dated May 7, 1996, and Decree No. 25/CP dated March 26, 1997. Other previous documents concerning shareholding that conflict with this Decree are no longer effective.

Article 22. Within thirty days from the date this Decree takes effect, the Ministry of Finance, the Ministry of Labor, Invalids and Social Affairs, the State Bank of Vietnam, and other relevant ministries and agencies shall provide guidance on implementing this Decree.

Article 23. The Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairmen of Provincial People's Committees, and Boards of Directors of State-Owned Corporations 91 are responsible for enforcing this Decree./.

THE GOVERNMENT OF THE SOCIALIST REPUBLIC OF VIETNAM

Independence - Freedom - Happiness

ANNEX

LIST OF STATE ENTERPRISES FOR SELECTION OF SHAREHOLDING

(Annexed to Decree No. 44/1998/NĐ-CP dated June 29, 1998)

I. Current state enterprises that have not yet undergone shareholding:

State enterprises engaged in public services as defined in Article 1 of Decree No. 56/CP dated October 2, 1996, of the Government.

For the shareholding of enterprises belonging to this category with state capital exceeding 10 billion dong, approval from the Prime Minister is required. If the state capital is 10 billion dong or less, it shall be decided by the Minister, Chairman of the Provincial People's Committee, or the Chairman of the City People's Committee under central jurisdiction.

Production of products and supply of services exclusively operated by the state: explosives, toxic chemicals, radioactive materials, silver printing and certificates of value, national and international trunk information networks.

II. Current state enterprises that require state control shares or special shares during the shareholding process:

State enterprises engaged in public services with capital over 10 billion dong;

Mining of rare minerals;

Large-scale mining of mineral resources;

Technical services related to oil exploration;

Production of fertilizers, pesticides, medicines, and pharmaceuticals;

Large-scale production of colored metals and precious metals;

Large-scale electricity generation, transmission, and distribution;

Aircraft maintenance;

Postal and telecommunications services;

Railways, air transport, and ocean transport;

Large-scale printing, publishing, alcohol, beer, and tobacco production;

Investment banks, banks for the poor;

Large-scale petroleum trading.

III. All remaining current state enterprises may undergo shareholding and apply other forms of ownership conversion where the state does not hold controlling or special shares./.