Important notes to consider when holding an Annual General Meeting of Shareholders

April every year is considered as "the season of the general meeting" because this is the time when joint-stock companies are forced to hold an annual General Meeting of Shareholders (a “GMS”) in accordance with law. Therefore, in this period, there are many questions that joint stock companies will pose on the way to hold a GMS with compliance and bring in the most efficiency to the company. In this article, we will give you some important notices, which companies can not be overlooked when holding a GMS.

According to Article 151 of the Law on Enterprise 2020, on grounds for competent authorities execute to cancel annual GMS resolutions in the following situations: (i) the procedures for convening the GMS and issuing GMS resolutions seriously violate regulations prescribed in the Law on Enterprise and the charter of  the company; and (ii) the content of resolutions violate the laws and the charter of the company.

The process of holding a GMS will go through many stages, from preparation to running the meeting and promulgating a GMS resolution. Therefore, it will require the company and the convener to clearly understand regulations in sequence, procedures for convening the meeting, simultaneously comply with these regulations.

Notices procedures for preparing the list of shareholders and sending invitation letters

Preparing the list of shareholders (“list”) who have the right to attend the GMS, is one of the first procedures shall be conducted by the company. According to the substantive law, the list shall be prepared not more than 10 days before the day on which the invitations to participate in the GMS are sent[1]. If the list is prepared more than 10 days before the GMS, this will affect to the right to attend the GMS of those who have recently joined the company, meanwhile, it provides grounds for shareholders or a group of major shareholders holding 5% or more of the shares (unless otherwise prescribed by the Company's Charter) to request the annulment of GMS resolutions. Given public companies, the requirements for preparing the list of shareholders attending GMS are more stringent. Specifically, public companies are required to disclose information about preparing the list of shareholders who have the right to attend the GMS at least 20 days before the final day for registration[2]. This regulation aims to support shareholders to be active in trading and, simultaneously, help individuals and organizations who wish to become shareholders of the company decide to buy stocks sooner to have the right to attend the GMS.

Regarding sending invitation is also one of the most important procedures before conducting the GMS. Differing from Law on Enterprise 2014, Law on Enterprise 2020 requires invitation shall be sent at least 21 days before the date of GMS unless a longer period is prescribed by the charter of the company. This regulation assures that invitations shall be sent to all shareholders, while shareholders can be active in arranging to attend the meeting. This is considered an important procedure because the right of shareholders to attend meetings will be affected if the company doesn’t comply with the minimum duration for sending invitations. In parallel with sending invitations to shareholders, public companies shall disclose information on the website of the company and the State Securities Commission of Viet Nam, stock exchanges (for listed companies, registered organization) about information of the GMS at least 21 days before the date of opening of the GMS, unless a longer period is prescribed by the charter of the company[3].

Notices conditions for conducting the GMS

Despite of a long-time preparation for the procedures of the GMS, the GMS  is not able to conduct if it is not satisfy the conditions. According to Article 145 of Law on Enterprise 2020, the first meeting is only conducted if the number of shareholders attend the meeting presenting more than 50% of votes (the specific ratio specified by the charter of the company), if this ratio is not satisfied, the convener shall cancel the meeting and send the second invitation within 30 days from the scheduled date of the first GMS, unless otherwise prescribed by the  charter of the company. The second meeting is only conducted if the number of shareholders attend the meeting presenting from or more than 33% of votes (the specific ratio specified by the charter of the company), if this ratio is not satisfied, the convener shall cancel the meeting and send the third invitation within 20 days from the scheduled date of the second GMS, unless otherwise prescribed by the Company's Charter. The third GMS shall be conducted regardless of the number of votes represented by participants.

Generally, the examination of the conditions for conducting the GMS will carry out during the registration period and right before the opening time of the GMS according to the scheduled meeting agenda, the meeting convener needs to follow up on the percentage of votes of the participants, thereby determining whether the meeting is eligible to conduct or not.

Note that regulations of the Law on Enterprise 2020 allow the Company's Charter to stipulate differently on the duration for sending invitations to the second and third GMS. However, this duration also needs to be reasonable so that the shareholders can arrange to attend fully, in many cases, sending invitations for the second or third GMS within a few days after the first GMS may be considered unreasonable and does not create conditions for all shareholders to attend the GMS.

Notices on vote counting process

Law on Enterprise 2020 stipulates some cases where a shareholder does not have the right to vote on the content of the meeting, such as when the founding shareholder intends to transfer shares to a person who is not a founding shareholder[4] of the company or shareholders have related interests from the transaction being voted and approved by the GMS[5]. Therefore, in these cases, the Election Board must pay attention to these shareholders, and where they still participate in voting, it is necessary to remove the relevant votes to ensure compliance with regulations.

In addition to the notes on procedures for holding the GMS as above, the company also needs to comply with the laws and the charter of the company on the content of the meeting, it is the basis for the content of resolutions. It should be noted that, from the very beginning, the contents of the meeting agenda must belong to the rights and obligations of the GMS.

For the contents belong to the rights and obligations of the GMS, remarkably such as:

Amending, supplementing the Company’s Charter

Generally, the amendment or supplementation of the charter of the company in related to important contents and belongs to the decision-making authority of the GMS, such as the increase or decrease of charter capital; changing and supplementing business lines; changing the management structure of the company, etc. However, there are also some cases where the amendment of the charter of the company does not affect the operation of the company too much, such as updating the company address due to a change in administrative boundaries. However, to ensure absolutely compliance with regulations, any changes related to the contents specified in the charter of the company shall belong to the decision-making power of the GMS.

Power of the GMS for some decisions, transactions, contracts

The substantive law stipulates that a number of important decisions, transactions and contracts must be approved by the GMS[6], such as (i) investing or selling assets valued at 35% or more of the total asset recorded in the latest financial statement of the company (unless a different ratio or value is specified by the charter of the company)[7] or (ii) the plan to use the capital obtained from the initial issuing of shares, additional issuing of share to the public; private placement of shares and many other cases[8] (“Decisions belong to power of the GMS”) or (iii) contracts and transactions between the company and related persons and being worth more than 35% of company’s total asset according to the latest financial statement (unless a smaller ratio or value specified in the Company's Charter) or (iv) contracts and transactions that involve borrowing, lending, selling assets that are worth more than 10% of the company’s total assets according to the latest financial statement between the company and shareholders holding at least 51% of the total voting shares or their related persons (“transactions, contracts belong to competent approval of the GMS”)

Currently, some GMS resolutions of some companies have content authorizing the Board of Directors to make full decisions on Decisions belong to power of the GMS, or authorizing the Board of Directors to approve transactions, contracts belong to competent approval of the GMS while not submitting the draft of those at the meeting. These cases currently do not comply with the the laws, specifically Law on Enterprise, Law on Securities, and guiding documents. Violations of authorization occur quite popular, forcing the State Securities Commission to send an official letter reminding businesses to comply with the laws in these cases[9].

In conclusion, when holding the GMS, joint stock companies, specifically the person who convenes the meeting, must carefully research the regulations on the procedures for holding the GMS as well as the contents belonging to the decision-making and approval power of the GMS, while complying with those strictly. This not only helps the GMS run smoothly, efficiently, and cost-effectively, but it also eliminates the grounds for the Court or Arbitrator to annul the resolution issued at the meeting.