According to the applicable laws, the register of shareholders plays a crucial role for a joint-stock company. It is considered to be a legal proof of the company's shareholder status. However, nowadays many joint-stock companies, especially small ones, have not paid enough attention to the preparation and maintenance of the register of shareholders. In many cases, such ignorance has led to significant legal consequences for companies. In this article, we will mention the importance of the shareholders' register for joint-stock companies, and at the same time we will give some tips for companies on how to prepare and manage such documents, a crucial aspect that is underestimated by many companies.
1. The importance of the shareholder register
The register of shareholders may be in the form of a document or a set of data containing information on the shares held by each shareholder of the company. According to the Law on Enterprises 2020, a joint-stock company is obliged to prepare and archive the register of shareholders when it is issued a certificate of registration of the company. Therefore, it is considered to be an important document that records the information of the company's shareholders, along with the share certificates issued by the company to the shareholders. Unlike share certificates, which are a certification of each shareholder's share ownership, the share register is a document that contains the information of each shareholder of the company and is archived by the joint-stock company.
1.1. The document of recording of shareholder status
With the characteristic of a company that does not limit the number of capital contributors (shareholders), many joint-stock companies have a large number of shareholders, which leads to difficulties in managing their shareholders. At the same time, with the characteristic of a capital-based company, the transfer of capital within the joint-stock company is not limited (except for the founding shareholders, who are limited to the transfer within the period of 03 years from the date of the company's issuance of the Enterprise Registration Certificate). As a result, from time to time, the company may have a constant change of shareholders. Such situations require that transactions such as payment for the purchase of shares, transfer of shares, or even issuance of shares for the existing shareholders must be managed and approved by recording the shareholder status in the shareholder register. The recording of the shareholder status in the shareholder register helps to determine the date when a person/organization becomes a shareholder of the company, the number of shares paid, the time of payment as well as the limits of such shares. Such matters are also clearly stipulated in Clause 5 Article 113, Clause 4 Article 124 and Clause 6 Article 127 of the Law on Enterprises 2020.
1.2. Basis for the exercise of shareholders' rights
With the role of a document recording the shareholder status, shareholders can refer to such document to exercise their rights as regulated.
Clause 3 Article 122 of the Law on Enterprises 2020 provides that "the shareholder has the right to inspect, look up, extract and copy the name and contact address of the shareholders of the company in the register of shareholders". Pursuant to the above provision, shareholders have the right to inspect the information in the register of shareholders. Thus, shareholders have the basis to exercise their shareholder rights.
For example, in the case of share transfer, the transferee receiving the shares often demands to inquire about the shareholder status of the transferor in order to check whether the transferor is a shareholder of the company or not, the number of shares held by the transferors, whether the shares have been paid for or not, or whether there are any restrictions on the transfer of such shares. In the case where the information of the shareholders is not shown in the Enterprise Registration Certificate as a limited liability company, the register of shareholders is considered a preliminary document that the transferor must provide to the transferee during the due diligence process.
Or in another example, when the company convenes a general meeting of shareholders, a crucial step that every company must follow is to make the list of shareholders who have the right to attend the meeting in order to send a letter of invitation. According to Clause 1, Article 141 of the Companies Act 2020, the list of shareholders who have the right to attend the general meeting of shareholders shall be prepared on the basis of the company's register of shareholders. Accordingly, the Company shall, on the basis of the date when the right to attend the meeting is completed, check all the information in the shareholders' register in order to list the shareholders who are entitled to attend the meeting. It should be noted that for a non-public joint stock company, this is the only basis for preparing the list of shareholders entitled to attend the meeting.
2. Some notes for a joint-stock companies and a shareholder
2.1. For a joint-stock company
Firstly, with the importance as mentioned, joint-stock companies are obliged to keep a register of shareholders and to update, amend the information if required by the shareholders.
Also as mentioned, in addition to the shareholder register, the company is required to provide its shareholders with share certificates, and it is a certificate that determines the ownership of the shareholder's shares. Therefore, the company shall check and reconcile the contents of the share certificates and the shareholder register when making and amending the information in the shareholder register.
Secondly, the Company shall rely on the shareholders' register to carry out procedures and works related to shareholders' rights. Apart from relying on the shareholders' register to prepare the list of shareholders entitled to attend the general shareholders' meeting referred to above. In case the joint stock company issues new shares to the existing shareholders, carries out private placement of shares, it shall base on the shareholders' register to notify the existing shareholders of the preferential right to purchase the shares.
Thirdly, for joint-stock companies whose shareholders are foreign investors, if there is a change in the shareholders who are foreign investors registered in the shareholders’ register, the company must carry out the procedures to notify the business registration authority where the company is located within 10 days of the change. Such notification is currently stipulated in Article 58 and Article 60 of Decree 01/2021/ND-CP dated 4 January 2021 on the registration of enterprises.
Fourthly, it is crucial for the managers of the companies to pay attention to the obligation to promptly communicate the information in the shareholders' register and to correct and supplement inaccurate information at the request of the shareholders. This is due to the fact that the manager will be liable to compensate for the damage resulting from the failure to provide information in the register of shareholders in a timely manner or incorrectly when requested by the shareholders[1].
2.2. For the shareholder
In order to ensure that their rights are respected and protected by the Company and third parties that may be involved, it is important for shareholders to be aware of their rights regarding the establishment and maintenance of the Company's share register.
Firstly, the shareholder shall request the Company to amend the information in the register of shareholders after the shareholder has fully paid for the purchase of shares as agreed upon in the incorporation of the Company or has undertaken and completed the payment procedures for the purchase of shares from the Company or the transfer of shares from other shareholders. With regard to the transfer of shares, the company must register a change of shareholder in the shareholder register upon the request of the relevant shareholder within 24 hours after receiving the request, as stipulated in the company's articles of association.
This is one of the issues that many shareholders and companies often fail to address, which results in the status of shareholders not being recorded in the Share Register in a timely manner. This leads to risks and difficulties for many shareholders in exercising their shareholder-related rights, such as the right to attend general meetings, the right to transfer shares, the right to receive dividends, etc.
In fact, many companies and shareholders often confuse the legal value of recording shareholder information in the share register with other administrative procedures that the company must complete with state authorities. For example, in the case of a company that increases its charter capital by issuing private shares to new shareholders. In the registration dossier for the change in the charter capital that the company submits to the company registration authority, the increase in the charter capital is recorded as having been paid by the shareholders, and the company has received a certificate of company registration. However, in reality, the information of the new shareholder has not been recorded in the register of shareholders. If this shareholder transfers his shares to a third party, he must request the company to correct the information in the register of shareholders prior to the transfer in order to prove that he is the owner of these shares.
Secondly, in the event of a change of contact address, the shareholder must immediately notify the Company's management in order to request the update of the information in the share register. If the shareholder fails to do so, the company will not be responsible for failing to reach the shareholder because it did not receive the notification of the change of contact address from the shareholder. As a result, shareholders may not receive important information from the Company regarding their rights, such as the right to participate in the General Meeting of shareholders or the preferential right to purchase shares, etc.
Ultimately, along with the Articles of Incorporation, the Share Register can be considered one of the most important documents in a corporation. Although this document is not complicated to prepare and maintain, it plays an essential role in the management of the company. Not to mention that failure to establish a shareholders' register can put the company at risk of being fined for administrative violations with fines ranging from VND 30,000,000 to VND 50,000,000[2]. In addition to joint stock companies, shareholders, especially individual and small shareholders, also need to be aware of their rights regarding this type of document and, from there, take the necessary actions to protect their legitimate rights and interests in the company.
