Such terms as ‘controlling shares’, ‘State-held controlling shares’, ‘controlling shares with 51 percent or more of voting’ are very common to businesses and investors, but not all can comprehend them from top to bottom. A controlling shareholder or a shareholder with 51 percent or more of shares in a company does not mean that it holds an absolute controlling power.
What is a Golden Share?
According to the Vietnam Financial Investors Association (VAFI), the term ‘Golden Share’ is not defined in the Law on Enterprises 2005 but its nature could be understood from the provisions of this law.
The Article 104 of the Law on Enterprises 2005 provides that the General Shareholders Meeting decides following important issues: Supplement and amendment of the Corporate Charter; Development strategy of the company; Types of shares and total numbers of authorised shares of each type; Election, exemption or dismissal of members of the Board of Directors the Supervisory Board; Investment or sale of assets in equivalent to 50 percent or more of the total value of assets recorded in the latest financial report of the company; Approval of the annual financial report; and Reorganisation or dissolution of the company.
Decisions of the General Shareholders Meeting are adopted when the number of participating shareholders owning at least 65 percent of total votes vote for. A number of participating shareholders owning at least 75 percent of total votes is required in case such decisions relate to types of shares and total number of authorized shares of each type; supplement and amendment of the Corporate Charter; reorganization and dissolution of the company; investment or sale of 50 percent or more of the total value of assets recorded in the latest financial report of the company.
From the above analysis, a shareholder or a group of shareholders owning 35 percent of total votes can disapprove any decisions of the General Shareholders Meetings no matter how such contents are right or wrong.
Public companies, and specially listed companies, have a lot of shareholders, both domestic and overseas. However, according to a survey by the VAFI, the number of shareholders attending shareholder meetings in Vietnam accounts for less than 1 percent of the total. Many companies fail to convene a first general shareholder meeting because the representatives are not enough to constitute a quorum.
If companies successfully convene the first general shareholder meeting, attending shareholders represent approximately 70 percent of total voting shares. If a shareholder or a group of shareholders only need to hold 25 percent of stake, they can veto all decisions. As a result, a shareholder or a group of shareholders holding 51 percent are powerless. So, many wonder how the holding ratio, 51 percent, means or how is the holding limit of foreign shareholders, 49 percent, means?
The shareholder structure of multinational corporations, the larger the group, the more shareholders they have and the ratio of major shareholders is fewer. A shareholder with only 10 percent has the right of veto.
According to the VAFI, the Law on Enterprises will have to be amended, specifically participating conditions. The percentage of “veto” shares will have to be lowered. A shareholder or a group of shareholders owning 20 percent of total votes will have the right to reject all contents of general shareholder meetings.
Impacts on M&A, takeover
There are a lot of seminars on M&A and takeovers but there is no counting of M&A cases. However, not many listed companies merged with each other.
In reality, the most common forms of M&A are the acquisition of controlling shares, merger of two unlisted companies, or merger of a listed company with an unlisted one.
The takeover by means of buying controlling shares (without negotiating with the Board of Directors or majority shareholders) is unpopular because it encounters opposition from shareholders with “the right to veto.” According to economic experts, without successful negotiation with shareholders with “Golden Share”, the company will meet a lot of difficulties ahead.
According to the VAFI, in the world, this process can only be a success if the both side reach agreements and have mutual benefits. Unilateral act is difficult and risky.
So, from the reality in Vietnam and in the world, shareholders with “Golden Share” play extremely important role in corporate governance, policymaking and corporate model construction.
Since the significance and nature of “Golden Share”, Vietnam should take it into consideration when it makes plans on the holding ratio of the State in important economic sectors and of foreign shareholders in listed companies. This is an urgent need to speed up the process of privatisation and development policymaking in the coming time.
Vietnamese
