How much charter capital of a subsidiary company does the parent company have to hold? What are the rights and obligations of the parent company to its subsidiary companies in Vietnam?
What are business groups and corporations?
Pursuant to Article 194 of the 2020 Law on Enterprises of Vietnam stipulating as follows:
Business groups and corporations
1. A business group or corporation is a group of companies that are interrelated by ownership of shares/stakes or otherwise associated. A business group or corporation is not an enterprise, is not a juridical person and registration of its establishment under this Law is not required.
2. A business group or corporation has a parent company, subsidiary companies and other member companies. They have the same rights and obligations as those of independent enterprises as prescribed by law.
According to the above provisions, a business group or corporation is a group of companies that are interrelated by ownership of shares/stakes or otherwise associated. A business group or corporation is not an enterprise, is not a juridical person and registration of its establishment.
How much charter capital of a subsidiary company does the parent company have to hold? What are the rights and obligations of the parent company to its subsidiary companies in Vietnam?
How much charter capital does the parent company have to hold?
Pursuant to Article 195 of the 2020 Law on Enterprises of Vietnam stipulating as follows:
Parent company and subsidiary companies
1. A company is considered parent company of another company if:
a) It holds more than 50% of charter capital or total ordinary shares of the latter;
b) It has the right to directly or indirectly designate most or all of the members of the Board of Directors and Director/General Director of the latter; or
c) It has the right to decide revisions to the latter’s charter.
2. A subsidiary company must not contribute capital to or purchase shares of the parent company. Subsidiary companies of the same parent company must not contribute capital to or purchase shares of each other to establish cross ownership.
3. Subsidiary companies of the same parent company with at least 65% state capital must not contribute capital to or purchase shares of other enterprises or to establish new enterprises as prescribed by this Law.
4. The Government shall elaborate Clause 2 and Clause 3 of this Article.
According to the above provisions, a company will be considered as the parent company of another company when it holds more than 50% of charter capital or total ordinary shares of its subsidiary company.
What are the rights and obligations of the parent company to its subsidiary companies in Vietnam?
Pursuant to Article 196 of the 2020 Law on Enterprises of Vietnam, the rights, obligations and responsibilities of the parent company to its subsidiary companies are as follows:
- Depending on the type of the subsidiary company, the parent company shall perform its rights and obligations as its member, owner or shareholder in accordance with corresponding regulations of the 2020 Law on Enterprises of Vietnam and relevant laws.
- All contracts, transactions and relationships between the parent company and the subsidiary company shall be established and executed independently and equally under conditions applied to independent legal entities.
- In case the parent company makes intervention beyond the power of the owner, member or shareholder and forces the subsidiary company to operate against its ordinary business practice or do non-profit activities without paying compensation in the relevant fiscal year and thus causes damage to the subsidiary company, the parent company shall be responsible for such damage.
- The executive of the parent company shall be responsible for its intervention mentioned in Clause 3 Article 196 of the 2020 Law on Enterprises of Vietnam and shall be jointly responsible for the damage caused together with the parent company.
- In case the parent company fails to pay damages as prescribed in Clause 3 of this Article, the creditor, member or shareholder that holds at least 01% of the subsidiary company’s charter capital is entitled to, in their own names or in the subsidiary company’s name, request the parent company to pay damages.
- In case the intervention mentioned in Clause 3 of this Article is beneficial to another subsidiary company of the same parent company, that subsidiary company and the parent company shall jointly provide the benefit for the subsidiary company that suffers damage.
LawNet
