What is dividend? Are businesses in Vietnam allowed to pay dividends in shares?

Regarding this matter, LawNet would like to answer as follows: 

1. What is dividend?

Dividend can be understood as a portion of post-tax profits distributed to shareholders of a joint stock company. This is the profit that the company earns from its business operations, after setting aside reserves, expenses, and taxes, distributed to shareholders based on the number of shares they own.

According to the provisions of Clause 5, Article 4 of the Enterprise Law 2020, dividends are defined as follows:

“dividend” means a net profit on each share in cash or other assets.

Thus, dividends are net profits paid to shareholders of a joint stock company on each share in cash or other assets.

2. Are businesses in Vietnam allowed to pay dividends in shares?

According to the provisions of Article 135 of the Enterprise Law 2020 on paying dividends:

- Dividends of preference shares shall be paid under the conditions applied thereto.

- Dividends of ordinary shares shall be determined according to the realized net profit and the dividend payment from the company’s retained earnings. The joint stock company may only pay dividend of ordinary shares when the following conditions are fully satisfied:

+ The company has fully its tax liabilities and other liabilities as prescribed by law;

+ The company’s funds are contributed to and the previous losses are made up for as prescribed by law and the company's charter;

+ After dividends are fully paid, the company is still able to fully pay its debts and other liabilities when they are due.

- Dividends can be paid in cash, the company’s shares or other assets specified in the company's charter. If dividends are paid in cash, it shall be VND and using the methods of payment prescribed by law.

Thus, businesses (for joint stock companies) can absolutely pay dividends in shares to shareholders if stipulated in the company charter. In addition to shares, dividends can also be paid in cash or other assets.

3. What are the conditions for scrip issue by public companies in Vietnam?

A public company issuing shares to pay dividends to shareholders needs to comply with the following four conditions:

(1) There is a scrip issue plan which is approved by the GMS.

(2) The undistributed post-tax profit is sufficient to pay dividend according to the latest annual financial statement audited by an accredited audit organization.

In case the issuer is a parent company, the distributed profit must not exceed the undistributed post-tax profit on the latest audited consolidated financial statement. 

In case the distributed profit is lower than undistributed post-tax profit on the consolidated financial statement and higher than the undistributed post-tax profit on the separate financial statement of the parent company, profit shall only be distributed after profits from subsidiary companies are transferred to the parent company.

(3) There is a plan for settlement of fractional shares (if any) which is approved by the GMS or Board of Directors.

(4) SBV has approved the increase in charter capital in accordance with regulations of law on credit institutions in case the issuer is a credit institution; The Ministry of Finance has approved the increase in charter cap

Thus, to issue shares to pay dividends, a public company needs to comply with the following 4 conditions: have scrip issue plan which is approved by the GMS, have undistributed post-tax profit, have a plan to handle fractional shares and be approved by competent state agency.

In particular, determining the source of distributed profits needs to be based on audited financial statements, especially for parent companies that need to comply with the principle of consolidated profits.

(Pursuant to Article 60 of Decree 155/2020/ND-CP)

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Key word: public companies | in Vietnam | Vietnam | dividend | dividends | shares |

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