Resolving Internal Corporate Disputes in Vietnam

1. What are Internal Corporate Disputes?

Besides issues related to business operations and development, internal corporate disputes are a significant concern for many businesses.

According to Clause 4, Article 30 of the Civil Procedure Code of Vietnam 2015, the concept of an internal corporate dispute can be understood as a dispute between a company and its members; a dispute between a company and its managers in a limited liability company or members of the Board of Directors, general director, or director general in a joint-stock company; or between members of the company themselves, relating to the establishment, operation, dissolution, merger, consolidation, division, separation, asset transfer, or transformation of the company’s organizational form.

2. Common Types of Internal Corporate Disputes

2.1. Disputes between the Company and its Shareholders or Members

Currently, most internal corporate disputes between a company and its shareholders or members arise from the employer or employee failing to fully fulfill their obligations, thereby preventing the other party from enjoying their full legal rights and benefits.

According to Article 5 of the Labor Code of Vietnam 2019, employees have the following obligations:

a) To perform the labor contract, collective labor agreement, and other lawful agreements;

b) To comply with labor discipline and internal labor regulations; to adhere to the management, administration, and supervision of the employer;

c) To comply with legal provisions on labor, employment, vocational education, social insurance, health insurance, unemployment insurance, and occupational safety and hygiene.

Concurrently, Article 6 stipulates the employer’s obligations as follows:

a) To perform the labor contract, collective labor agreement, and other lawful agreements; to respect the honor and dignity of employees;

b) To establish mechanisms and conduct dialogues and exchanges with employees and employee representative organizations; to implement grassroots democracy regulations at the workplace;

c) To train, retrain, and improve the professional qualifications and skills of employees to maintain, transfer careers, and provide employment;

d) To comply with legal provisions on labor, employment, vocational education, social insurance, health insurance, unemployment insurance, and occupational safety and hygiene; to develop and implement solutions to prevent and combat sexual harassment in the workplace;

đ) To participate in the development of national occupational skill standards, and the assessment and recognition of occupational skills for employees.

Most disputes occurring between the company and its shareholders or members are disputes between the employer and the employee. The main reason for these disputes is that parties are often unfamiliar with the legal provisions, leading to a failure to fully perform their statutory obligations, thereby affecting the rights of the other party.

2.2. Disputes between Company Management and Shareholders or Members

For internal corporate disputes between company management and shareholders or members, this type of dispute often arises from the management’s lack of understanding of the law, or perhaps from the manager placing themselves above the company’s principles and regulations.

Consequently, managers may easily make decisions that are inconsistent with company regulations or legal provisions, affecting the legitimate rights and interests of shareholders and members.

2.3. Disputes among Shareholders or Members

For internal corporate disputes among shareholders, these disputes often arise from unequal rights among shareholders. According to Clause 1, Article 115 of the Law on Enterprises of Vietnam 2020, ordinary shareholders have the following rights:

a) To attend and speak at General Meetings of Shareholders and exercise voting rights directly or through authorized representatives or other forms prescribed by the company’s Charter or law. Each ordinary share has one voting right;

b) To receive dividends at the rate decided by the General Meeting of Shareholders;

c) To have priority in purchasing new shares proportional to the percentage of ordinary shares held by each shareholder in the company;

d) To freely transfer their shares to others, except for cases specified in Clause 3, Article 120, Clause 1, Article 127 of this Law, and other relevant legal provisions;

đ) To examine, look up, and extract information on names and contact addresses in the list of shareholders entitled to vote; to request correction of their incorrect information;

e) To examine, look up, extract, or copy the company’s Charter, minutes of General Meetings of Shareholders, and resolutions of General Meetings of Shareholders;

g) When the company is dissolved or goes bankrupt, to receive a portion of the remaining assets proportional to their shareholding in the company.

However, according to Clause 2, a shareholder or a group of shareholders holding 5% or more of the total ordinary shares, or a smaller ratio as stipulated in the company’s Charter, has the following rights:

a) To examine, look up, and extract minutes and resolutions, decisions of the Board of Directors, semi-annual and annual financial reports, reports of the Supervisory Board, contracts, transactions that must be approved by the Board of Directors, and other documents, excluding documents related to commercial secrets and business secrets of the company;

b) To request the convening of a General Meeting of Shareholders in the cases specified in Clause 3 of this Article;

c) To request the Supervisory Board to inspect specific matters related to the management and operation of the company when deemed necessary. The request must be in writing and include the following details: full name, contact address, nationality, legal document number of the individual for individual shareholders; name, enterprise code or legal document number of the organization, head office address for organizational shareholders; number of shares and time of share registration of each shareholder, total number of shares of the entire group of shareholders and their ownership ratio in the total shares of the company; the matter to be inspected, the purpose of the inspection;

d) Other rights as stipulated by this Law and the company’s Charter.

Particularly for point d) of Clause 2: “Other rights as stipulated by this Law and the company’s Charter.” This can easily lead to a significant disparity in rights between ordinary shareholders with different shareholding percentages, depending on the company’s Charter. Consequently, internal corporate disputes between shareholders are prone to arise.

2.4. Disputes concerning the Rights and Interests of Members/Shareholders, and the Right to Nominate and Be Nominated for Management Positions within the Company.

According to Clause 5, Article 115 of the Law on Enterprises of Vietnam 2020, a shareholder or a group of shareholders holding 10% or more of the total ordinary shares, or a smaller ratio as stipulated in the company’s Charter, has the right to nominate individuals to the Board of Directors and the Supervisory Board. Unless otherwise stipulated in the company’s Charter, the nomination of individuals to the Board of Directors and the Supervisory Board shall be carried out as follows:

a) Ordinary shareholders forming a group to nominate individuals to the Board of Directors and the Supervisory Board must notify other shareholders attending the meeting of the group meeting before the opening of the General Meeting of Shareholders;

b) Based on the number of members of the Board of Directors and the Supervisory Board, the shareholder or group of shareholders specified in this clause has the right to nominate one or more individuals as candidates for the Board of Directors and the Supervisory Board, as decided by the General Meeting of Shareholders. If the number of candidates nominated by the shareholder or group of shareholders is less than the number of candidates they are entitled to nominate as decided by the General Meeting of Shareholders, the remaining candidates shall be nominated by the Board of Directors, the Supervisory Board, and other shareholders.

Accordingly, shareholders who meet the conditions may form a group to nominate individuals to the company’s Board of Directors. However, such nominations will not always receive the consensus of all shareholder groups.

Depending on the internal situation and the needs of different shareholder groups, it may occur that various shareholder groups nominate different individuals for the same position. This can easily lead to internal corporate disputes due to conflicts between different shareholder groups.

3. Resolving Internal Corporate Disputes at VN Law Firm

• Receiving and processing case files and information, researching legal documents and internal company documents to propose dispute resolution plans.
• Discussing dispute resolution plans with clients and developing a coordinated implementation strategy.
• Representing the enterprise to negotiate with relevant parties to resolve internal disputes through amicable settlement.
• Advising and representing clients in attending meetings for dispute resolution.
• Representing clients in initiating lawsuits and participating in proceedings at the Court or Arbitration.