Decree 38/2003/ND-CP on the Conversion of Some Foreign-Invested Enterprises to Joint Stock Companies

DECREE
On the Conversion of Some Foreign-Invested Enterprises to Operate as Joint Stock Companies

GOVERNMENT

Pursuant to the Law on the Organization of the Government dated December 25, 2001; Pursuant to the Law on Enterprises dated June 12, 1999; Pursuant to the Law on Foreign Investment in Vietnam dated November 12, 1996; and the Law Amending and Supplementing Some Articles of the Law on Foreign Investment in Vietnam dated June 9, 2000; Pursuant to the opinion of the Standing Committee of the National Assembly in Document No. 08/UBTVQH dated January 13, 2003, regarding the issuance of a Government Decree on the conversion of some foreign-invested enterprises to operate as joint stock companies;

Upon the proposal of the Minister of the Ministry of Planning and Investment,

DECREE:

Chapter I
General Provisions

Article 1. Scope of Application
This Decree regulates the conversion of some foreign-invested enterprises currently operating under the Law on Foreign Investment in Vietnam into foreign-invested joint stock companies. Foreign-invested joint stock companies shall operate in accordance with the provisions of this Decree and relevant laws.

Article 2. Objectives of Conversion
The conversion of some foreign-invested enterprises to operate as joint stock companies aims to:

1. Enhance the operational efficiency of foreign-invested enterprises.
2. Mobilize capital from domestic and foreign investors to invest in technology renewal, create jobs, and develop enterprises.
3. Diversify investment forms, improve the investment environment, and create attractiveness to attract foreign investment capital.
4. Create additional supply for the Vietnamese stock market.

Article 3. Interpretation of Terms
In this Decree, the following terms are understood as follows:

1. "Enterprise conversion" refers to the conversion of the management organization of a foreign-invested enterprise established and operating under the Law on Foreign Investment in Vietnam into a foreign-invested joint stock company.
2. "Foreign-invested joint stock company" (hereinafter referred to as Joint Stock Company) is an enterprise with charter capital divided into equal parts called "shares"; in which foreign founding shareholders hold at least 30% of the charter capital; organized and operating in the form of a Joint Stock Company as prescribed in this Decree; enjoying the guarantees of the Vietnamese State and incentives as prescribed by the Law on Foreign Investment in Vietnam.
3. "Foreign-invested enterprise" (hereinafter referred to as Enterprise) is a joint venture or 100% foreign-owned enterprise established under the Law on Foreign Investment in Vietnam.
4. "Charter capital" is the capital contributed by shareholders and recorded in the Charter of the foreign-invested joint stock company.
5. "Voting capital" is the portion of contributed capital by which the owner has the right to vote on matters decided by the General Meeting of Shareholders.
6. "Foreign shareholder" is an organization or individual of foreign nationality owning shares in the Joint Stock Company.
7. "Vietnamese shareholder" is an organization or individual of Vietnamese nationality owning shares in the Joint Stock Company.
8. "Founding shareholders of the Joint Stock Company" are the investors who contributed the statutory capital of the enterprise before conversion or organizations/individuals owning founding shareholder shares.
9. "Dividend" is the annual amount withdrawn from the profit of the foreign-invested joint stock company to be paid for each share.
10. "Enterprise managers" are members of the Board of Directors, Director (General Director), and other key management positions defined in the Charter of the Joint Stock Company.

Article 4. Forms of Conversion
Enterprises may be converted in the following forms:

1. Retaining the original enterprise value and investor.
2. Transferring a portion of the enterprise value to new shareholders.
3. Retaining the original enterprise value or transferring a portion of capital and issuing additional shares to attract investment capital.

Article 5. Subjects Purchasing Shares
Subjects purchasing shares of the Joint Stock Company include:

1. Vietnamese organizations and individuals.
2. Foreign-invested enterprises in Vietnam; foreign organizations and individuals.
3. Overseas Vietnamese. This subject has the right to decide whether to be a foreign shareholder or a Vietnamese shareholder, but must register when purchasing shares and shall enjoy corresponding rights and perform corresponding obligations.

Article 6. State Guarantees for Shareholders and Foreign-Invested Joint Stock Companies
The ownership of capital and all lawful rights and interests of shareholders and the Joint Stock Company are protected by the Vietnamese State in accordance with the law.
In the event that the Vietnamese Government has signed international treaties on investment promotion and protection with other countries containing provisions different from those in this Decree, the provisions of such international treaties shall apply.

Chapter II
Conditions for Conversion

Article 7. Conversion Conditions
Enterprises to be converted must meet the following conditions:

1. Have contributed the full statutory capital as prescribed in the Investment License.
2. Have officially operated for at least 3 years, with the last year before conversion being profitable.
3. Have a dossier requesting conversion.
   The Ministry of Planning and Investment shall take the lead, in coordination with the Ministry of Finance and relevant agencies, to select foreign-invested enterprises operating in industrial, agricultural, and service sectors that meet the above conditions, and submit them to the Prime Minister of the Government for consideration and decision.

Article 8. Responsibilities and Rights of Enterprises During Conversion

1. The enterprise shall continue to maintain its organizational structure and operate in accordance with the Law on Foreign Investment in Vietnam until an adjusted Investment License approving the enterprise conversion is issued.
2. The enterprise must ensure normal production and business operations and ensure the rights and interests of laborers in accordance with labor laws.
3. The Vietnamese State encourages enterprises to sell shares under preferential conditions to management staff, employees, and workers at the enterprise, depending on their contribution to the production and business results of the enterprise.

Article 9. Enterprise Value for Conversion

1. The enterprise value for conversion is the total asset value recorded in the enterprise's books, audited within 6 months prior to the submission of the conversion request dossier. The enterprise value serves as the basis for determining the minimum share sale price and share issuance price of the company.
2. In the case of a joint venture enterprise, the capital holding ratio among the Joint Venture Parties after re-determining the enterprise value shall be the statutory contribution ratio of the parties as prescribed in the Investment License.
3. For joint venture enterprises where the Vietnamese Party contributes capital in the form of land use rights value, the land use rights value and the time limit for contribution in the form of land use rights value shall remain unchanged as prescribed in the Investment License and be included in the enterprise value for conversion. Upon expiration of the time limit for the Vietnamese Party's contribution in the form of land use rights value, the Joint Stock Company shall switch to leasing land from the Vietnamese State.
   Enterprises may hire domestic or foreign consulting companies, financial companies, audit companies, and securities companies to determine the enterprise value, share sale price, or share issuance price.

Chapter III
Organization and Operation of Foreign-Invested Joint Stock Companies

Article 10. Shareholders of Foreign-Invested Joint Stock Companies

1. The Joint Stock Company must have at least one foreign founding shareholder, and the total value of shares held by foreign founding shareholders must ensure at least 30% of the charter capital throughout the company's operation.
2. Shareholders of the Joint Stock Company are only liable for debts and other financial obligations of the Joint Stock Company within the scope of the capital they have contributed to the Company.
3. Shareholders have the right to transfer their shares in accordance with this Decree.
4. Shareholders may be organizations or individuals; the minimum number of shareholders is three, and there is no limit on the maximum number.
5. Foreign shareholders have the right to participate in the management of the Joint Stock Company.

Article 11. Shareholder Register

1. The Joint Stock Company must establish and maintain a shareholder register. The shareholder register may be in paper form, electronic data files, or both.
2. The shareholder register must contain the following main contents:
   a) Name and head office of the Joint Stock Company; b) Total number of shares authorized for offering, types of shares authorized for offering, and number of shares authorized for offering of each type; total number of shares held by foreign shareholders; c) Total number of shares sold of each type and the value of share capital contributed; d) Name of shareholders, nationality, address, number of shares of each type for each shareholder, and date of shareholder registration.
3. The shareholder register shall be kept at the head office of the Joint Stock Company or elsewhere, but must be notified in writing to the Ministry of Planning and Investment and all shareholders.

Article 12. Share Certificates

1. Share certificates of the Joint Stock Company are certificates issued by the Joint Stock Company, confirming the ownership of one or more shares contributed by shareholders in the company.
2. The par value of shares of the Joint Stock Company shall be recorded in Vietnamese Dong or in commonly used freely convertible foreign currencies. All shares traded in Vietnam must be recorded in Vietnamese Dong. The exchange rate between Vietnamese Dong and foreign currency is the average transaction rate on the interbank foreign exchange market announced by the State Bank of Vietnam at the time of conversion.
3. Foreign founding shareholders must hold registered share certificates corresponding to at least the value of shares prescribed in Clause 1 of Article 10 of this Decree.
4. Share certificates must contain the following main contents:
   a) Company name and head office; b) Number and date of the adjusted Investment License approving the enterprise conversion; c) Number of shares; d) Type of shares; d) Par value of each share and total par value of shares recorded on the certificate; e) Name and nationality of the shareholder holding the share certificate for registered shares; g) Summary of the share transfer procedure; h) Specimen signature of the legal representative and company seal; i) Registration number in the company's shareholder register and date of share issuance; k) For shares of preferred shares, additional contents as prescribed in Clause 3 of Article 19 of this Decree.

Article 13. Rights and Obligations of Foreign-Invested Joint Stock Companies

1. Exempt from registration fee for the transfer of ownership of enterprise assets to the ownership of the Joint Stock Company.
2. Inherit the rights and obligations of the converted enterprise towards the Vietnamese State, third parties, and laborers.
3. Continue to implement the approved investment project, unpaid debts, and other financial obligations of the converted enterprise.
4. Shareholders of the Joint Stock Company shall perform tax obligations in accordance with the law.
5. The Joint Stock Company shall enjoy incentives on corporate income tax, dispute resolution, and other rights and obligations as prescribed by the Law on Foreign Investment in Vietnam and the Investment License issued prior to conversion.

Article 14. Listing on the Stock Market

1. The Joint Stock Company may participate in listing on the domestic stock market in accordance with laws on the stock market.
2. The Joint Stock Company may be listed on foreign stock markets after being approved by competent Vietnamese state agencies.

Article 15. Transfer of Shares by Foreign Founding Shareholders

1. During operation, foreign founding shareholders are permitted to transfer shares to foreign organizations and individuals.
2. The transfer of shares held by foreign founding shareholders to Vietnamese organizations and individuals must be approved by the Ministry of Planning and Investment and must ensure the provisions of Clause 1 of Article 10 and Clause 3 of Article 12 of this Decree. The proceeds obtained must be used by foreign founding shareholders for reinvestment in Vietnam; in case of transfer out of Vietnam, approval from competent agencies is required.

Article 16. Dissolution of Foreign-Invested Joint Stock Companies
The Joint Stock Company shall be dissolved in the following cases:

1. Expiration of the operation period recorded in the Charter without a decision to extend;
2. By decision of the General Meeting of Shareholders;
3. The Company no longer has the minimum number of shareholders for six consecutive months;
4. The Investment License is revoked.

Article 17. Procedure for Cessation of Operations, Asset Liquidation, and Dissolution
The cessation of operations, asset liquidation, and dissolution of the Joint Stock Company shall be implemented in the following order:

1. The Ministry of Planning and Investment issues a decision to cease operations of the Joint Stock Company;
2. The Joint Stock Company is responsible for establishing a Liquidation Board to proceed with asset liquidation;
3. After the liquidation concludes, the Joint Stock Company submits the liquidation dossier to the Ministry of Planning and Investment for consideration and decision.

Article 18. Bankruptcy of Joint Stock Companies
The bankruptcy of Joint Stock Companies shall be implemented in accordance with Vietnamese laws on enterprise bankruptcy.

Article 19. Application of Certain Provisions of the Law on Enterprises to Foreign-Invested Joint Stock Companies

1. Types of shares are classified according to Article 52 of the Law on Enterprises.
2. Rights and obligations of common shareholders are implemented according to Articles 53 and 54 of the Law on Enterprises.
3. Rights of preferred shareholders are implemented according to Articles 55, 56, and 57 of the Law on Enterprises.
4. Offering, transfer, purchase, and repurchase of shares; payment conditions and handling of repurchased shares; payment of dividends, recovery of payment for repurchased shares or dividends are implemented according to Articles 61, 63, 64, 65, 66, 67, and 68 of the Law on Enterprises and Article 15 of this Decree.
5. Organizational structure of the Joint Stock Company, General Meeting of Shareholders, and organization of General Meetings of Shareholders are implemented according to Articles 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, and 87 of the Law on Enterprises.
6. Organization, rights, duties, and activities of the Board of Directors of the Joint Stock Company are implemented according to Articles 80, 81, 82, 83, 84, and 87 of the Law on Enterprises.
7. Appointment, rights, and obligations of the Director (General Director) and company managers are implemented according to Articles 85 and 86 of the Law on Enterprises.
8. Rights and duties of the Supervisory Board of the Joint Stock Company are implemented according to Articles 88, 89, 90, and 91 of the Law on Enterprises.
9. Auditing, information disclosure, and document retention regime of the Joint Stock Company are implemented according to Articles 92, 93, and 94 of the Law on Enterprises.

Chapter IV
Implementation Organization

Article 20. Conversion Request Dossier
The conversion request dossier shall be sent to the Ministry of Planning and Investment in 08 (eight) copies, of which at least 01 (one) copy is the original; each copy includes:

1. Application for conversion signed by the General Director of the enterprise;
2. Conversion plan;
3. Report on the enterprise's operational status prior to conversion;
4. Draft Charter of the Joint Stock Company;
5. Resolution of the Board of Directors or the investor approving the Conversion Plan.

Article 21. Contents of the Conversion Plan and Report on Enterprise Operational Status

1. The enterprise conversion plan includes the following contents:
   a) Objectives and requirements for conversion; b) Scale and form of expected conversion: charter capital, number of shares, value of one share, percentage of shares held by founding shareholders, percentage of shares held by other shareholders; c) Timeframe for conversion, time for issuance, and location for share sale (if any); d) Plan for labor utilization and preferential policies (if any) for laborers working at the enterprise in purchasing enterprise shares (discount, deferred payment, deduction from salary/bonus...); d) Expected issuance of shares on domestic and foreign stock markets, including quantity, control mechanism, and management; e) Results of enterprise value determination.
2. The report on the enterprise's operational status includes the following contents:
   a) Project implementation status, including investment capital, statutory capital, and production/business status over the years; b) Debt status, assets, materials, inventory, analysis of causes and solutions; c) Labor status; d) Inventory of assets, materials, capital, and debts of the enterprise; d) Audited financial reports for the last 3 years up to the time of conversion request.
3. The Draft Charter of the Joint Stock Company contains the following main contents:
   a) Name, main office address, branches, representative offices (if any); b) Objectives and business sectors; c) Charter capital; d) Names, nationalities, and addresses of all founding shareholders; d) Number of shares founding shareholders commit to purchase, type of shares, par value of shares, and total number of shares authorized for offering of each type; e) Rights and obligations of shareholders; f) Organizational structure; g) Legal representative; h) Procedure for passing company decisions, principles for resolving internal disputes; i) Cases where shareholders may request the Joint Stock Company to repurchase shares; k) Types of funds and limits for each type of fund established in the Joint Stock Company; principles for profit distribution, dividend payment, and loss bearing; l) Cases of dissolution, dissolution procedure, and company asset liquidation procedures; m) Procedure for amending and supplementing the Charter of the Joint Stock Company; n) Signature of the legal representative or all founding shareholders. Other contents of the Charter of the Joint Stock Company are agreed upon by shareholders but must not contravene legal provisions.

Article 22. Authority to Decide on Conversion

1. Based on the provisions of this Decree, the Ministry of Planning and Investment guides enterprises to prepare and submit conversion request dossiers.
   Within 30 days from the receipt of a valid dossier, the Ministry of Planning and Investment shall take the lead, consult with relevant Ministries and agencies, and submit to the Prime Minister of the Government for consideration and approval.
2. After approval by the Prime Minister of the Government, the Ministry of Planning and Investment shall notify the enterprise to perform tasks prescribed in Article 23 of this Decree and report results to the Ministry of Planning and Investment to be issued an adjusted Investment License approving the enterprise conversion. The adjusted Investment License has the same value as the Business Registration Certificate.

Article 23. Implementation of Conversion
After the enterprise's conversion plan is approved by the Ministry of Planning and Investment, the Enterprise shall proceed with the following tasks:

1. Publicly announce the conversion via mass media and to the enterprise's creditors.
2. Organize share sales or share issuance.
3. Convene the first General Meeting of Shareholders to pass the Company Charter and elect the Board of Directors of the Joint Stock Company.
4. The Board of Directors appoints the General Director or Director.
5. Organize the handover between the Board of Directors or the enterprise investor and the Board of Directors of the Joint Stock Company regarding capital, assets, labor, debts, etc.

Article 24. Publication of Operations in the Form of Joint Stock Company

1. Within thirty days from the date of issuance of the adjusted Investment License for enterprise conversion, the Joint Stock Company must publish in the local newspaper or daily central newspaper for three consecutive issues the following main contents:
   a) Enterprise name; b) Number and date of the adjusted Investment License; c) Main office address of the enterprise, branches, representative offices (if any); d) Objectives and business sectors; d) Charter capital; e) Names and addresses of founding shareholders; f) Names and permanent addresses of the legal representative of the Joint Stock Company.
2. When changing the above contents, the Joint Stock Company must publish such changes according to Clause 1 of this Article.

Article 25. Responsibilities of State Management Agencies
State management agencies shall perform management functions regarding the enterprise conversion and the operation of the Joint Stock Company within their authority, in accordance with legal provisions. Every 6 months, the Ministry of Planning and Investment shall report to the Government and, authorized by the Government, report to the Standing Committee of the National Assembly on the implementation status of converting foreign-invested enterprises into Joint Stock Companies.

Chapter V
Implementation Provisions

Article 26. Effectiveness
This Decree takes effect after 15 days from the date of publication in the Official Gazette.
The selection of enterprises for conversion shall be implemented within a period of 1 year from the date this Decree takes effect.
After a period of 2 years from the date this Decree takes effect, the Ministry of Planning and Investment shall take the lead, together with relevant Ministries and agencies, to summarize the implementation of this Decree and report results to the Government to submit to the Standing Committee of the National Assembly and the National Assembly.

Article 27. Implementation Organization

1. Ministries: Planning and Investment, Finance, State Bank of Vietnam, and other relevant agencies are responsible for guiding the implementation of this Decree.
2. Ministers, heads of ministerial-level agencies, heads of government-affiliated agencies, and Chairpersons of People's Committees of provinces and centrally run cities are responsible for implementing this Decree.