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Private placement: A too big legal shirt

The article with the title: “Private placement: A too big legal shirt” by Lawyer Tran Thanh Tung – Partner of Phuoc & Partners is published in Saigon Economic Times issued 10-2011 published on 03/03/2011.

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With Decree 01/2010/NĐ-CP regarding the private placement, the small joint stock companies (JSC) (understood as they are not public companies and have less than 100 shareholders) seem to be forced to comply with regulations appropriate only to public companies. In other words, small JSC is forced to wear a legal shirt that is too big for them.

At last the State Securities Commission (SSC) and the Ministry of Planning and Investment (MPI) have given instruction regarding private placement of JSC under Decree 01/2010. Document No. 350/UBCK-QLPH dated 27 January 2011 issued by SSC and Document No. 608/BKHĐT-PC dated 28 January 2011 issued by MPI have an unexpected common point, that is Decree 01 does not apply to JSC, that are not public companies, who issue private placement to current shareholders in order to increase charter capital.

Decree 01 still applies to other cases (public companies or JSC that are not public companies offering shares to new shareholders). This means that JSC have to do complicated and costly procedures such as approving offer method and method of using the collected money, registering and reporting the result of the offer and list of shareholders to state authorities, announcing the result of the offer on their website, blockading the collected money at the bank until the offer finished, and ensuring that the offers are at least six months apart, etc.

We can agree easily that the procedures and conditions of private placement in Decree 01 as mentioned above are suitable only for public companies. Those regulations if applied to small JSC will cause expenses and push up the issuance cost, that means to limit the capacity of capital mobilization of small JSC.

It is more unreasonable when we compare the procedures of private placement of JSC with the same of limited liability companies. In legal nature, limited liability companies and JSC are reciprocal capital companies (means rights and obligations to the company of capital contributors are based on the capital they contribute or commit to contribute to the company). In capital increase with the method of admission of more members, limited liability companies just have to register charter capital and members, without the binding of procedures like JSC, although the maximum number of members of a limited liability company may reach 50 – not a small number. Therefore, a question should be raised is that why the above two types of enterprises are treated differently, as “love one and hate the other”.

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