Nowadays, cross-investment activities have been being bolstered by various business opportunities and motivations. However, among forms of cross-investment, cross-shareholding is regarded as the most complex one. Investors always find the question ‘Does Vietnamese law allow investors to have cross-ownership among companies?’ going unanswered. In this article, Bizlawyer would help our potential clients have a better understanding of this problem.

1. What is cross-ownership?

According to Article 16.2 of Decree No. 96/2015/ND-CP, “cross-ownership means a situation where two enterprises own each other’s stakes/shares. The simplest example of cross-ownership is that Company A owns Company B and Company B also owns Company A

Cross-ownership can be performed directly or indirectly in the same legal entity or through a third legal entity such as businesses or banks. The above concept mentions the most basic form of cross-ownership but does not cover other types. In respect of indirect ownership through many intermediaries, for example, Company A owns Company B, and company B does not directly own company A but company B owns Company C, therefore C is considered to own A. Another form of cross-ownership is ownership through an intermediary who is a major shareholder or related person

2. Regulations on restrictions on cross-ownership

According to Article 189.2 of 2014 Law on Enterprise, cross-ownership will be prohibited where enterprises have parent company-subsidiary relationship particularly as follows

• Subsidiaries must not contribute capital or buy shares of the parent company; and
• Subsidiaries of the same parent company must not contribute capital or buy shares of each other for the purpose of cross-ownership

However, enterprises participating in securities trading shall not be hampered from cross-ownership

3. Fines for the administrative violation on cross-ownership

When deciding to contribute capital to or buy shares/stakes of other companies, the company’s President, the Board of members, the Board of Directors of related companies is responsible for ensuring that this activity is consistent with regulation prescribed in Article 189 of 2014 Law on Enterprises. They are jointly responsible for paying damages if regulations of this Article are violated

The Business Registration Agency shall refuse registration of the change of members or shareholders if the capital contribution or purchase of share to establish an enterprise, transfer of related shares or capital contributions violates the above regulations.

In case of intentional violations, enterprises will be received penalties for administrative violations against regulations on planning and investment, and are forced to carry out extra penalties as prescribed in Article 39 of Decree No. 50/2016 / ND-CP, as follows:

• A fine of VND 15,000,000 to VND 20,000,000 shall be imposed upon subsidiaries which contribute capital or buy shares of their parent company; or upon subsidiaries, of the same parent company, contributing capital or buy shares of other subsidiaries;
• Being required to withdraw capital or shares from the parent company or other subsidiaries.

Based on the regulations that Bizlawyer mentioned above, clients should pay attention to compliance in contributing capital/buying shares in other enterprises to avoid violating the regulations on the restriction of cross-ownership between companies

Conclusion

We hope that the information contained in this article is useful to you. If you still have any question about cross-ownership, please contact us via our email: Info@bizlawyer.vn or Hotline Call: (+84)86.888.1900 for timely advice and support.