Currently, investing through buying and selling preferred shares is a popular trend that is often chosen by investors. Because this is considered an effective investment channel to seek profits. So what should investors pay attention to when buying preferred shares?
1. What is preferred stock?
Currently, in the Vietnamese legal system, there is no legal document that clearly defines the definition of preferential shares. However, preferential shares are mentioned in Clause 2, Article 114 of the Enterprise Law 2020 that in addition to common shares, a joint stock company may have preferential shares.
Owners of preferred shares, called preferred shareholders, will receive certain benefits in the management of the joint stock company corresponding to the type of preferred shares they hold.
2. Types of preferred shares
According to the provisions of Clause 2, Article 114 of the Enterprise Law 2020, types of preferential shares include:
2.1. Dividend preference shares
Dividend preference shares are shares that pay dividends at a higher rate than the dividend rate of common shares or at a stable annual rate. Annual dividends include fixed dividends and bonus dividends. Fixed dividends do not depend on the company's business results. The specific fixed dividend rate and the method of determining bonus dividends are clearly stated in the dividend preference shares (Clause 1, Article 117 of the Enterprise Law 2020).
2.2. Redeemable preferred shares
Redeemable preference shares are shares whose capital contribution is refunded by the company at the request of the owner or according to the conditions stated in the redeemable preference shares and the Company Charter. (Clause 1, Article 118 of the Law on Enterprises 2020)
2.3. Voting preference shares
Voting preference shares are common shares with more votes than other common shares; the number of votes of a voting preference share is stipulated in the Company Charter. Only organizations authorized by the Government and founding shareholders are entitled to hold voting preference shares. The voting preference of founding shareholders is valid for 03 years from the date the company is granted the Certificate of Business Registration. The voting rights and voting preference period for voting preference shares held by organizations authorized by the Government are stipulated in the Company Charter. After the voting preference period, voting preference shares are converted into common shares. (Clause 1, Article 116 of the Enterprise Law 2020)
Other preferred shares as prescribed in the Company Charter and securities laws.
3. Notes when buying preferred shares
3.1. General principles:
When choosing to invest through purchasing preferred shares, buyers and investors need to pay attention to some issues related to their rights and interests as follows:
The general principle on preferential shares is stipulated in Article 114 of the Enterprise Law 2020 specifically that:
– People who are entitled to purchase dividend preference shares, redeemable preference shares and other preference shares as prescribed in the Company Charter or decided by the General Meeting of Shareholders.
– Each share of the same type gives the owner of that share equal rights, obligations and benefits.
– Preferred shares can be converted into common shares according to the resolution of the General Meeting of Shareholders.
3.2. For voting preference shares
Pursuant to Article 116 of the 2020 Enterprise Law, shareholders owning voting preference shares have the following rights:
– Vote on matters within the authority of the General Meeting of Shareholders with the number of votes as prescribed in Clause 1 of this Article;
– Other rights as common shareholders, except for the case specified in Clause 3 of this Article.
The restriction of preferential shareholders on voting preferential shares is that shareholders owning voting preferential shares are not allowed to transfer those shares to others, except in cases of transfer according to a legally effective court judgment or decision or inheritance.
3.3. For dividend preference shares
The rights and restrictions of preference shareholders with respect to dividend preference shares are stipulated in Article 117 of the 2020 Enterprise Law specifically as follows:
– Shareholders owning dividend preference shares have the following rights:
+ Receive dividends as prescribed in Clause 1 of this Article;
+ Receive the remaining assets corresponding to the percentage of shares owned in the company after the company has paid all debts and redeemable preferred shares when the company is dissolved or bankrupt;
+ Other rights as common shareholders, except for the case specified in Clause 3 of this Article.
– Shareholders owning dividend preference shares do not have the right to vote, attend the General Meeting of Shareholders, nominate people to the Board of Directors and the Board of Supervisors, except in the case specified in Clause 6, Article 148 of this Law.
3.4. For redeemable preference shares
In the case of redeemable preferred shares, Article 118 of the 2020 Enterprise Law stipulates the rights and restrictions of preferred shareholders specifically as follows:
– Shareholders owning redeemable preferred shares have the same rights as common shareholders, except for the case specified in Clause 3 of this Article.
– Shareholders owning redeemable preferred shares do not have the right to vote, attend the General Meeting of Shareholders, nominate people to the Board of Directors and the Board of Supervisors, except in the cases specified in Clause 5, Article 114 and Clause 6, Article 148 of this Law.
Above is some information related to types of preferential shares that investors need to pay attention to in order to best protect their rights and legitimate interests. If you have any questions related to this issue, you can contact Legal Forum Law Firm via hotline 0968091672.
