NGUYEN MINH DUC

Doctor, Lawyer, Lecturer, Department of Law
Faculty of Accounting and Finance, Van Hien University

ABSTRACT: The protection of minority shareholders is a cornerstone of modern corporate governance, particularly in economies with concentrated ownership structures such as Vietnam. This study analyzes the current legal framework under the Enterprise Law 2020 and related regulations, focusing on key rights of minority shareholders, including access to information, the right to request or convene a General Meeting of Shareholders, cumulative voting, derivative actions against managers, and oversight of related-party transactions. While the Enterprise Law 2020 has expanded minority shareholders’ rights, enforcement remains limited due to broad interpretations of “business secrets,” high litigation costs, and other practical barriers. By comparing Vietnam’s legal standards with those of selected jurisdictions, the paper proposes recommendations concerning legislation, enforcement, supervision, and internal corporate governance in order to strengthen minority shareholder protection in alignment with the 2023 G20/OECD Principles of Corporate Governance.

Keywords: corporate governance, minority shareholder protection, Enterprise Law 2020, cumulative voting, derivative actions, related-party transactions, G20/OECD Principles.

1. Introduction

Vietnam’s capital market has grown strongly in both scale and the number of joint-stock companies, with public companies accounting for an increasingly significant share. The prevalent concentrated and controlling ownership structure exposes minority shareholders to numerous risks, ranging from dilution of voting rights and transfers of benefits through internal transactions to restricted access to information and high monitoring costs. In this context, establishing and improving a legal framework for the protection of minority shareholders is a prerequisite for strengthening confidence in a capital market subject to considerable volatility.

The Enterprise Law 2020 marked an important step forward by establishing rights for shareholders or groups of shareholders holding at least 5% of the shares. These rights include requesting the provision of documents, proposing additions to the agenda of meetings, and requesting the convening of the General Meeting of Shareholders (GMS) where internal management bodies breach their duties or adopt decisions beyond their authority. The Law retains cumulative voting to increase the likelihood of minority shareholder representation on the Board of Directors and the Supervisory Board, while clearly providing for the right to bring actions against managers at a minimum threshold of 1% of ordinary shares. Notably, the former requirement of continuous shareholding for six months has been abolished, providing greater flexibility for small shareholders in exercising their rights.

In practice, however, the exercise of these rights still encounters substantial barriers. Provisions concerning “business secrets” are frequently invoked to refuse or delay the disclosure of documents. High litigation costs and lengthy proceedings make actions brought for the common benefit of the company impractical and unattractive to individual shareholders. Meanwhile, the mechanism for bringing an action on behalf of the company remains general, without a transparent judicial procedure or a reasonable litigation-cost mechanism capable of encouraging shareholders to sue. The management and supervision of related-party transactions remain largely procedural, while the independent appraisal role of shareholders and audit committees has not yet fully performed its supervisory function.

Within the scope of this article, the author addresses three issues: (i) the existing rights of minority shareholders; (ii) bottlenecks that limit the ability to exercise those rights; and (iii) international lessons that may be applied in Vietnam in the short and medium term. The article also presents an overview of relevant research, international standards, the domestic legal framework, and policy recommendations.

2. International Standards and the Current Legal Framework

2.1. International standards on minority shareholder protection

The 2023 G20/OECD Principles of Corporate Governance, across Chapters I–VI, identify four core pillars of corporate governance: (i) safeguarding shareholder rights and ensuring equitable treatment of shareholders; (ii) timely, complete, and reliable disclosure of information; (iii) responsibility and independence of the Board of Directors; and (iv) a legal framework with effective enforcement. The 2023 update adds new content concerning sustainability, data governance, and digital transformation, thereby emphasizing the increasingly important role of minority shareholder protection mechanisms in a rapidly changing global capital market.

In common-law systems, the derivative action mechanism has been developed relatively comprehensively. In the United Kingdom, the Companies Act 2006 (sections 260–264) establishes a specific procedure enabling shareholders to bring proceedings on behalf of a company and requires judicial screening to eliminate claims lacking a clear legal basis.

In Delaware, United States, the Delaware General Corporation Law (2024) expressly recognizes shareholders’ right to “inspect the corporation’s books and records for any proper purpose.” This right enables shareholders to access corporate records for a legitimate purpose and to gather evidence before bringing a matter before the court.

In Singapore and Malaysia, legislation over the past two decades has strengthened control over related-party transactions through approval by disinterested shareholders, expanded disclosure requirements, and increased the authority of audit committees in supervision and investigation, thereby improving transparency and accountability.

Practice demonstrates a positive relationship between the level of minority shareholder protection and corporate value, liquidity, and the ability to raise capital. In Vietnam, although considerable legal analysis has been conducted since the Enterprise Law 2020 took effect, quantitative research remains limited, case-law data are incomplete, and no comprehensive assessment framework based on the criteria of “rights – conditions – enforcement – sanctions” has yet been developed specifically for minority shareholders.

2.2. Legal framework governing minority shareholder rights in Vietnam

The Enterprise Law 2020 provides a relatively comprehensive system of rights for shareholders and groups of shareholders. Articles 115, 116, and 117 provide that a group of shareholders owning at least 5% of the total ordinary shares, or a lower percentage if stipulated in the company charter, has the right to request the company to provide documents, propose additions to the meeting agenda, and request the convening of the GMS where there are grounds to believe that the Board of Directors has breached its duties or issued a decision beyond its authority. A valid request must clearly state the shareholders’ identities, ownership ratios, purpose, and supporting grounds.

For the nomination of candidates to the Board of Directors or Supervisory Board, a group of shareholders holding at least 10% of ordinary shares may exercise this right; the company charter may prescribe a lower threshold to ensure flexibility.

Cumulative voting applies by default to elections of the Board of Directors and Supervisory Board unless the company charter provides otherwise. Accordingly, each shareholder’s total number of votes is calculated by multiplying the number of shares owned by the number of seats to be elected; shareholders may allocate all their votes to one or more candidates. This mechanism increases the possibility of minority shareholder representation in management and supervisory bodies.

With respect to managers’ liability, the Enterprise Law 2020 permits a shareholder or group of shareholders owning at least 1% of ordinary shares to bring an action against a member of the Board of Directors, the Director, or the General Director where such person breaches duties, abuses authority, or causes damage to the company or shareholders. This provision opens the way for derivative actions, although screening procedures and mechanisms for reimbursement of litigation costs have not yet been specifically regulated.

For related-party transactions, Article 167 of the Enterprise Law 2020 requires approval by the Board of Directors or the GMS depending on the value and nature of the transaction, with the aim of ensuring transparency and preventing conflicts of interest. Persons having a related interest may not participate in the vote. For public companies, securities law supplements these rules with disclosure and independent appraisal requirements intended to prevent non-transparent transfers of benefits.

Shareholders’ access to and use of evidence are governed by civil procedure law. The Enterprise Law 2020 allows courts or arbitral tribunals to require enterprises to provide documents and evidence necessary for dispute resolution, thereby reducing information asymmetry when shareholders exercise rights such as proposing meeting agendas, requesting the convening of a GMS, or suing managers.

3. Legal Gaps

3.1. Matrix of rights and sanctions

Analysis under the “rights – conditions – enforcement – sanctions” framework shows that the minority shareholder protection mechanism still has significant limitations. The right to request information has become easier to exercise following the removal of the six-month shareholding requirement. However, the scope of “necessary documents” and the application of the concept of “business secrets” remain without specific guidance, allowing enterprises to refuse disclosure on security or confidentiality grounds. The mechanism enabling the Supervisory Board to conduct an inspection at shareholders’ request is a step forward, but sanctions for failure to provide information within the prescribed period remain unclear.

The rights to propose agenda items and request the convening of a GMS are governed by relatively strict procedures intended to prevent abuse. Nevertheless, the costs of gathering evidence and the risk that resolutions may be invalidated make shareholders reluctant to use these rights. Cumulative voting is retained to enhance minority representation on the Board of Directors, but its practical effectiveness depends on the company charter, candidate eligibility requirements, and the manner in which elections are organized.

The right to sue managers is provided in Article 166 of the Enterprise Law 2020. A shareholder or group of shareholders owning at least 1% of ordinary shares may bring an action against a member of the Board of Directors, the Director, or the General Director for breach of duties, abuse of authority, or damage caused to the company. The 1% threshold is an important improvement. However, unlike the UK Companies Act 2006, Vietnamese enterprise law does not provide a procedure for prior court permission before the claim proceeds, leaving judicial screening without a clear legal basis. The absence of a judicial screening procedure, reimbursement of reasonable costs for good-faith shareholders, and detailed guidance on evidence prevents the mechanism from realizing its full deterrent effect. Meanwhile, controls over related-party transactions remain largely formal: approval continues to depend on internal corporate processes, while independent appraisal by the audit committee or disinterested shareholders has not been fully institutionalized.

In the long term, establishing a quantitative database on shareholder disputes—including disputes over information rights, sanctions for violations of related-party transaction disclosure rules, and managerial liability actions—would support analysis of the relationship among rights, conditions for exercise, and enforcement mechanisms in actual disputes, thereby enabling the effectiveness of legal reforms to be assessed over time.

3.2. Feasibility and compliance costs

Three principal factors reduce the effectiveness of minority shareholder protection: (1) shareholders’ limited access to information, which places them at a disadvantage in monitoring corporate governance; (2) excessive litigation costs, including filing and evidence-gathering expenses; and (3) the absence of clear and transparent rules governing derivative actions, which makes practical application difficult.

First, limited shareholder access to information remains an inherent problem in company–shareholder relations. Unless the law prescribes a minimum list of documents that enterprises must provide and a clear response deadline, shareholders’ information rights are difficult to guarantee.

Second, litigation costs and prolonged dispute resolution discourage individual shareholders from pursuing actions for the common benefit. There is currently no mechanism to reimburse costs or share lawyers’ fees with successful shareholder plaintiffs, while the risk of “free riding” by other shareholders makes collective action less attractive.

Third, current law lacks specific and transparent provisions on procedures for bringing an action on behalf of the company. This creates two opposing risks: if the rules are too broad, the mechanism may be abused for improper purposes; if they are too restrictive, shareholders’ right to sue is constrained and the deterrent effect on managers who breach their duties is weakened. Moreover, current law does not provide a mechanism for courts to review and authorize derivative actions before formally accepting them. Consequently, well-founded claims are not sufficiently encouraged, while weak claims may still be initiated, reducing the effectiveness of shareholder protection and increasing the burden on the judicial system.

Regarding compatibility with international standards, the 2023 G20/OECD Principles of Corporate Governance recommend that jurisdictions ensure equitable treatment of shareholders and information transparency as foundations of modern corporate governance. Vietnam may adopt a flexible approach to incorporating these standards through subordinate legislation that provides specific guidance on the scope of records accessible to shareholders, harmonizes the definition of “related persons,” and establishes more transparent transaction-approval procedures.

When information rights are clearly established, litigation costs are reasonably addressed, and transaction-approval mechanisms operate independently, corporate governance discipline will be strengthened, thereby reducing abuse risks and improving market confidence, liquidity, and the ability to raise capital.

4. Directions for Improvement and Policy Implications

To fully reflect the impacts of shareholder protection mechanisms, the policy recommendations may be divided into three levels: legislation, focusing on improvement of legal rules; enforcement and supervision, concerning implementation and compliance monitoring; and corporate governance, aimed at increasing responsibility and transparency within companies.

At the legislative level, thresholds and conditions for exercising shareholder rights should be standardized by maintaining the minimum 5% ownership threshold for the rights to request information, propose agenda items, and request the convening of the GMS. A company charter may prescribe a lower percentage but should not be permitted to increase this threshold. The law should also specify a minimum list of documents that enterprises are required to provide, establish a specific response deadline, and impose administrative sanctions for conduct obstructing shareholders’ access to information.

A separate provision governing derivative-action procedures should be introduced, including preliminary judicial review to exclude claims without a legal basis; clear rules on “demand” and “demand futility” for determining conditions to sue; reimbursement of reasonable costs to successful shareholder plaintiffs; and provisional emergency measures to preserve evidence or relevant assets during dispute resolution.

For related-party transactions, the law should require approval by disinterested shareholders for transactions of significant value or carrying a potential conflict-of-interest risk. Independent appraisal should also be required before approval in order to ensure transparency and objectivity and to prevent abuse of power by controlling shareholders.

At the enforcement and supervisory level, competent authorities should issue standardized forms for shareholders requesting information and provide clear guidance distinguishing “necessary documents” from “business secrets.” Deadlines for information disclosure should be standardized, and sanctions for delaying or obstructing the exercise of shareholder rights should be strengthened.

The approval process for related-party transactions should be standardized in enterprises’ internal governance regulations. Definitions of “related parties” and disclosure thresholds should be harmonized between enterprise law and securities law to avoid duplication and regulatory conflict.

In addition, expedited dispute resolution through commercial arbitration or specialized panels should be encouraged, while databases of judgments and decisions relating to corporate governance disputes should be expanded to improve transparency and access for the business community.

At the corporate-governance level, each company should improve its charter and internal regulations to safeguard shareholders’ lawful rights and interests, implement cumulative voting transparently, develop an electronic information portal for shareholders, and establish an independent process for nominating members of the Board of Directors.

Audit committees should fully perform their function of appraising related-party transactions and should have authority to engage independent advisers to assess high-value or high-risk transactions.

Enterprises should also implement Directors and Officers Liability Insurance (D&O) in connection with legal-compliance requirements and periodic corporate-governance training. Regular dialogue with minority shareholders should be maintained to enhance information transparency and strengthen investor confidence.

5. Conclusion

The Enterprise Law 2020 has expanded minority shareholder rights through mechanisms for access to information, participation in decision-making, cumulative voting, and actions against managers. However, effective enforcement of these rights requires improvements in three principal areas.

First, information-access rights should be standardized and specific sanctions should be established for conduct obstructing the exercise of those rights.

Second, a derivative-action mechanism should be established with a judicial screening stage and a reasonable cost-reimbursement mechanism for good-faith shareholder plaintiffs.

Third, independence and transparency should be strengthened in the approval process for related-party transactions, particularly high-value transactions or those presenting potential conflicts of interest.

This reform roadmap is consistent with Vietnam’s legal and market conditions while moving toward the 2023 G20/OECD Principles of Corporate Governance. In the short term, detailed guidance should be issued on information-access rights and procedures for approving related-party transactions. In the medium term, the derivative-action mechanism should be codified and internal governance standards enhanced in order to strengthen market discipline and corporate competitiveness.

References

1. National Assembly of Vietnam. (2020). Enterprise Law No. 59/2020/QH14, provisions on shareholder rights, cumulative voting mechanisms, and managers’ liability.

2. Government of Vietnam. (2020). Decree No. 155/2020/ND-CP detailing the implementation of a number of articles of the Law on Securities.

3. State Securities Commission of Vietnam. (2022). Corporate governance regulations for public companies and guidance on related-party transactions. Practical guidance on information disclosure, transaction approval, and shareholder responsibilities under securities law.

4. OECD. (2023). G20/OECD Principles of Corporate Governance. OECD Publishing.

5. Delaware General Corporation Law. (2024). § 220. Inspection of Books and Records.

6. United Kingdom. (2006). Companies Act 2006, c. 46, Part 11, §§ 260–264.

Article received: 15 August 2025
Peer review and revision: 25 August 2025
Accepted for publication: 16 September 2025