Instead of buying shares from existing holders, many foreign investors choose to receive newly issued shares in a private placement: the money goes straight into the company to fund expansion, and the investor becomes a shareholder without negotiating a price with each seller. But a private placement follows its own discipline under enterprise law, layered with investment procedure when the subscriber is foreign. Skipping existing shareholders pre-emptive rights is the mistake that gets many placements challenged right after completion.
The Legal Framework You Need
Article 125 of the Law on Enterprises 59/2020/QH14 requires a joint stock company conducting a private placement to have a plan approved by the General Meeting of Shareholders, and existing shareholders hold a pre-emptive right to buy the new shares in proportion to their ordinary shareholdings, within the time limit and sequence set by the charter. Only shares that existing shareholders do not fully subscribe may be offered to outside investors. For public companies, a private placement additionally follows the Law on Securities 54/2019/QH14 and Decree No. 155/2020/ND-CP, with extra conditions on professional securities investors and transfer restrictions.
Where the subscriber is a foreign investor, the placement is simultaneously a capital contribution transaction under investment law: if after the placement the foreign investor and related persons hold above 50 percent of charter capital, or the company sits in a restricted market-access sector, or the company holds land in a sensitive area, the company must complete capital contribution and share purchase registration under the Law on Investment 143/2025/QH15 and Decree No. 96/2026/ND-CP before finalising the capital change. After the placement, the company registers the charter capital increase and enterprise changes under Decree No. 168/2025/ND-CP, ensuring foreign ownership stays within the sector ceiling.
Applying the Rules to a Real Deal
Placement conditions should be checked layer by layer. The corporate layer: the plan covering volume, indicative price, investor criteria and use of proceeds must pass the General Meeting of Shareholders. The shareholder layer: existing holders pre-emptive rights must be exercised in the charter sequence and deadline, with a documented subscription tally. The market layer: for public companies, subscribers are typically professional securities investors and privately placed shares carry a transfer restriction for a set period. The foreign investment layer: room and capital contribution registration as analysed. A weakness in any layer is a legal weakness in the whole placement.
The issue price is the most sensitive negotiation point because it sets the dilution suffered by existing shareholders. A price below real value harms incumbents and invites related-party scrutiny if the new investor is connected to management. Good practice builds the price on an independent valuation or a market reference price for listed issuers, and records the pricing basis in the shareholders resolution. The foreign investor should also seek commitments that proceeds will be used for the purposes stated in the placement plan, with periodic information rights, because their money enters the company rather than a selling shareholder pocket.
Illustrative example: An unlisted electronics company in Bac Ninh privately placed shares equal to 30 percent of post-issue capital to a Korean strategic investor to fund a second plant. Because post-issue foreign ownership crossed half of charter capital when combined with an existing foreign minority holder, counsel sequenced the deal as investment registration first, placement second. The company also ran the charter pre-emptive round with full documentation; two domestic founders subscribed part of the issue, the balance went to the Korean investor, and the capital increase registered without a single objection.
Procedure and Documents to Prepare
First: the General Meeting of Shareholders approves the private placement plan covering volume, price, investor criteria and use of proceeds. Next: notify and run existing shareholders pre-emptive rights in the exact charter sequence and deadline. After that: determine the remaining shares available to the foreign investor and check room and market-access conditions. Then: complete foreign investor capital contribution registration if one of the three statutory cases applies. Finally: the investor pays through the investment capital account; the company registers the capital increase, records the shareholder register and reports the result.
- the General Meeting of Shareholders approves the private placement plan covering volume, price, investor criteria and use of proceeds.
- notify and run existing shareholders pre-emptive rights in the exact charter sequence and deadline.
- determine the remaining shares available to the foreign investor and check room and market-access conditions.
- complete foreign investor capital contribution registration if one of the three statutory cases applies.
- the investor pays through the investment capital account; the company registers the capital increase, records the shareholder register and reports the result.
Common Risks and How to Prevent Them
The first risk is missing or mishandling existing shareholders pre-emptive rights, exposing the placement resolution to complaints and lawsuits. The second risk is an unreasonably low issue price harming incumbents and suggesting a related-party transaction. The third risk is post-issue foreign ownership breaching the sector ceiling because room was miscalculated. The safeguard is a four-layer conditions checklist, independent valuation for the issue price, and full evidence of the pre-emptive round.
A private placement to a foreign investor only stands firm when all four layers of conditions have been checked: the sector, the foreign room, existing shareholders’ pre-emptive rights, and an independently appraised issue price. Preserve the complete evidence of how pre-emptive rights were exercised, because that is the first file demanded when a complaint lands.
Frequently Asked Questions
What is the procedure for a private share placement to a foreign investor?
The process runs in sequence: the General Meeting of Shareholders approves the placement plan under Article 125 of the Law on Enterprises 59/2020/QH14; the company notifies and runs pre-emptive rights for existing shareholders under the charter; only unsubscribed shares are offered to the foreign investor; where a statutory case applies, the company completes capital contribution registration with the investment registration authority; the investor pays for the shares through the investment capital account; finally the company registers the charter capital increase and records the new shareholder. Public companies add securities law conditions on top.
What are the conditions for a private placement?
The core conditions are: a placement plan approved by the General Meeting of Shareholders; respect for existing shareholders pre-emptive rights in proportion to their holdings within the charter deadline; subscribers meeting the criteria stated in the plan; and compliance with transfer restrictions applying to privately placed shares, especially at public companies under the Law on Securities 54/2019/QH14. The placement must also not change the company form and must respect the foreign ownership conditions of the sectors in which the company operates.
Is approval required when increasing capital for a foreign investor?
It can. Issuing new shares to a foreign investor directly raises the foreign ownership ratio in the company, so if after the issue the investor and related persons exceed 50 percent of charter capital, or the company is in a restricted market-access sector, or it holds land on an island, border or coastal area, the transaction requires capital contribution and share purchase registration under the Law on Investment 143/2025/QH15 and Decree No. 96/2026/ND-CP before completion. If none of those cases applies, the company simply performs the ordinary corporate procedures for capital increase and shareholder change.
