Short answer: YES — existing shareholders of a joint stock company (not a public company) have preemptive rights to newly issued shares pro rata to their current holdings, under Article 124 of the Enterprise Law 59/2020/QH14. Terminology first: “new share issuance” in common parlance is “share offering to increase charter capital” in statutory language. And do not confuse “preemptive rights” (existing shareholders rights when the company offers new shares) with “preferential share purchase rights” (a different warrant/preference instrument) — two entirely different concepts.
1. What are preemptive rights? (Article 124)
Article 124.1 defines an offering to existing shareholders as the company increasing the number of authorized shares and selling all such shares to all shareholders pro rata to their current holdings. In other words: when the company wants to raise capital through a new issuance, it must offer existing shareholders first, each entitled to buy in proportion to what they hold — a mechanism protecting existing shareholders against surprise dilution.
Article 123 classifies 3 forms of share offerings: (1) offering to existing shareholders; (2) private placement; (3) public offering. The preemptive-rights mechanism in Articles 124–125 applies only to non-public companies; public companies or public offerings follow securities law.
2. Procedure: 15-day notice + subscription form (Article 124.2)
Preemptive rights do not exercise themselves — the company must follow procedure and shareholders must respond on time:
- Written notice to shareholders no later than 15 days before the subscription closing date (point a, clause 2, Article 124);
- The notice must contain the prescribed contents plus a subscription form template (point b, clause 2, Article 124);
- A subscription form not returned on time means the shareholder is deemed to have declined the preemptive right — rights lost over a late envelope;
- Shareholders may transfer their preemptive rights to others (point c, clause 2, Article 124) — the right is transferable; personal exercise is not mandatory.
Important note: there is no “minimum 20-day subscription period” rule — this figure occasionally appears online but has no legal basis. The subscription period is the period notified by the company within the Article 124.2 procedure.
3. Who gets the leftover shares? (Article 124.3)
After the subscription period, shares not subscribed by existing shareholders (the remainder) may be offered by the Board of Directors to company shareholders and others, but on terms no more favorable than those offered to existing shareholders — unless the GMS approves otherwise or securities law provides differently. This “no more favorable” rule prevents companies from squeezing existing shareholders with poor terms and then selling cheap to outsiders.
Shares are deemed sold when fully paid for and the buyer information is recorded in the shareholder register (clause 4, Article 124, referring to clause 2, Article 122). After the offering, the company must register the charter capital change within 10 days (Article 123).
4. Even in private placements, existing shareholders keep their rights — sole exception: merger or consolidation
The most misunderstood point: many assume private placements (sales to designated investors) bypass existing shareholders. Wrong. Point b, clause 2, Article 125 provides: in a private placement, existing shareholders still enjoy preemptive rights under clause 2 of Article 124 — except in the case of merger or consolidation of companies. This is the sole exception.
Article 125.1 sets conditions for private placements: no offering through mass media, and offering to fewer than 100 investors or only to professional securities investors. Leftover shares after existing shareholders exercise their rights are likewise subject to the “no more favorable terms” principle (point c, clause 2, Article 125). Foreign investors purchasing shares must additionally complete procedures under the Investment Law (clause 3, Article 125).
5. Four practical traps shareholders must avoid
- (a) Late subscription form means lost rights: a form not returned within the notified period is deemed a waiver — the law provides no extension mechanism;
- (b) Outdated contact address in the shareholder register: the company sends notices to the registered address; a shareholder who never receives them bears the fault for not updating. Check and update your contact details in the shareholder register now;
- (c) The “no more favorable” condition for outsiders: shareholders should compare the terms offered to them against terms given to outsiders — if outsiders got better terms (lower price, easier payment) without GMS approval, that is a violation;
- (d) Foreign investors: besides preemptive rights under the Enterprise Law, they must complete share-purchase procedures under the Investment Law — two parallel procedural layers.
FAQs
Do shareholders of public companies have preemptive rights in new issuances?
The Article 124–125 mechanism does not apply to public companies; their offerings follow securities law with its own regime.
Does transferring preemptive rights to another person require company approval?
Point c, clause 2, Article 124 allows shareholders to transfer their preemptive rights to others; the law imposes no company-approval condition.
What is the minimum subscription period in days?
The law sets no minimum number of days; it only requires written notice no later than 15 days before the subscription closing date. The “20 days” figure circulating online has no basis.
Do shareholders keep preemptive rights in a merger?
No — merger or consolidation of companies is the sole exception where existing shareholders do not enjoy preemptive rights (point b, clause 2, Article 125).
What if the company bypasses shareholders preemptive rights?
Specific sanctions for bypassing preemptive rights (e.g. suing to annul the offering plan) have not been fully research-backed — affected shareholders should consult counsel to assess litigation options rather than act alone.
Legal sources
- Enterprise Law 59/2020/QH14 (effective 01/01/2021; Articles 123–125 not amended by Law 76/2025/QH15): Article 123 (share offering definition; 3 forms; charter capital change registration within 10 days); Article 124.1 (offering to existing shareholders defined); point a clause 2 Article 124 (notice no later than 15 days); point b clause 2 Article 124 (notice contents + form template; late return means declined); point c clause 2 Article 124 (transferable preemptive rights); Article 124.3 (remainder: no more favorable terms); Article 124.4 (shares deemed sold upon full payment + register entry); Article 125.1 (private placement conditions); point b clause 2 Article 125 (preemptive rights in private placements, except merger/consolidation); point c clause 2 Article 125 (remainder sold to others); Article 125.3 (foreign investors under Investment Law).
Is your company preparing a new share issuance plan, or are you a shareholder seeking to protect your preemptive rights? Reach us via the Contact page of FLAT Law Firm for a compliant fundraising review.
The legal content of this article is reviewed by FLAT’s AI Legal Council and submitted to the owner for approval; it is not an opinion of a licensed lawyer and does not replace legal advice for specific cases.
For reference only, not legal advice.
