When a joint venture issues new capital, the pre-emptive right is the existing shareholder’s first and cheapest shield: it guarantees you may buy new capital exactly in proportion to your current holding, before any part is offered to outsiders. But the shield only works if the shareholder understands three numbers precisely — how much you may buy, for how long, and what happens to the part you do not take up — plus one seemingly minor procedure that generates the most disputes in practice: how a waiver must be expressed so it cannot be reopened later.
How much you may buy first: the proportionality rule in Article 124
Article 124 of Enterprise Law No. 59/2020/QH14 provides that when a joint stock company offers shares to existing shareholders, each shareholder has a pre-emptive right to buy new shares in proportion to its ordinary shareholding in the company. If you hold 25 percent and the company issues new shares equal to 40 percent of those outstanding, you may buy 25 percent of that issue first — exactly enough to keep your 25 percent ratio after the issue if you take it up in full. The company must notify each shareholder in writing in a manner ensuring delivery to the registered contact address, stating the quantity, price and subscription deadline.
For a limited liability company the corresponding mechanism sits in Article 68: when charter capital is increased through additional member contributions, allocation of the additional parts follows existing capital ratios unless the Members’ Council decides otherwise under the charter. The practical difference worth noting is that an LLC rarely “issues” in structured rounds like a joint stock company; an increase is usually negotiated directly in the Members’ Council, so a small member’s pre-emption depends more heavily on how the charter writes the contribution offer procedure.
Not taking up your full portion: where the remainder goes
Article 124 sets an important protective rule for shares that existing shareholders do not subscribe or do not pay for in full: the board may offer those shares to others, but not on terms more favourable than those offered to existing shareholders. This “no more favourable” rule blocks the script of offering insiders a high price on a short deadline, then selling to an outsider or affiliate at a lower price immediately afterwards. If the outside offer turns out better (lower price, longer payment terms), existing shareholders have grounds to challenge the issue process and seek annulment of the offending tranche.
On the shareholder’s side, three situations are often conflated and must be distinguished: not subscribing within the notice period, which ends that round’s pre-emptive right as the issue proceeds; subscribing but not paying in full within the statutory period — for subscribed shares, Article 113 of the Enterprise Law sets a 90-day payment duty and the consequences of default; and an active written waiver before the deadline. The three situations carry different consequences for liability and for later complaints.
Waiving pre-emptive rights: is a document required?
The law prescribes no statutory waiver form. In practice, the most common “waiver” is passive: the shareholder receives valid notice and does not subscribe within the period, and that round’s right simply closes. For a foreign investor, however, an active written waiver is often the safer choice in three situations: when the company needs to close the list early to offer the remainder to a new investor; when the waiver forms part of a larger restructuring bargain, such as in exchange for anti-dilution commitments in a later round; and when the shareholder wants to pre-empt any argument that notice never reached its registered address. The waiver should identify the issue, the number of rights waived, and state that it applies to that issue only — avoiding general waiver language for all future issues, which could be read as an open-ended surrender of a statutory right.
On receiving a new issue notice: what to check
- Did the notice reach your registered contact address with the charter subscription period still intact?
- Does your entitlement match your current ratio exactly, and is the offer price supported by a valuation basis?
- Are the offer terms (price, payment period) worsened between the insider round and any outside round?
- If not following: choose between letting the period lapse, a written waiver for this round only, or transferring the right.
- If subscribing: schedule payment inside the 90-day frame of Article 113 and through the correct investment capital account.
Frequently Asked Questions
When new capital is issued, how much may existing shareholders buy first?
Exactly in proportion to your current ordinary shareholding, under Article 124 of the Enterprise Law: holding 25 percent entitles you to 25 percent of the new shares offered in that round. Taking up the full entitlement preserves your ratio after the issue. The company must notify each shareholder in writing with the quantity, price and subscription deadline.
What happens if I do not take up my full portion?
The unsubscribed or unpaid portion may be offered by the board to others under Article 124, but on terms no more favourable than those offered to existing shareholders. Your ratio falls correspondingly, by the formula of your contributed capital over total capital after the issue. If you subscribed but failed to pay in full within 90 days, the consequences follow Article 113 of the Enterprise Law — a different position from never subscribing at all.
Does waiving pre-emptive rights require a document?
No statutory form is mandatory; simply not subscribing within the notice period closes that round’s right. Still, a written waiver limited to the specific issue is safer practice where the company needs to finalise the remainder for a new investor, or where the waiver is part of a wider restructuring bargain. Avoid language waiving rights for future issues in general.
Can a pre-emptive right be transferred to someone else?
The Enterprise Law does not prohibit a shareholder from transferring its pre-emptive right, and in an LLC Article 68 recognises a member’s right to transfer its contribution entitlement. The transfer should be documented and notified to the company so the transferee is recognised in the issue process. Where the transferee is a new foreign investor entering the venture, investment-law approval for the capital acquisition may need to be completed before the contribution takes effect.
This article has been quality-reviewed by the FLAW AI Legal Council