minority shareholders protection in shareholding companies a comparison between vietnamese enterprises law and the united kingdom company law

Joint Swedish-Vietnamese
Master’s Programme
MASTER’S THESIS
MINORITY SHAREHOLDERS PROTECTION
IN
SHAREHOLDING COMPANIES
A COMPARISON BETWEEN VIETNAMESE ENTERPRISES LAW
AND
THE UNITED KINGDOM COMPANY LAW
SUPERVISORS:
Supervisor 1: Professor Christina Moell
Supervisor 2: Professor Bui Xuan Hai
Acknowledgements
First of all, I would like to thank my supervisors, Professor Christina Moell
and Professor Bui Xuan Hai, for saving the time in their very busy work to
supervise my thesis as well as instruct me for further studying.
I am grateful to Professor Christopher Wong for his continuous support and
guidance during the course.
I would like to acknowledge the generous support from Ho Chi Minh City
University of Law and the Faculty of Law, Lund University.
I would like to thank to Sida (the Swedish International Development
Agency) for its fund in the project.
Last but not least, I am always indebted to my parents and my husband for
their wholehearted support during the years of my studies.
Table of Content
ACKNOWLEDGEMENTS
TABLE OF CONTENT
ABBREVIATION
PART 1. INTRODUCTION
1. 1 The need for this research
1. 2. The situation of the research

1. 3. Purposes
1.4. Methodology
1. 5. Delimitation
1. 6. The structure of the thesis
PART 2. THEORETICAL ISSUES ON MINORITY
SHAREHOLDERS PROTECTION
2.1 Who is a minority shareholder?
2.2 Why minority shareholders should be protected
1
2
3
4
4
4
5
5
6
6
7
7
10
2.2.1 Minority shareholders suffer from actual and potential oppression
caused by managerial power and majority rule 11
2.2.2 Minority shareholder protection is a significant factor that can
encourage investment and support the development of financial
markets and economic growth 14
2.3 Principles of minority shareholder protection
2.3.1 Maintaining the effect of majority rule
2.3.2 Equitable treatment of shareholders
PART 3. COMPARATIVE STUDY OF MINORITY

SHAREHOLDERS PROTECTION IN VIETNAMESE AND
UNITED KINGDOM COMPANY LAW
3.1 Sources of law
3.2 The rights of minority shareholders regarding the general meeting
3.2.1 Calling for a general meeting
3.2.2 Attending the general meeting
3.2.3 Getting items on the agenda
3.2.4 Raising a motion at the general meeting
15
15
16
18
19
20
20
22
24
25
3.2.5 The right to challenge resolutions adopted at the general meeting 26
3.3 The right to appoint directors
3.4 Shareholders’ remedies
28
31
2
3.4.1 Derivative actions
3.4.2 Unfair prejudice
3.4.3 Action to enforce the constitution of the company
31
35
36

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to access company’s information 39
3.6 The ability to control related party transactions and major
transactions
3.6.1 Major transactions
3.6.2 Related party transactions
3.7 Pre-emptive right
PART 4. CONCLUSION
TABLE OF STATUES AND OTHER LEGAL
INSTRUMENTS
National legislations
The United Kingdom
Vietnam
TABLE OF CASES
BIBLIOGRAPHY
Official Reports and other Documents
The United Kingdom
Vietnam
Monographs
In English

In Vietnamese
Articles in Journals, Anthologies, and others
In English
In Vietnamese
40
40
41
42
46
47
47
47
47
48
49
49
49
49
49
49
49
50
50
51
3
Abbreviation
3
AGM
Annual general meeting
EGM

Extraordinary general meeting
CA
Part 1. Introduction
1. 1 The need for this research
Minority shareholder protection is one of the fundamental concepts within the
domain corporate governance. It has also become in recent years an important
indicator for the World Bank when it evaluate a country’s business environment1.
Among many types of business, shareholding company is typically characterized
by the separation between the ownership evidenced by the possession of shares
and the management of the company.
Depriving from separation above, no shareholder especially a minority
shareholder, is capable of directly participating in the managerial activities and
supervision of the company in a significant and effective way. The minority
shareholders are however investors in and also co-owners of the company and
they do reserve the right to perform their rights and duties as shareholders.
However, because of the typical characteristics of the corporate governance of a
shareholding company, minority shareholders often challenge with the potentials
of dual oppression and face unfair treatment from both the majority shareholders
and the management. Consequently, their rights become unsubstantial and the
position of their capital, too, is often abused by majority shareholders and
damaged consequentially. Owing to their inherently weak position, the laws of
most countries provide some protection for them. However, these provisions are
not perfect and the more important point in the protection of minority
shareholders is the mechanism for enforcing them. The reality in Vietnam has, in
recent years indicated two concerns and problems: first, the legal provisions on
minority shareholders protection are themselves defective and the enforcement is
ineffective which also lead to negative results for such investors in particular and
the business environment in general.
From the totality of issues relating to minority shareholders, the author selects the
topic “MINORITY SHAREHOLDERS PROTECTION IN SHAREHOLDING

COMPANY – A COMPARISON BETWEEN VIETNAMESE ENTERPRISES
LAW AND THE UNITED KINGDOM COMPANY LAW” for her master thesis.
1. 2. The situation of the research
In Vietnam, the issue of minority shareholder protection has been discussed by
the following authors in the following studies and articles:
According to Report on Business Environment 2008 by World Bank (WB) and International
Finance Corporation (IFC), Vietnam was ranked 91 among 178 countries in the world
(this rank in 2007 was 104/175). Among 10 investigated criteria, 4 of them were dropped
back, including: issuing business license; investors protection which comprises
transparency, directors’ liability and shareholders’ ability to bring suits against directors
and managers; business dissolving and paying taxes. See ”Nhà đầu tư nhỏ chưa được bảo
vệ.” (Small investors have not been protected). />CatId=11&NewsId=25760 , accessed on 12 December 2008.
4
-
-
-
-
-
-
-
Chau Quoc An (2006), Chế độ pháp lý về quản trị công ty theo quy định của
Luật doanh nghiệp, (The legal regime on corporate governance under
Enterprise Law) Master thesis;
Nguyen Ngoc Bich (2004), Luật doanh nghiệp – Vốn và quản lý trong công
ty cổ phần, (Enterprise Law – Capital and management in shareholding
companies), Young Publisher;
Cao Đinh Lanh, ”Xung đột các nhóm lợi ích trong công ty cổ phần”
(Conflicts between interest groups in shareholding companies), The Journal
of Democracy and Law, No 3/2007;
Tran Quoc Hoai, (2006), Pháp luật về bảo vệ nhà đầu tư trên thị trường

chứng khoán, (Law on protection of investors’ interest in security market),
Master thesis;
Tran Viet Khoa (2007), Luật Doanh nghiệp Việt Nam trong xu thế hội nhập
kinh tế quốc tế, (Vietnamese Enterprise Law in the tendency of
internationally economic integration), Master thesis;
The Institute of international economy (1991), Công ty cổ phần ở các nước
phát triển – Quá trình thành lập, tổ chức và quản lý, (Shareholding
companies in developed countries – The process of establishment,
organization and management, Social Science Publisher, Hanoi;
Farrukh Iqbal and Jong – II You (2002), Kinh tế thị trường dân chủ và phát
triển – Từ góc nhìn Châu Á, (Democratic market economy and
development
– From the Asia view), The World Publisher.
However, these works above mainly focus on corporate governance.
The issue of
minority shareholders protection was only mentioned to the extent of
listing some
legal provisions and pointing out the rights of minority shareholders
under them.
Up to now, there has been no independent and specialized research on
minority
shareholders protection in Vietnam, especially from the comparative
perspective.
1. 3. Purposes
My research has two main purposes: (i) studying theoretical issues on
minority
shareholders protection and, (ii) making a comparative study of
minority
shareholders protection under the UK and Vietnamese Company law
which leads

to conclusions on minority shareholders protection in Vietnam. My
research first
intends determine who are the minority shareholders and the reasons
why they
should be protected. As to the second purpose, the comparative study
of minority
shareholders protection in the UK and in Vietnam aims at drawing
conclusions
about the merits and demerits of the Vietnamese treatment of such
protection.
1.4. Methodology
To carry out the research, the following methods will be used in the
thesi
s:
-Comparative
method: this method
will be used to
compare and collate
the issues arising in
the UK and
Vietnamese
company law with
the aim
of establishing their
similarities and
differenties and
explaining the
reason for them. The
result of this method
will serve the

purposes of the
thesis. Particularly,
this method will be
mainly used in part 3
of the
thesis to support the
comparative study
between the UK and
Vietnamese
company law on
minority
shareholders
protection.
5
-
Analytical method: this method will be used mainly for part 2 of the
thesis where accessing various opinions about minority
shareholders. By
using the analytical method, this part point out the
concept of minority
shareholders; the reasons for which minority shareholders
should
receive protection, and principles on minority
shareholders protection.
1. 5. Delimitation
Pursuant to the aims stated above, my research will not cover all
issues relating to
minority shareholders protection but will be limited to company
law matters.
Within company law, the comparative research concentrates on the

typical tools
which minority shareholders could actively employ to protect
themselves. Beside,
because investor protection in general and minority shareholders
protection in
particular is not confined to company law, but also to securities
regulation2, thus,
securities law will be mentioned if particularly relevant.
The research on minority shareholders protection also will be
limited in
shareholding company (công ty cổ phần).
In the UK, a company can be classified as limited by shares,
limited by
quaramtee, or unlimited. Shareholders in a company limited by
shares will hold
liability to the amount which they contributed to the company’s
assets. Any
limited company with a share capital may be a private company or
a public
company. The key difference between these two kinds of company
are a private
company can not offer its securities to the public as a public
company3.
In Vietnam, a shareholding company also has it chater capital in
shares; its
shareholders shall be liable for the debts and other property
obligations of the
company to the extent of the amount of capital contributed to the
company, its
shares may be tranferred freely, and it can issue all types of

securities to the
public4.
Because of the similarities above, the comparative study on
minority shareholders
protection will be made between the shareholding company in
Vietnam and the
public company in the UK.
1. 6. The structure of the thesis
In
accordan
ce with
the
purposes
and
scope of
my
research,
the
content
of the
thesis
will
contain
4 parts:
-
-
-
-
1. Introduction
2. Theoretical issues on

minority shareholders
protection
3. Comparative study
of minority shareholder
protection in
Vietnamese and
the United
Kingdom
company law
4. Conclusion
Caspar Rose, “The Challenges
of Quantifying Investor
Protection in a Comparative
Context”, 8 European
Business Organization Law
Review (2007), p.373.
Section 1, CA 1985.
Article 77, EA 2005.
6
Part 2. Theoretical issues on minority shareholders
protection
Before elaborating on minority shareholders protection in the UK and Vietnam for
the comparative purposes, it will be useful to define who are minority shareholders
and clarify why they should receive protection. In addition, the protection of
minority shareholders should follow some principles in order to secure the
company’s legitimate business. Hence, this part will present in turn the three
issues: (1) who are minority shareholders; (2) why minority shareholders should be
protected; and (3) principles of minority shareholders protection.
2.1 Who is a minority shareholder?
In this section, the thesis does not attempt to give a unique all - embracing

definition of minority shareholder but try to suggest what is meant by the term
“minority shareholders”5.
It is important to bear in mind that the term “minority” does not relate exclusively
to numbers of shareholders6. By comparing minority race in constitutional law
and minority shareholders in corporate law, Professor Anupam Chander said that
“minority status among shareholders centers on share ownership and other indicia
of control”, and “ignores other features that might be said logically to describe
someone who is in a minority” such as “A Texan is not a minority shareholder
simply because all the other shareholders are from New York”7. And, the
minority shareholders might be, in number, an actual majority of the
shareholders.
As defined by the UK Law commission, the term “minority shareholder” for
simplicity, connotes one or more members not holding the majority of voting
rights capable of being cast at general meetings8. In other word, the label
"minority" is based on shareholding and power relations within the corporation. 9
The questions that may come to mind are whether a shareholder who provides a
majority of the capital of a company must escape being a minority shareholder?
Or will a shareholder who holds a very small percentage of the capital definitely
be a minority shareholder?
Commonly, the “minority” or the “majority” refer to those who hold the minority
See, Bui Xuan Hai (2007), Corporate Governance in Vietnamese Company Law: A
Proposal for Reform, Doctor Thesis, La Trobe University, Australia, p.25 with refer to La
Porta, Lopez-de-Silanes, Shleifer, and Vishny, who consider all managers and controlling
shareholders of a company as “insiders”, while creditors and minority shareholders are
“outside investors”.
Nguyen Ngoc Bich (2004), Luật Doanh nghiệp – Vốn và quản lý trong công ty cổ phần
(Enterprises Law – Capital and management in Shareholding Companies), Young
Publisher, p. 251.
Anupam Chander, “Minorities, Shareholder and Otherwise”, 113 Yale Law Journal (2003)
p.162.

The Law Commission, Shareholder Remedies, Law Commission Consultation Paper 142
(1996), accessed on 20 November, 2008.
Supra note 7, p.162.
7
or the majority of the shares of a company10.Under Vietnamese law, there has
been inconsistent and ambigous conception about minority shareholders.
Under Decree 48/1998/NĐ-CP dated 11/7/1998 on Securities and Securities
market, “minority shareholders are those who hold less than 1% voting shares of
the issue organization”. And, Decree 144/2003/NĐ-CP dated 28/11/2003 on
Securities and Securities market did not give a definition of minority shareholder
but did say tha: “majority shareholders are those who hold more than 5% voting
shares of the issue organization”. Though both Decrees were repealed, they
expressed the approach of law makers about minority shareholders.
From company law perspective, the Enterprise Act of 1999 and the Enterprise Act
of 2005 do not contain any definition of minority or majority shareholder but
provides some special rights for shareholders who hold 10% and more voting
shares.
Later, the Law on Credit Organizations, article 20.6 provides that “majority
shareholders are individuals or organizations holding more than 10% of capital
share or more than 10% of voting shares of a credit organization. The new
Securities Act 2006 provides that “majority shareholders are those directly or
indirectly holding not less than 5% of voting shares of the issue organization11.
Thus, legislation in Vietnam during the ten passing years has determined majority
shareholders on the ground of the percentage of voting shares which has not been
consistent in various fields of law. Consequently, by excluding majority
shareholders, minority shareholders can be defined.
However, it can easily be seen that the number “1%”, “5%” or “10%” can not
determine the position of minority or not because, “sometimes, a shareholder who
provides the majority of the capital of a company is a minority shareholder with
regard to the exercise of control in the company”12. For instance, in Berger v.

Berger, a court held that even a person who held ninety-eight percent of his
company's stock could be a minority shareholder based on a "qualitative,” not
"mechanistic," assessment.13 This is really true in case the law permits the issue of
priority shares - shares which have special controlling rights attached to them,
making it possible to control the company without holding a large percentage of the
shares and without providing a large share of the company’s capital.14 Because of
the existence of this kind of shares, a shareholder providing the majority of the
capital may sometimes not control the company and be effectively in a minority
position with regard to the exercising of controlling rights15.
“In other cases, a shareholder who provides only a limited percentage of the
Nguyen Thiet Son (1999), Công ty cổ phần ở các nước phát triển, (Shareholding
companies in developed countries), Institute of International Economy, Social Sciences
Publisher, p.53.
Article 6.9 Securities Act 2006.
L. Timmerman and A. Doorman, “Rights Of Minority Shareholders In The Netherlands” 6
Electric Journal of Comparative Law (2002), />accessed on 20 September, 2008;
592 A.2d 321, 326 – 28 (N.J. Super.Ct.Ch.Div.1991).
Frere Cholmeley Bischoff (1996), Chapter England and Wales in Dennis Campell (1996),
Protecting Minority Shareholders, Kluwer Law International, p.126; see also Article 78,
EA 2005.
Supra note 12, p.182.
8
company’s capital can have considerable control rights because of the special nature
of the shares he possesses”.16 Professor Anupam also confirmed this by saying
“controlling shareholders can hold a minority of shares yet exercise control”.
John D. Rockefeller "succeeded in his famous struggle to oust the chairman of the
board of Standard Oil of Indiana despite controlling only 14.9% of Standard Oil's
stock."17
In the Asian context, Claessens, Djankov and Lang find that pyramidal
ownership18 has been common in Asian economies. Then, the consequence of

such ownership arrangements is that the controlling shareholders are able to
obtain greater control with minimal capital expense, which makes “tunnelling”
much easier19.
The Italian Securities Act (1998) and two interpretive releases published on 11
April 2008 also use “the no-relation rule” to define to guarantee the effective
representation of shareholders who are truly minority shareholders by preventing
potential abusive conducts by controlling shareholders or shareholders who
otherwise have enough voting power to exercise significant influence over
shareholders' meetings20.
Therefore, basing ourselves on the amount of capital alone, “we do not know
exactly what a minority shareholder is”21. It depends on the capital structure
provided for in the articles of association of a company. When a company makes
use of a specific control structure, whether that be priority shares, a pyramid
structure, or preference shares, pure percentages lose much of their relevance22.
Professor Anupam also agree with the US Federal Fifth Circuit, in a 2000
decision that explicitly considered minorities and majorities: "The question of
minority versus majority should not focus on mechanical mathematical
Supra note 12, p.208.
Supra note 7, p.163.
In this structure, the family achieves control of the constituent firms by a chain of
ownership relations: the family directly controls a firm, which in turn controls another firm.
The pyramid structure allows the family to use the financial resources of existing group
firms to invest in new firms. See Heitor Almeida, Sang Yong Park Marti Subrahmanyam
Daniel Wolfenzon, ”The structure and formation of business groups: Evidence from
Korean Chaebols”, , accessed
on 01 January 2009.
Johnson, La Porta, Lopez-de-Silanes, and Shleifer (2000) use the term “tunnelling” to
describe the transfer of resources out of firms for the benefits of their controlling
shareholders. Much evidence emerging during the Asian financial crisis shows that
“tunnelling” is a very serious agency problem in emerging markets. The recent debacles of

Enron, Worldcom, and Global Crossing convince people that “tunnelling” is also possible
even in developed economies. See Chong-En Bai, Qiao Liu, Joe Lu, Frank M. Song, and
Junxi Zhang (2004), “Corporate Governance and Market Valuation in China”,
papers.ssrn.com/sol3/papers.cfm?abstract_id=393440, accessed on 10 September, 2008.
Domenico Fanuele and Tommaso Tosi (of Shearman & Sterling LLP), “Power to the
minority” in [2008] International Financial Law Review, p.48; Pursuant to Articles 147- ter
(3) and 148(2) of the Italian Securities Act, minority shareholders may propose candidate
lists only if they are not related, either directly or indirectly, to any of the reference
shareholders.
Supra note 12, p.208; see also supra note 7, p.163, “Corporate law does not define
"minority" shareholders on the basis of numbers alone”.
Supra note 12, p.182.
9
calculations, but instead, 'The question is whether they have the power to work
their will on others ,,23.
To conclude this section, the author stresses that capital and control are not
necessary aligned. Therefore, the number of shares alone can not define a minority
position notwithstanding the controlling ability of a shareholder. In addition, the
assessment of this ability is very difficult and varies from situation to situation so
we will look in vain for a general definition of minority shareholders. Some
countries, such as the Netherlands and the UK, use a situation – to – situation basis
from the start and also decides from case to case what qualifies one as a minority
shareholder24.
Professor L. Timmerman and A. Doorman defined minority shareholders as those
who, “irrespective of the amount of capital they provide, are unable to exercise any
significant form of control within the company”25. It cannot be denied that minority
shareholders must logically be unable to control the management of the company
but, the number of shares held by shareholders is also likely to reflects their
position. Hence, minority shareholders are those who hold so few shares in relation
to the total number of shares that they are unable to control the management of

the company.
2.2 Why minority shareholders should be protected
Theoretically, the investor protection issue can be viewed from a narrow (firm-
level) or a broad (country – level) perspectives26. From the former perspective,
minority shareholders need to be protected because of the potential for oppression
both by managerial power and the majority rule. From the latter perspective,
“minority shareholder protection is a significant factor that can encourage
investment and support the development of financial markets and economic
growth”27.
The corporate world today subdivides into rival systems of dispersed and
concentrated ownership28. While in Japan and continental Europe corporate
governance is organized on an "insider/control-oriented" basis29, the structure of
ownership and control in the UK and the USA has been characterized as an
“outsider” or “arm’s – length” system30. In this system, shareholders generally…
“take a "hands-off" approach with companies they own” and “maintain their
distance and give executives a free hand to manage”31.
Hollis v. Hill, 232 F.3d 460, 466 (5th Cir. 2000) (quoting Bonavita v. Corbo, 692 A.2d
119, 124 (N.J. Super . Ct. Ch. Div. 1996)).
Supra note 12, p.195.
Supra note 12, p.182.
Supra note 5, p.26.
Supra note 5, p.26.
Brian R. Cheffins, “Does Law Matter? The Separation of Ownership and Control in the
United Kingdom” 30 Journal of Legal Studies (2001) p.459.
Under this system, the stock market plays only a secondary role in the economy, and those
companies with publicly traded shares typically have "core" shareholders and/or dominant
creditors that exercise considerable influence over management; see supra note 26, p.461.
Petri Mantysaari (2005), Comparative Corporate Governance, Springer Berlin Heidelberg
Publisher, p.79.
Supra note 28, p.461.

10
Especially where this distancing approach prevails, shareholders, especially,
minority ones might fare prejudicial actions from both the management and
majority shareholders.
This section considers each perspective to make clear the need for minority
shareholders protection.
2.2.1 Minority shareholders suffer from actual and potential oppression
caused by managerial power and majority rule
The separation of ownership and control in the modern corporation results there
being a distance between shareholders and the corporate business. Sharing this
view, Professor Brian R. Cheffins considered that this separation in the UK was a
“managerial evolution, if not revolution”…and, “a trend toward a divorce
between control and ownership was clear for very large companies”32. In such
circumstances, “boards of directors, instead of the shareholders, are becoming the
power organ within the corporation”33.
The issue of the separation of ownership and stewardship in joint stock
corporations was raised by Adam Smith, in his masterwork “The Wealth of
Nations” over three hundred years ago. It was therefore suggested that a set of
effective mechanisms should be in place to resolve the conflict of interests
between firm owners and managers. Later, in the seminal work by Adolf Berle
and Gardiner Means (1932), they argued that, in practice, managers of a firm
pursued their own interests rather than the interests of shareholders34. From this
identification of the separation of ownership and control, ”the concern of
corporate law has been to try to mitigate the effects of this separation”35.
On the one hand, the separation is necessary to help companies, especially large
ones survive the increasingly competitive modern economy and to meet the
heightened demand for managerial skills within companies.36 On the other hand,
as the Berle-Means hypothesis explains, minorities are presumed to be without
adequate power or incentive to prevent abuse37 and thus are prone to suffer it.
Therefore, the separation “implied a need for the state to protect minority

shareholders from the rapaciousness of corporate managers”.38
In the UK, the power of the board of directors are to a very large extent regulated
by articles of association39. Normally, the articles of association confer all the
power to manage the company into the hands of the board which are thus very
wide. In Ampol, Lord Wilberforce said that “directors, within their management
powers, may takes decisions against the wishes of the majority of shareholders”,
Supra note 26, p.467.
Weiguo He (2004), Improving the Protection of Minority Shareholders in Chinese
Company Law, Master thesis, Tsinghua University, p.1.
Supra note 17, p.6.
Ross Grantham, ”The Doctrinal Basis of The Rights of Company Shareholders”, 57
Cambridge Law Journal (1998), p.555.
36 Supra note 31, p.1, see also supra note 26, p.461.
37
38
39
11
Supra note 5, p.134.Supra note 5, p.127.
Supra note 28, p.95.
and that “the majority of shareholders cannot control them in the exercise of these
powers while they remain in office”40.
In European context, it is also recognized that ”shareholders who control a
proportion of total voting rights much larger than their ownership (and therefore
dividend) rights have an incentive to extract value from the company at the
expense of non-controlling shareholders41.
Beside the managerial power, “the relations between majority shareholders and
minority shareholders have always been a thorny issue in corporate law”42. The
minority shareholders tend to claim that the majority shareholders are abusing
their rights with their ultimate control over the corporate matters. Meanwhile, the
majority shareholders defend themselves with the argument that they are simply

exercising their legal rights as majority shareholders43.
In short, because of the dominance of majority shareholders in the company, the
oppression of minority shareholders was therefore a central concern in the
corporate governance and the protection for them were of paramount
importance44 Though, that said large shareholders with sufficent political power
may even try to evade the protection of minority shareholders stipulated in
45
All powers of a company are in theory exercised by one or other of its own
organs: the shareholders in general meeting or the board of directors. Each of
these bodies usually makes its decision by majority vote, and the minority
shareholders are usually bound by the decisions of the majority. This means that
those who control more than half of the votes on the board or at a shareholders’
meeting will have substantial power. Problems may arise where those in effective
control of a company use their power to benefit themselves and cause a detriment
to minority shareholders. In such a case, the danger is, indeed, that companies
will be run exclusively in the interests of the controlling shareholders, and that the
interests of the minority shareholders will be ignored, or at least not fully
recognized46. Then, it is clear that the law should provide some remedies for cases
where such majority power has been abused47.
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821. See supra note 25, p.95
Commission of the European Communities, ”Impact Assessment on the Proportionality
between Capital and Control in Listed Companies”, Working Document 2007, p.4.
42
43
shareholders. If the balance tips too heavily in favour of minority shareholders, shareholder
conflicts and disputes (possibly resulting in litigation) could increase, leading to delays in
executing corporate transactions and increased costs for companies and their shareholders.
Such delays could ultimately scare off investors and damage the interests of all
shareholders. See supra note at 18, p.49.
Eric Hilt, “When Did Ownership Separate from Control? Corporate Governanca in the

Early Nineteenth Century”, 68 Journal of Economic History (2008) p. 648.
Caspar Rose, “The Challenges of Quantifying Investor Protection in a Comparative
Context”, 8 European Business Organization Law Review (2007) p.372.
Jennifer Payne, “Section 459-461 Companies Act 1985 in Flux: the Future of Shareholder
Protection” 64 Cambridge Journal (2005) p.647.
Andrew Hicks & S.H.GOO (1997), Cases and Materials on Company Law, Blackstone
Publisher, p.243.
12
company law .
Supra note 33, p.43
Italian regulators are careful about how they balance the interests of majority and minority
Specifically, in case of conflicts between majority shareholders and/or the
management on the one hand, and minority shareholders, on the other hand, the
typical outcome is that minority shareholders lose because they are unable or
unwilling to challenge decisions by the board and are also outvoted at general
meetings48. Moreover, as Davies and Banks both claim, “the interests of minority
shareholders may be ignored by majority shareholders in general meetings when
passing the company’s decisions”49. The study of minority shareholders
protection in UK and US has shown that “common accusations are that the
majority has excluded the minority from active participation in the business or
has mismanaged or misappropriated assets.”50 In other words, “the dominant
shareholder has greater ability to extract resources that otherwise would have
been shared with minority investors”51.
In addition, the reality that “minority shareholders maintain a passive role in the
corporation, pay little attention to the daily operations of the corporation, have
little incentive to engage in corporate activities, and are prone to vote in favour of
management's recommendations”52 makes the minority rights little more than
symbolic and almost encourages majority shareholders and the management to
abuse their rights for personal benefits. Things are of course even worse for
minority shareholders if the management and the majority shareholders collude.

After an examination of 2658 companies in East Asia, Claessens and his
colleagues found that if majority shareholders effectively control companies,
“their policies may result in the expropriation of minority shareholders”53.
Through their empirical research, La Porta and his co-authors share this view and
propose that all outside investors “need to have their rights protected”54. This
proposal was supported by Professor Gordon Walker, when he said that it is
important to protect outside investors “because of potential and actual
expropriation of minority shareholders and creditors by controlling shareholders”
55
In conclusion, the minority shareholder problem maintains that both controlling
shareholders and managers have the power to extract private benefits at the cost
Elijah Mwangi Kiboi, “Protection of The Rights and Interests of Minority Shareholders”,
www.amelinyangu.net/PROTECTION%20OF%20THE%20RIGHTS%20AN ,
accessed on 28 October, 2008.
Supra note 5, p.27.
Sandra K. Miller, “How Could U.K and U.S Minority Shareholder Remedies for Unfairly
Prejudicial or Oppressive Conduct be Reformed?”, 36 American Bussiness Law Journal
(1999) p.580.
Jay Dahya, Orlin Dimitrov and John J. McConnell, “Dominant Shareholders, Corporate
Boards and Corporate Value: A Cross-Country Analysis”, ECGI Working Paper Series in
Finance, Working Paper No.99/2005, Updated February 2006, p.5.
Steven M. Haas, “Toward a Controlling Shareholder Safe Harbor”, 90, Virginia Law
Review (2004) p. 2288; see also supra note 7, p.127,… “The debacles of Enron and
WorldCom demonstrate that… “minority investors may yet be imperiled by the
manipulations of controlling persons”.
Supra note 5, p.26.
Supra note 5, p.26.
Supra note 5, p.26.
13
.

of minority shareholders56. As La Porta and his coauthors write, "Corporate
governance is, to a large extent, a set of mechanisms through which outside
investors protect themselves against expropriation by the insiders"57.
2.2.2 Minority shareholder protection is a significant factor that can
encourage investment and support the development of financial markets and
economic growth
“Protecting minority shareholders serves to protect property rights” …and
“property rights might ultimately be made more robust through legal efforts to
enlarge the group of people holding property”.58 In other words, protecting
minority shareholders is beneficial for the capital formation. The theory
underlying the Berle-Means modem corporation is that “large scale enterprise
needs to pool equity capital from many people who will cede working control
over that capital”59. With “the desire to obtain minority participation in the
capitalist enterprise, thereby improving the enterprise through the additional
capital contributed by the minority”, corporate law ensures that “a minority
shareholder is treated "fairly" by the controlling shareholder or management
encourages people to invest funds without needing to worry about expropriation”
60
Second, weak protection of minority shareholders increases the average cost of
capital for a company because minority shareholders will anticipate their weak
position and will want receive compensation for the increased risk they run61. This
may put the company at a competitive disadvantage with foreign companies.
Third, “the degree of protection a country's legal system provides for outside
investors has a significant effect on its corporate governance regime. Stronger
legal protection for minority shareholders is associated with a larger number of
listed companies, more valuable stock markets, lower private benefits of control,
and more diffuse share ownership”62, thus, it creates an attractive legal
environment for investment, especially foreign investment. This outcome were
also recognized by the Dutch: “if the Dutch legal system does not provide adequate
protection of minority shareholders compared with foreign legal systems, foreign

investors will not invest in Dutch companies and Dutch investors will increase their
investments in foreign companies”63.
Investor protection organizations are emerging in Russia which aim at making
minority shareholders more pro-active in defending their rights. More and more
Seppo Kinkki, “Minority Protection and Dividend Policy in Findland”, 14 European
Financial Management (2008) p.470–471.
Supra note 7, p.158-159.
Supra note 7, p.159.
Supra note 7, p.159.
Supra note 7, p.172.
Supra note 12, p.181-182.
Supra note 28, p.462; see also Mike Burkart, Fausto Panunzi, “Agency conflicts, ownership
concentration, and legal shareholder protection”, 15 Journal of Financial Intermediation
(2006) p.2.
Supra note 12, p.181.
14
.
companies are becoming aware that violating shareholders rights is a major
problem that has to be eliminated in order to get access to foreign capital64.
This is a matter of concern to investors, but there are also public policy arguments
in favour of ensuring that minority shareholders are adequately protected from the
opportunistic behaviour of majority shareholders. If investors are inadequately
protected there is a danger that they will refuse to invest if they are only offered a
minority stake or more likely that the cost of securing their investment will rise65.
Listed companies are subject to stock market control. Bad publicity regarding a
majority’s unfair conduct towards the minority is likely affect the company’s
profitable and share value.
For the reasons and benefits mentioned above, it is no exaggeration to say that
“where today's constitutional jurisprudence of equal protection aspires to colour -
blindness, corporate law places minority concerns at the heart of its endeavour”66.

2.3 Principles of minority shareholder protection
2.3.1 Maintaining the effect of majority rule
The majority rule means that those who control more than half of the votes on the board or at
a shareholders’ meeting – and indeed, those who command a good deal less than a majority
67
shareholding companies, shareholders normally vote according to the capital that
they have invested in the company. One share equals one vote. Under common
law, the governance of companies is generally based on the principles of majority
rule. However, it is recognized that as a corollary of this, there must be some
protection for minority shareholders68.
Why would company law specially protect minority shareholders since it could be
assumed that majority rule is completely lawful? As mentioned above,
principally, a company operates under majority rule. The board of directors also
acts by majority vote to carry out its duties. The problem is that “there is always
the danger that the majority will use its power to further its own interests to the
detriment of the company or the minority shareholders” while “a minority
shareholder’s policy views do not carry any weight unless he or she can mobilize
a majority vote”. Thus, there are two contradictory principles must be taken into
account69:
-
-
Respect for majority power, this being necessary to ensure effective
management of the company; and
Protection of minority shareholders.
Veronica Osipova, “The Problems of Development of Corporate Governance in Russia:
Comparison with Central European and China”, 15 Bond Law Review (2003) p.131.
Supra note 46, p.647.
Supra note 7, p.119.
See S.H.Goo, Minority shareholders’ protection – A study of section 459 of the Companies
Act 1985, />+act+1985%22&printsec=frontcover&source=web&ots=B8B6XFGfiP&sig=i4LKeYbEEy

pjL9dKwCkoy0r211Q&sa=X&oi=book_result&resnum=4&ct=result#PPP1,M1 , p.3
Caroline Hague (1997), The Protection of Minority Shareholders, />hkjo/view/14/1400223.pdf , accessed on 29 October, 2008.
Supra note 12, p.2
15
of the votes but manage to exercise defacto control – thus have substantial power . In
It is quite clear that while majority shareholders can express their wishes by way
oftheir controlling vote and turn these wishes into the company’s decisions,
minority shareholders need to at least have the power to ensure that that their
voices are heard and taken into account where they have different opinions from
the majority shareholders. There are cases in which the majority shareholders are
doing nothing illegal, but are conducting themselves in an “oppressive” manner
by using their majority power to supress dissent70.
It may be necessary to protect minority shareholders but this generally should not
empower the minority to make decisions for the corporation or to vest in them the
controlling position, but merely avoid the fact that “mechanical application of
majority rule, without any constraint will lead to unfair consequences that will
violate reasonable shareholders expectations”71. In other words, ”the law has to
strike a delicate balance between safeguarding the company’s legitimate business
from being obstructed by tiresome complaining minorities on the one hand, and
restraining unfair and wrongful acts which the majority can exploit to its own
advantage thereby prejudicing the legitimate interests of the minority, on the
other hand”72.
2.3.2 Equitable treatment of shareholders
“The equitable treatment of shareholders” is among six principles recommended by
OECD and it is also considered as of “the utmost importance for the protection of
minority shareholders73. This reinforces the idea that “the watchwords of
corporate law include not only wealth maximization, but also fairness”74. All
shareholders, large or small, should receive adequate protection from the law. Bill
Gates, Warren Buffett, and the small pensioner are all rendered equal-by law75.
However, it should be noted that, “for corporate law, equality is not sameness”76.

Under EA 2005, article 78 provides that ”each share of the same class shall entitle
its holder to the same rights, obligations and interests”. This means that the
differences and the identity among shareholders must also be taken into account.
This is the reason why “corporate law even goes so far as to impose special duties
on controlling shareholders and managers that are not borne by minority
shareholders.”77 In other words, “the exact content of the principle of equality is
dependent on the nature of the subject in question”78. With regard to certain rights,
for example, the right to vote in a general meeting of shareholders and the right to
receive a dividend, equality is indeed relative; there it is proportional to the number
of shares the shareholder holds. With regard to certain other rights however, mainly
information related ones, the equality has a different nature; there it is absolute”79.
Supra note 30, p.6.
Supra note 33, p.1.
Supra note 67, p.3.
Supra note 12, p.191.
Supra note 7, p.122.
Supra note 7, p.174.
Supra note 7, p.174.
Supra note 7, p.174.
Supra note 12, p.191-192.
Article 27, Regulations on corporate governance.
16
Briefly, “corporate law believes that equal treatment can only be assured by taking
minority status into account.”80 The principle of equality does not aim at giving
minority shareholders the same treatment as the majority. As the weaker party in a
company, minority shareholders only need an equitable and fair treatment
protecting their rights as provided by law and the capital they have invested in the
company.
In short, minority shareholder protection is an fundamental issue in corporate
governance. Minority shareholders are those who not only hold a small amount of

shares but are also non-controlling parties in a company. Shareholders' rights and
and the need for their legal protection result from the separation of ownership
from control in the modern corporation. Shareholders, especially minority
shareholders supply finance to companies but managers and majority
shareholders have control of it, and due to human nature, are prone to misuse
their rights. This implies the need for legal protection of minority shareholders81.
Moreover, strong protection of investors in general and of outside investors in
particular bring significant benefits to a state’s economy. Minority shareholder
protection thus enhances both shareholder value and corporate competetiveness.
Those are the reasons why “minority shareholder protection, explicitly and
implicitly, animates much of corporate law”82 and becomes an important part of
corporate governance.
Equipped with appropriate rights, minority shareholders will be able to defend
themselves in the fight against “oppression”.
Supra note 7, p.120.
Brigid Gavin, “Shareholders’ Rights in the European Union”, 32 Intereconomics (1997)
p.93.
Supra note 7, p.128.
17
Part 3. Comparative study of minority shareholders
protection in Vietnamese and United Kingdom company
law
Investors protection is, in general expressed through investors’ rights and their
enforcement thereof. According to the OECD Principles of Corporate Governance,
the basic shareholder rights should include the rights to: (1) secure methods of
ownership registration; (2) convey or transfer shares; (3) obtain relevant and
material information on the corporation on a timely and regular basis; (4)
participate and vote in general shareholder meetings; (5) elect and remove members
of the board; and (6) share in the profits of the corporation83.
Commonly, shareholder rights are divided into financial rights and participatory

rights.84 Financial rights reflect shareholder financial interests and their aim of
making money when they invest in companies. These rights include the right to
get dividends, to transfer of shares, to gain money from winding up a
company…85 The participatory rights are of three kinds: (1) informational rights;
(2) rights attached to the general meeting, and (3) the right to bring suit86.
It could be shown that these rights are contained in the company law of many
states87. They are there given to all shareholders irrespective of the number of
shares they hold and it could not be said that they are all minority shareholders
rights. The right to vote in the general meeting of shareholders, for example, “will
usually not be a minority right because this right is not specific to minority
shareholders and this right usually has no significant meaning for minority
shareholders”88. In case of disagreement, they will be the ones to be outvoted at the
general meeting. Therefore, this section will not focus on the shareholder rights in
general but on the “true minority right”, which “possess the characteristic that it
creates the possibility that an outcome can be reached that is different from the
outcome that the majority of the shareholders wish”89.
It is apparent that minority shareholder rights are not going to be the same in
different legal systems. In this section, the author will then concentrate on “true
minority rights” under Vietnamese company law while making a comparision
between it and the UK company law. In fact, minority shareholder rights are
governed by various laws and regulations. However, as stated in the Introduction,
this thesis considers these rights from a company law perspective and only
Companies Act and the like will be studied. Other kinds of Acts and rules will only
be mentioned if they are relevant. In order to support the comparative study in
The OECD Principles of Corporate Governance 2004, />18/31557724.pdf , accessed on 10 December 2008.
Gregor Bachmann “Strengthening Shareholders’ Rights: A Comment on the EU Action
Plan”, 6 ERA-Forum (2005) p.354
Supra note 84, p.354.
Supra note 84, p.354.
Articles 79, EA 2005; section 263 (2), section 9, section 121; section 135; Table A,

Regulation 54; section 183 (4), section 359, section 459, CA 1985.
Supra note 12, p.182.
Supra note 12, p.182.
18
following section, sources of law in the two legal systems on minority shareholders
protection should be mentioned.
3.1 Sources of law
In the UK, company law is not fully set out in Acts of Parliament. Although the
Companies Act 1985, which has been amended in 1989, 2004 and 2006, remains
the principle source of law, a significant part of the law is to be found in the
decisions of the English courts (Common Law). Beside, because the law “leave
the making rules on the governance of companies to the discretion of
shareholders and company bodies”, the rights of minority shareholders will
depend on the terms of the articles of associations. Moreover, relating to listed
companies, the Listing Rules (Yellow Book) which was approved by the UK
Listing Authority in 2003 – the Financial Services Authority (FSA) - are
involved. The Listing Rules contain a reference to the Combined Code of
Corporate Governance. Hence, listed companies must also comply with the
Combined Code90. Under the harmonization of company laws within European
Member States, the European Public Limited Liability Company Regulations
2004 are supplemented by the law applicable to public limited companies, found
mainly in the Companies Act 1985, together with the Insolvency Act 1986 and
the common law91.
Unlike UK where a significant part of the law is to be found in the decisions of the
English courts (Common Law)92, the main sources in Vietnam are the Enterprises
Act 2005 and its guiding documents. For public listed companies, the Securities
Act 2006 dated 23/6/2006 and the Decision No 12/2007/QĐ-BTC dated 13/3/2007,
which attached with Regulations on Corporate Governance, are involved. Beside, a
company’s articles of association may also contain minority shareholder rights
provided that they are not conflict in with provisions of law.

Under EA 2005, there are no provisions which state that they are reserved for
minority shareholders. However, minority shareholders may employ dispersed
provisions thereof to challenge against the management and the majority
shareholders. Accordingly, the following topicss will be reviewed in this part:
minority shareholders’ rights attached to the general meeting; the right to challenge
resolutions adopted at a general meeting; the right to appoint member of the Board
of the Management and of the Supervisory Board by cumulative voting; anti –
directors rights; the right of redemption of shares; the right to access information
relating to the company’s operation; the right to approve major and related party
transactions, and pre-emptive rights.
See paragraph 12.43A of the Listing Rules.
Nigel Boardman, Chapter 17 in Dirk Van Gerven and Paul Storm (2007), The European
Company, Cambridge University Press, p.457. See also supra note 14, p.123. See also
supra note 30. p.84.
Supra note 14, p.123.
19
3.2 The rights of minority shareholders regarding the general meeting
3.2.1 Calling for a general meeting
In theory, ultimate control over a company’s business lies with the members
in a general meeting. In practice, however, the residual powers of the
membership are extremely limited and general meetings are to a large extent
controlled by directors93. Be that as it may, the shareholders’ meeting
remains the main vehicle for shareholders who wish to influence the course
of corporate business 94.
In normal cases, the annual general meeting is the only yearly occasion when the
general body of shareholders is given the opportunity to consider, criticise and
comment upon important affairs of the company and where shareholders can vote
on the directors' recommendation as to dividends, to approve or disapprove the
directors' remuneration, and, if thought desirable, to remove and replace all or any
of them 95.

Both the UK CA 1985 and the Vietnamese Enterprises Acts 2005 provide for
annual general meetings, which are mandatory for each company as well as for
extraordinary general meetings in certain special circumstances96.
As to the AGM, the directors or the Chairman of the Board of Management have
a general power to call all general meetings97.
In a situation in which the management harms the company or the shareholders at
any time between the regular/annual shareholders meetings, the most powerful
weapon of the minority shareholders for addressing such harms would be the to
convening of an EGM where they could vote against the harmful actions or vote
to remove the defaulting directors98.
As to the EGM, it may be convened by the directors whenever they think fit 99 or
in any situation provided for by law and/or the articles of association. The
Supra note 30, p.117.
Supra note 30, p.114.
Supra note 30, p.116.
Under Article 97 EA 2005, there shall be at least one meeting of the General Meeting of
Shareholders per year. The location of meetings of the General Meeting of Shareholders
must be within the territory of Vietnam. The General Meeting of Shareholders must hold its
annual meeting within a time-limit of four months from the end of the financial year. At the
request of the Board of Management, the business registration body may extend such time-
limit, but not beyond six months from the end of the financial year. Although the Company
law requires the regular meetings and and the annual meetings be held regularly, no
provision exists to treat the situation in which the management does not fulfill this duty.
section 366 CA; if the directors does not hold an AGM under section 366, they will be
liable to a fine, and any member may apply to the Secretary of State for Trade and Industry
under Section 367. The Secretary of State may call or direct the calling of a general
meeting of the company and give such ancillary or consequential directions as he thinks
appropriate; under Section 371, the court has the power to call a GM, on its own motion or
on on the application of any director of the company or any member of the company who
would be entitled to vote at the meeting, to order meetings if for any reason it is otherwise

impracticable to call a meeting of a company, or to conduct the meeting as required by the
articles of the company or the Act.
Supra note 33, p.14.
Supra note 30, p118.
20