Question

Answer

Parent companies, subsidiaries and affiliates ?

A company shall be deemed to be the parent company of another company if it falls into one of the following cases:

- It owns more than fifty (50) per cent of the charter capital or the total number of ordinary shares of such company;

- It has the right to directly or indirectly make decisions on appointment of the majority or all members of the Board of Directors, the director or general director of such company;

- It has the right to make decisions on amendment of and addition to the charter of such company (Clause 1 Article 189 Law on Enterprises No. 68/2014/QH13 dated November 26, 2014).

Subsidiary companies are not permitted to invest in contribution of capital to or purchase of shares of the parent company. Subsidiary companies of the same parent company are not permitted to jointly contribute capital or purchase shares in order to have mutual cross ownership (Clause 2 Article 189 Law on Enterprises No. 68/2014/QH13 dated November 26, 2014).

- Cross-ownership means two enterprises owning each other’s stakes/shares (Clause 2 Article 16 Decree No. 96/2015/NĐ-CP dated October 19, 2015).

-  Subsidiary companies having the same parent company which is an enterprise with ownership of at least sixty five (65) per cent of State capital are not permitted to jointly contribute capital to establish an enterprise in accordance with this Law (Clause 3 Article 189 Law on Enterprises No. 68/2014/QH13 dated November 26, 2014).

- Cooperation in contribution of capital to enterprise establishment prescribed in Clause 3 Article 189 of the Law on Enterprises means the case in which total shares/stakes owned by a company equals or exceeds 51% of charter capital or total ordinary shares of relevant companies (Clause 2 Article 16 Decree No. 96/2015/NĐ-CP dated October 19, 2015).

The Law on Enterprises No. 68/2014/QH13 dated November 26, 2014 did not have specific provisions about “affiliates” but only stipulated about “member companies” as follows:

An economic group or corporation shall have a parent company, subsidiary companies and other member companies. The parent company, subsidiary companies and each member company in one economic group or corporation shall have the same rights and obligations as applicable to independent enterprises in accordance with law (Clause 2 Article 188 Law on Enterprises No. 68/2014/QH13 dated November 26, 2014).

Affiliated companies are provided for in Points dd and I Clause 2 Article 1 Decree No.19/2014/ND-CP dated 3/14/2014, as follows: An “Affiliate” is an enterprise whose non-controlling shares or shares of capital contribution are owned by other Company in accordance with law.

“Non-controlling shares or shares of capital contribution of a company” at another enterprise are shares or shares of capital contribution accounted to not more than fifty percent (50%) of the charter capital of such enterprise. However, this provision is only applicable to single member limited liability companies owned by the State.

As such, the Law on Enterprises No.68/2014/QH13 11/26/2014 only mentioned about parent companies, subsidiaries and member companies. The provisions for affiliated companies is only applicable to one member limited liability companies owned by the State./.

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(Signed)
Lawyer Do Minh Son