Tiếng ViệtIn corporate governance, shareholders and investors frequently question whether a share transfer conducted without Board of Directors’ approval is legally valid. Under the core principles of the Law on Enterprises, ordinary shares are freely transferable; the Board primarily serves to record changes in the Register of Shareholders rather than acting as a gatekeeper for the right to buy or sell. However, the validity of such transactions is not always absolute.
In this article, Lexconsult & Partners analyzes the validity of share transfers bypassed by the Board of Directors, helping enterprises master internal governance procedures and mitigate unnecessary legal disputes during restructuring.
1. Current legal concepts and regulations regarding share transfers
1.1. Concept of share transfer
A share transfer is the act of a shareholder transferring ownership of part or all of their shares to another person (either an existing shareholder or an outsider).
1.2. Legal regulations related to share transfers
– Law on Enterprises 2020, as amended and supplemented in 2025: The highest legal document governing corporate activities.
– Company Charter: The internal “constitution” of the enterprise, which may contain stricter regulations regarding transfers.
2. Validity of share transfer transactions without Board of Directors (BOD) approval
In principle, shares of a joint-stock company are freely transferable:
– Share transfer transactions do not require BOD approval.
– However, in certain special cases, a share transfer must be approved by the BOD to be considered valid.
3. Cases where share transfers must be approved by the BOD
Specific cases where BOD approval is mandatory for a share transfer transaction to have legal effect:
3.1. Founding shareholders transferring shares within the first 3 years from the date the company is granted the Enterprise Registration Certificate
According to Clause 3, Article 120 of the Law on Enterprises 2020, as amended and supplemented in 2025, within the first 3 years from the date the company is granted the Enterprise Registration Certificate, if a founding shareholder wishes to transfer ordinary shares to a person who is not a founding shareholder, they must obtain approval from the General Meeting of Shareholders.
3.2. Voting preference shares
According to Clause 3, Article 116 of the Law on Enterprises 2020, as amended and supplemented in 2025, this type of share cannot be transferred to others (except in cases following a court judgment or decision).
3.3. Restrictions under the Company Charter
If the Company Charter stipulates that a transfer must be approved by the BOD, skipping this step will render the transaction void.
4. Potential legal risks related to share transfers without BOD approval, leading to invalid transactions
Conducting unofficial transfer transactions or failing to comply with internal procedures not only devalues the deal but also entails serious legal consequences for both the buyer and the seller:
4.1. Share transfer transactions are being declared void
– This is the highest risk. If legal regulations or the Company Charter require BOD approval for a share transfer but the parties act independently, the transaction may be declared void by a Court or Arbitration.
– The consequence: Parties must return to each other what they have received (refund of money, return of shares). This causes extremely serious damage if the value of the shares at the time of the declaration of nullity has changed significantly compared to the transaction time.
4.2. Share buyers left “empty-handed” regarding governance and economic rights
According to the Law on Enterprises 2020, as amended and supplemented in 2025, a transfer only takes effect once the information is recorded in the Register of Shareholders. If a share transfer requires BOD approval but is processed without it, and the BOD does not update the shareholder register, the following consequences occur:
– Loss of voting rights;
– Loss of the right to receive dividends: The company will continue to pay dividends to the seller (the person still named on the books);
– Denial of preemptive rights: The buyer cannot exercise the right to prioritize purchasing shares in subsequent capital increase issuances.
4.3. Disputes arising from “Preemptive Rights”
In many joint-stock companies, the Charter often stipulates that a shareholder wishing to sell shares must first offer them to existing shareholders (similar to a limited liability company). If the BOD does not coordinate this process and a shareholder independently sells to an outsider, the remaining shareholders have the right to file a lawsuit requesting the cancellation of the transaction to protect their preemptive rights. This leads to prolonged litigation, paralyzing the governance activities of the enterprise.
4.4. Risk of administrative and tax penalties
Share transfers requiring BOD approval that are not officially processed often lead to delays or errors in declaring Personal Income Tax (for individuals) or Corporate Income Tax (for organizations):
– Tax authorities may impose tax assessments or late payment penalties with high interest rates;
– Additionally, the company may face administrative penalties for failing to report changes in shareholder information (for foreign shareholders) or failing to maintain shareholder records as prescribed.
5. Legal consulting services from governance lawyers at Lexconsult & Partners regarding share transfers
Lexconsult & Partners provides consulting services to ensure transfer transactions are safe and compliant with legal regulations, helping businesses save time and avoid legal risks that may occur when shares are transferred incorrectly. The scope of services includes:
– Charter Review: Checking specific transfer restriction clauses of the company;
– Drafting Documents;
– Executing Procedures: Registering changes in shareholder information (for foreign shareholders) and declaring personal income tax on behalf of clients;
– Dispute Resolution: Representing and protecting interests if conflicts arise between the buyer, seller, and the company.
6. FAQ – Frequently asked legal questions regarding share transfers
Are the founding shareholders free to transfer shares within the first 3 years from the date the company is granted the Enterprise Registration Certificate?
=> According to Clause 3, Article 120 of the Law on Enterprises 2020, as amended and supplemented in 2025, within 03 years from the date the company is granted the Enterprise Registration Certificate:
– Founding shareholders are free to transfer shares to other founding shareholders.
– If transferring to a person who is not a founding shareholder, approval from the General Meeting of Shareholders must be obtained. After 03 years, all these restrictions are removed.
At what point does a share transfer transaction officially take effect?
=> A share transfer transaction is only effective toward the company once the buyer’s information is fully recorded in the Register of Shareholders. Signing the contract and making payment are only necessary conditions; being named in the register is a sufficient condition for the buyer to establish their status as a shareholder.
Is it mandatory to amend the Enterprise Registration Certificate when transferring shares?
=> Under current regulations, a joint-stock company does not have to perform notification procedures with the Business Registration Authority when there is a change in domestic shareholders (except in cases where the shareholder is a foreign investor). The company only needs to record the change internally (Register of Shareholders) and archive the records at the headquarters.
Does the Company Charter have the right to restrict the free transfer of shares?
=> Yes. The Law on Enterprises allows the Company Charter to stipulate restrictions on share transfers. However, these regulations are only effective if they are clearly stated on the corresponding share certificates. If the Charter contains restrictive regulations that are not recorded on the share certificates, those restrictions may be declared void in the event of a dispute.
In summary, preventing risks in share transfers requires enterprises to build a strict set of standards, from controlling capital contribution obligations to the scientific management of the Register of Shareholders. Any gap in reconciling the Company Charter with legal regulations can become a loophole for prolonged disputes. Therefore, early legal consultation is the key solution to protecting the interests of businesses and investors.
Please contact Lexconsult & Partners if you have any questions regarding share transfers to receive detailed advice from lawyers, draft appropriate documents, and receive full support in accordance with current legal regulations.
📞 Hotline: 0938 507 287
🌐 Website: www.lexconsult.com.vn
