Vietnam’s start‑up landscape has expanded rapidly in recent years, drawing significant interest from both domestic and foreign strategic investors. Although these investors often contribute meaningfully to shaping a company’s long‑term vision and growth trajectory, professional investors typically participate through multiple investment rounds and, in the early stages, hold only a small percentage of the company’s shares or charter capital (collectively referred to as “minority investors”). This structural position underscores the need for robust protective mechanisms to safeguard the legitimate interests of minority investors throughout the governance and operational processes of the enterprise.

The current Vietnamese law on enterprises contain certain provisions aimed at protecting rights afforded to minority investors however, these protections remain insufficient to shield them from decisions driven by controlling shareholders, particularly those involving long‑term strategic direction, capital raising, share transfers, or changes in control. Consequently, in practice, minority investors often negotiate and establish supplementary contractual arrangements with other shareholders or capital‑contributing members on fair and equitable terms (collectively referred to as the “Shareholders’ Agreement” or “SHA”) to ensure that their interests are effectively protected.

This article examines the principal protective mechanisms commonly incorporated into SHA in Vietnam, highlighting both legal considerations and practical approaches that have emerged in the market.

1. Overview

Based on the nature and legal effect of each mechanism, the protective measures available to minority investors under a SHA can be broadly categorized into several principal groups as follows:

Details of the protective mechanisms for minority investors are set out below.

2. Corporate Governance Measures

2.1. Appointment of Representatives

To ensure timely access to information and ensure that minority investors are able to participate meaningfully in matters falling within their expertise or areas of contribution, minority investors may seek to secure the right to nominate personnel to appropriate positions within the company’s governance and management structure. Such positions may include:

• Members of the Board of Directors (“BOD”) (in the case of a joint‑stock company) and/or board observers who are entitled to attend BOD meetings (with rights to receive information and express opinions but without voting rights);
• Inspectors serving on the supervisory board (“Supervisory Board”), where such a body is legally required or voluntarily established to strengthen oversight;
• Legal representatives of the company, noting that Vietnamese law permits a company to have more than one legal representative; and
• Key managerial roles in areas where the minority investor has relevant expertise or involvement, such as Deputy General Director, Chief Financial Officer, or equivalent positions.

Under Vietnamese law, the authority to appoint individuals to these positions may rest with different corporate bodies depending on the specific role – for example, the General Meeting of Shareholders (“GMS”) for BOD and Inspectors, or the Board of Members (“BOM”) and the BOD for key managerial positions[1]). Accordingly, the SHA should set out clear mechanisms to secure the appointment of nominees put forward by the minority investor. These mechanisms typically include: (i) the minority investor’s exclusive right to select, appoint, and replace its nominated personnel; (ii) commitments by the company and other shareholders or members to implement the recruitment and appointment in accordance with such nominations; and (iii) restrictions preventing the company from dismissing, replacing, or reassigning these individuals without the minority investor’s prior written consent.

2.2. Veto rights

A further mechanism, in addition to the appointment of representatives to key managerial positions, that serves to protect minority investors from potential abuses of power by majority shareholders is the grant of veto rights over certain fundamental corporate matters. As a general principle, voting rights of the minority investor in Vietnamese companies are determined by (i) the investor’s ownership ratio with respect to matters falling within the authority of the GMS or the BOM, and (ii) the number of seats held on the BOD for matters within the BOD’s authority^[2]. Consequently, minority investors – by virtue of their relatively small ownership stake – are typically unable to influence or block decisions adopted by the GMS, MC, or BOD.

Where veto rights are established, the GMS, BOD, or BOM (depending on the company’s governance model and the statutory and charter‑based allocation of authority) may not pass resolutions concerning matters over which the minority investor holds veto rights (collectively, the “reserved matters”) without the minority investor’s prior consent.

The matters typically designated as reserved matters and of particular concern to minority investors include:

3. Exit Mechanisms for Minority Investors

While corporate governance measures enable minority investors to participate in the management and oversight of the company’s operations, exit mechanisms allow them to manage their investment portfolio by withdrawing their capital when the company undergoes significant changes in its governance or business structure, or when irreconcilable deadlocks arise between the minority investor and the other investors.

3.1. Put option

Minority investors typically place significant emphasis on establishing a clear and enforceable exit mechanism when negotiating and entering into a SHA. Accordingly, they often request the inclusion of provisions granting them the right to sell their shares or capital contributions (the “put option”), thereby ensuring an exit pathway in situations where risks increase or where the company’s ownership structure, governance framework, or strategic direction changes in a manner no longer aligned with their interests.

Vietnamese law currently allows shareholders or members to require the company to repurchase their shares or capital contributions if they vote against certain resolutions or decisions of the BOM/GMS relating to the rights and obligations of shareholders/members or the reorganization of the company [3]. In transactional practice, SHA often expand the circumstances under which minority investors may trigger their put option against the company, other shareholders, or a designated third party. These circumstances typically include, among others:

• A change of control, such as the entry of a new controlling investor, or a merger or restructuring that results in a change in the company’s ultimate ownership;
• A deadlock in corporate governance, including matters requiring a supermajority vote, reserved matters that cannot be passed, and situations in which no viable resolution is available, thereby affecting the company’s operations or enterprise value;
• A breach by the majority investor of its obligations under the SHA, such as violations of governance commitments, abuse of control, failure to perform financial obligations, or conduct causing harm to the company or the minority investor;
• Failure to meet financial targets or a material deterioration in the company’s value compared to the initial investment plan and objectives;
• Extraordinary events affecting the minority investor’s position, such as major disputes, significant legal changes, or serious operational risks; and
• Other events as agreed by the parties in each specific transaction.

Upon the occurrence of a trigger event, the minority investor may require the majority investor, the founding shareholders/members, and/or the company to repurchase all of its shares or capital contributions at a valuation determined in accordance with the pre‑agreed formula.

3.2. Tag-along rights and Drag-along rights

Tag‑along right and drag‑along right are two widely used mechanisms that minority investors should pay close attention to. Although these rights are not expressly regulated under Vietnamese corporate law, they are commonly negotiated and incorporated into SHA to address two opposing risks within ownership structures, ensure a balanced allocation of interests, and enhance the liquidity of share or capital‑contribution transfers.

Tag‑along rights are designed to protect minority investors when a majority shareholder transfers its shares to a third‑party purchaser, preventing minority investors from being left with a new controlling owner without adequate representation or bargaining leverage. Drag‑along rights, by contrast, enable majority investors to complete a sale of a substantial or entire shareholding more efficiently, without being hindered by non‑cooperative minority investors. Further details on the operation and legal considerations of tag‑along and drag‑along rights are set out below.

4. Restrictions and Pre-emptive rights

4.1. Restrictions on Founders and Key Personnel

Restrictions imposed on founders and key personnel constitute a fundamental component of SHA, particularly in the context of start‑ups where the number of shareholders/members is typically limited and these individuals are often simultaneously the founders or hold strategically significant positions within the company. Any change in ownership structure or departure of such individuals may materially affect the company’s governance, business operations, and long‑term development trajectory. Under Vietnamese law, founding shareholders are permitted to freely transfer their shares after the expiry of a three‑year period from the date the enterprise is issued its Enterprise Registration Certificate^[4]. At the same time, labor law tends to protect the freedom of employment of employees, who are generally regarded as the weaker party in an employment relationship[5].

Accordingly, the establishment of supplementary civil agreements restricting the transfer rights or the right to terminate employment of founders/members and key personnel is necessary to enable the minority investor to maintain control over the capital structure, stabilize the core management team, and ensure that the company continues to operate in line with the original objectives at the time the minority investor decided to invest.

Common restrictions include:

• Founders and key personnel may only transfer their shares/capital contributions (if any) with the prior approval of the minority investor;
• Founders and key personnel must commit to working for the company for a minimum period from the date the minority investor contributes capital;
• Founders and key personnel are prohibited from engaging in business activities that are competitive, whether directly or indirectly, with the company’s principal business during the period in which they hold shares/capital contributions or remain employed by the company, as well as for a specified period following the termination of their shareholding/capital contribution or employment.

4.2. Right of First Offer

Right of First Offer applies where a shareholder or capital‑contributing member intends to transfer his or her shares or capital contribution (“transfering shareholder”). In such cases, the transferring shareholder must first offer the shares or capital contributions to the existing shareholders or members before offering them to any third party.

Vietnamese law currently provides that members of a limited liability company wishing to transfer their capital contribution must first offer it to existing members in proportion to their ownership and on the same terms before transferring to non‑members[6]. In contrast, shareholders of a joint‑stock company are generally free to transfer their shares, except in certain restricted cases such as transfers by founding shareholders within the first three years or where otherwise provided in the company’s charter[7].

Given this divergence, parties often supplement the SHA with provisions granting all existing shareholders in the company (including the minority investor) the right of first offer. The SHA also typically sets out the notification process, response period, and procedures for confirming acceptance or refusal, which serve as the basis for implementing the transfer. Accordingly, only where the minority investor declines to purchase the shares or capital contributions offered by the transferring shareholder may the transferring shareholder be permitted to negotiate and complete the transfer with a third party, and solely on terms no less favorable than those previously offered to the minority investor

5. Fair Valuation

5.1. Anti‑dilution

Anti‑dilution protection is a key mechanism in SHA designed to safeguard the minority investor from a reduction in the value of their investment when the company raises additional capital in the future by issuing new shares or capital contributions at a price lower than the price previously paid by the minority investor. In a down‑round financing, the minority investor’s ownership ratio and economic value may be significantly affected. Anti‑dilution mechanisms are therefore structured to adjust the conversion price or the number of shares/capital contributions held by the investor, enabling them to maintain an economic position equivalent to their original investment.

Two principal anti‑dilution methods are commonly used:

• Full‑ratchet anti-dilution: when the company issues new shares/capital contributions at a price lower than any prior financing round, the full‑ratchet mechanism adjusts the price of all outstanding shares/capital contributions held by the minority investor to match the new issuance price; and
• Weighted‑average anti-dilution: when the company issues new shares/capital contributions at a price lower than any prior financing round, the full‑ratchet mechanism adjusts the price of all outstanding shares/capital contributions held by the minority investor to match the new issuance price.

Anti‑dilution protection is particularly important in the context of start‑ups, which typically undergo multiple fundraising rounds and are more susceptible to valuation volatility or pressure from new investors. Without such mechanisms, early minority investors may suffer substantial losses when the company issues additional shares/capital contributions at a lower price, resulting in an imbalance of interests among investor groups, especially those who supported the company during its early formation and development stages.

5.2. Independent valuation

When the parties are unable to agree on a transfer price in situations requiring the buy‑back of shares or capital contributions, appointing an independent third party to conduct a valuation is generally considered the most neutral and reliable mechanism to ensure objectivity. The independent valuer may be a valuation firm, an audit firm, or a financial expert selected based on criteria agreed upon in the SHA. This valuation outcome helps minimize disputes, particularly where each party may adopt different valuation methods or assumptions, and where actual business performance may diverge significantly from initial projections. In many SHA, the third‑party valuation result is stipulated to be binding or highly persuasive to avoid prolonged negotiations and reduce the risk of deadlock (“fair value”).

Additionally, where the buy‑back arises from a party’s breach of obligations, the parties may agree that the non‑breaching party is entitled to purchase the breaching party’s shares/capital contributions at a price lower than the fair value (for example, 90% of the fair value) as an additional contractual remedy. This mechanism both incentivizes compliance and ensures that the buy‑back reflects the risks and losses caused to the company and the remaining investors by the breach.

[1] Article 100, Article 138 and Article 153 of the Law on Enterprises No. 59/2020/QH14 promulgated by the National Assembly on 17 June 2020 (“Law on Enterprises”)

[2] Article 59, Article 148 and Article 157 of the Law on Enterprises

[3] Article 51.1 and Article 132 of the Law on Enterprises

[4] Article 120.3 of the Law on Enterprises

[5] Article 5.1 of Labor Code No. 45/2019/QH14 promulgated by the National Assembly on 20 November 2019

[6] Article 52.1 of the Law on Enterprises

[7] Article 111.1.d, Article 120.3 and Article 127.1 of the Law on Enterprises

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