What is common stock? What are the rights of common shareholders?

What is common stock? What are the characteristics of common stock? And what are the rights of common shareholders in a joint stock company? Let’s find out with fdiinvietnam.com.

What is common stock? 

• Common shares are called Common shares/Ordinary shares in English. According to the Enterprise Law 2020, there is no specific concept of common shares. However, do you understand that common shares are mandatory shares of a joint stock company, divided based on the company’s charter capital;
• Owners of common shares (individuals/organizations) are called common shareholders.
• There are two types of common shares on the market: common shares on the primary market (shares issued for the first time when a joint stock company is established) and common shares on the secondary market (shares bought, sold, traded on the stock market, inherited or transferred, etc.);

Note:

For common shares of founding shareholders, the founding shareholders must jointly register to buy at least 20% of the total number of common shares offered for sale when registering to open a business.

5 characteristics of common stock

Common stock has the following five outstanding features:

1. Widely released on the market;
2. Not convertible into preferred stock;
3. Each common share has one vote;
4. Better profitability than stocks and bonds;
5. Individuals or organizations owning common shares are entitled to dividends based on business results and the number of shares held as prescribed by law.

Rights of common shareholders

Pursuant to Article 115 of the 2020 Enterprise Law, common shareholders have the following 7 rights:

1. The right to attend, speak and vote at the General Meeting of Shareholders

Ordinary shareholders have the right to attend, speak and vote at the General Meeting of Shareholders. In case an ordinary shareholder cannot attend, he/she can authorize a representative or in another form as stipulated in the company’s charter.

2. The right to freely transfer shares to others

According to Clause 3, Article 120 and Clause 1, Article 127 of the Enterprise Law 2020, ordinary shareholders will be free to transfer shares to others.

Specifically: Within 3 years from the date of issuance of the business registration certificate, founding shareholders have the right to freely transfer their common shares to other founding shareholders. In case of transfer to a shareholder who is not a founding shareholder, the approval of the General Meeting of Shareholders is required.

3. Priority in purchasing shares

Common shareholders have priority in purchasing newly offered shares in proportion to the common share ownership ratio of each such shareholder.

4. Receive dividends

Common shareholders will receive dividends when the company’s business is favorable and profitable. The dividend level will be decided by the General Meeting of Shareholders.

In the event of a company being liquidated or bankrupt, common shareholders will be the last to receive what is left after the company has fulfilled its financial obligations. The amount of dividends that shareholders receive will correspond to the percentage of shares owned in the company.

5. Right to review, look up and request information modification

Ordinary shareholders have the right to review, look up, and extract information about names and addresses in the list of shareholders with voting rights. And when the information is incorrect, ordinary shareholders have the right to request to amend the content of their information. In addition, founding shareholders also have the right to copy the company charter, minutes of the General Meeting of Shareholders, and resolutions of the General Meeting of Shareholders.

Shareholders or groups of shareholders owning 5% or more of the total common shares or less according to the company’s charter have the right to: look up, review, and extract the minutes and resolutions, decisions of the Board of Directors, reports of the Board of Supervisors, mid-year and annual financial reports, contracts, transactions that must be approved by the Board of Directors and other documents except documents related to the company’s business and trade secrets.

6. Right to convene a General Meeting of Shareholders

A shareholder or group of shareholders owning 5% or more of the total common shares or less according to the company’s charter has the right to request the convening of a General Meeting of Shareholders when the Board of Directors seriously violates shareholders’ rights, the obligations of managers or makes decisions beyond the assigned authority and in other cases according to the company’s charter.

7. The right to nominate people to the Board of Directors and Supervisory Board

Shareholders or groups of shareholders owning 10% or more of total shares or less according to the company’s charter have the right to nominate people to the Board of Directors, Board of Supervisors and other rights as prescribed by law and the company’s charter.

>> See more: Redeemable preferred shares and rights of redeemable preferred shareholders.

Benefits of common stock

Common stock has certain benefits for both the issuing company and the individual or organization that buys it, specifically as follows:

1. For the issuing company

• Help businesses raise new capital, thereby having more capital to develop business;
• When issuing common shares on the market, it will create more attraction for individuals/organizations, thereby both building the corporate image and attracting individuals/investors to participate in investing and contributing capital.

2. For individuals or organizations purchasing common shares: 

As fdiinvietnam.com shared above, one of the five characteristics of common stock is the ability to generate profits. Therefore, individuals or organizations that buy common stock will receive many financial benefits from the favorable business of the issuing company.

In addition, by purchasing common shares, individuals or organizations can become owners of the company, with full rights of common shareholders such as: attending, speaking, voting at the General Meeting of Shareholders, receiving dividends, having priority in buying shares, etc.

Frequently Asked Questions about Common Stock

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