This article provides general information only and is not legal advice for any specific case. Regulations may change – please consult a professional before acting.
Foreign investors facing sector restrictions – and Vietnamese founders who simply want maximum authority in their own company – often ask the same question: how can a shareholder with less than 10% of the shares control a non-public joint stock company? Under the Law on Enterprises 2020, careful share-class structuring makes it possible. Here are the two principal routes IVLF Advisors uses in practice (the controlling person below, the “Controller“; the company, the “Target“).
Option 1: Structure Two Share Classes at Incorporation
The Target is established with both ordinary shares and preference shares (dividend-preference or redeemable-preference shares).
- Under the Law on Enterprises 2020, dividend-preference and redeemable-preference shares carry no voting rights – no participation in the General Meeting of Shareholders, no appointment of Board or Supervisory Board members;
- Ordinary shares (and voting-preference shares) carry full – or enhanced – voting rights.
Depending on the voting ratio the Controller wants (50%, 65%, 75% or higher), the ordinary shares are calibrated to deliver that ratio, while the remaining capital is issued as preference shares. The other shareholders hold fewer ordinary shares but more preference shares – so their economic ownership far exceeds the Controller’s, while control stays with the Controller.
Statutory constraint: founding shareholders must together subscribe for at least 20% of the ordinary shares offered at incorporation.
The trade-off: the Controller receives a smaller slice of annual dividends, since preference shareholders enjoy priority and larger distributions.
In 2024, IVLF Advisors structured several such transactions, delivering ready-to-execute cap tables. One client ended up holding roughly 10% of the shares but 100% of the voting rights; another held 35% of shares with 75% of the votes.
Option 2: Offer Preference Shares to Financial Investors
Some financial investors care only about returns, not management. Where an investor is willing to inject significant capital – diluting the Controller below 10% or below veto thresholds – the Controller should consider offering dividend-preference or redeemable-preference shares instead of ordinary shares. The investor gets superior economics; the Controller keeps control despite dilution.
Key negotiation points: transfer-restriction periods, whether and when preference shares convert into ordinary shares, and the dividend economics – all designed to preserve the Controller’s position for as long as possible.
The Hidden Cost to Watch
Whichever option is used, preference dividends are effectively a fixed liability hanging over the Target: they must be paid to investors or other shareholders regardless of profitability. If the business underperforms, this obligation can create serious strain – so the structure must be stress-tested against realistic financial scenarios.
These structures are also building blocks for fundraising rounds and for VIE-style structures used in offshore IPOs and listings, insulating the Target’s core business lines from ownership constraints.
Want a cap table that protects your control?
IVLF Advisors designs share structures, cap tables and shareholder agreements for founders and investors. Explore our Corporate & Commercial practice or contact us for a confidential consultation.
