Investors who buy American Depositary Shares (ADS) of a Vietnam-linked issuer often assume they own shares. They do not. They hold a contractual position under a deposit agreement, and every economic and governance right they enjoy, from dividends and rights offerings to voting, passes through a depositary bank that is expressly not their fiduciary. For founders, CFOs and boards, the same gap matters in reverse: the way the deposit agreement handles distributions and votes determines how efficiently value and control actually reach the investor base, and how Vietnamese onshore rules shape the timing.
ADS holder rights at a glance
ADS holder rights are contractual rights under the deposit agreement, not direct shareholder rights in the Vietnam-linked issuer. The points below summarise where ADS holder rights differ most from the rights of a shareholder.
- Dividends: ADS holder rights to cash distributions are paid net of depositary fees and after foreign exchange conversion.
- Voting: ADS holder rights to vote are exercised through voting instructions to the depositary, within the notice period set by the deposit agreement.
- Rights offerings: ADS holder rights to subscribe for new shares can lapse if the depositary cannot make the offer available.
- Foreign exchange: the depositary’s spread affects what ADS holder rights are worth in practice.
- Vietnam angle: profit remittance conditions shape ADS holder rights to receive Vietnamese-source dividends abroad.
- Termination: ADS holder rights change or end if the deposit agreement is terminated, so the termination clause deserves close reading.
Reading ADS holder rights this way helps investors and issuers see which protections come from the deposit agreement and which depend on Vietnamese law. In short, ADS holder rights are narrower than shareholder rights.
This article analyses ADS holder rights against shareholder rights, corporate action by corporate action, and shows where the Vietnamese layer of the structure (profit remittance, foreign exchange, tax and employee equity) changes the outcome.
ADS holder rights start with a contract, not a share register
The issuer’s shareholder register records the depositary (or its nominee or custodian) as the holder of the deposited shares. ADS holders appear, at most, on a separate ADS register kept by the depositary; most appear only in their broker’s books as street-name holders through DTC. Three consequences follow:
- Rights are as drafted. An ADS holder has only those rights the deposit agreement grants. Rights under the issuer’s articles of association and the law of its place of incorporation (typically the Cayman Islands Companies Act) belong to the registered shareholder.
- The depositary has discretion. Deposit agreements give the depositary latitude to decide whether a distribution is “lawful and reasonably practicable” to pass on, and in what form.
- Withdrawal is the safety valve. A holder who wants direct shareholder rights can cancel ADSs and withdraw the underlying shares. That right cannot be limited by any other provision of the deposit agreement, apart from temporary closures, unpaid fees or taxes, and legal compliance restrictions.
ADS holder rights to cash dividends: the full chain from Vietnam
How the depositary distributes cash
The depositary pays ADS holders the cash dividends it (or the custodian) receives on the deposited shares, net of its fees and expenses, in proportion to ADSs held.
Where the dividend is paid in a currency other than US dollars, the depositary converts it into dollars if it can do so on a reasonable basis and transfer the dollars to the United States.
If conversion is not possible, or a needed government approval cannot be obtained, the depositary may distribute the foreign currency only to those holders to whom that is possible, or hold it uninvested and without liability for interest. The holder carries the currency risk while the funds are held.
Foreign exchange: the overlooked revenue line
Modern deposit agreements disclose that the depositary (or an affiliate) may convert currency as principal, for its own account, and keep the spread between the rate it trades at and the rate it applies to holders. The disclosure usually adds that the rate need not be the most favourable available, and that the depositary has no duty to disclose its methodology beyond what is stated. For issuers that will pay regular dividends in a non-dollar currency, this is a real economic cost to investors and a fair question to raise when appointing the depositary.
The Vietnamese leg: profit remittance as the gating item
In an offshore-holdco structure, cash available to pay ADS dividends originates as profit in the Vietnamese operating company. Before it can leave Vietnam, several conditions apply:
- Audited accounts and tax finalisation. The 2025 Law on Investment (in force from 1 March 2026) allows foreign investors to transfer investment capital and investment income abroad after fulfilling their financial obligations to the Vietnamese State. Together with the State Bank of Vietnam’s foreign exchange rules for direct investment, this means a foreign-invested enterprise may remit profit after its annual financial statements are audited and its corporate income tax finalisation for the year is filed. Interim remittance during the year is generally not available as a matter of right.
- No accumulated losses. Profit cannot be remitted while the audited balance sheet shows accumulated losses, which is a binding constraint for growth companies that have only recently become profitable.
- Through the registered capital account. Remittance must flow through the company’s direct investment capital account opened with an authorised bank in Vietnam, which will check supporting documents.
- Tax leakage. Vietnam does not currently impose withholding tax on profits remitted by a foreign-invested company to a corporate foreign investor. Further leakage may arise at the intermediate holdco level (Singapore or Hong Kong) and at the Cayman level only to the extent local rules apply, which should be modelled for the actual chain.
Practical takeaway: an ADS dividend policy announced to US investors must be calibrated to the Vietnamese statutory audit calendar. A board resolution to declare an interim ADS dividend is only as good as the cash already upstreamed under Vietnamese rules.
Planning dividends, buy-backs or an employee equity plan for a US-listed, Vietnam-operating group? IVLF Advisors can map the onshore remittance, foreign exchange and tax steps against your ADS timetable in a confidential preliminary review (NDA available).
ADS holder rights in share dividends, rights offerings and other distributions
Distributions of shares
If the issuer distributes additional shares (for example a bonus issue), the depositary may deliver additional ADSs representing them. It sells shares that would require a fractional ADS and distributes the net proceeds. If it does not deliver new ADSs, each existing ADS simply represents more deposited shares. The depositary may also sell part of the distributed shares to cover fees, taxes and expenses.
ADS holder rights to purchase additional shares
Rights offerings are where the ADS gap is most visible. If the issuer offers shareholders rights to subscribe for additional shares, the depositary may make the rights available to ADS holders, or sell the rights and distribute the proceeds. But if it is not lawful and reasonably practicable to do either, the rights may lapse and ADS holders receive no value.
The most common reason is US securities law: unless the issuer registers the rights offering with the SEC or an exemption is available, the depositary cannot offer the new securities to US holders.
A Vietnam-linked issuer planning to raise equity through a pre-emptive offering should therefore decide early whether it will register the offering, or accept that ADS holders will be diluted without compensation, a point investor relations teams need to explain carefully.
Other distributions and elective dividends
For distributions of any other kind (for example spin-off securities), the depositary sends holders whatever it considers lawful, fair and practical, or sells the property and distributes the net proceeds. Where shareholders can elect cash or shares, the depositary decides, after consulting the issuer, whether to extend the election to ADS holders; if not, holders receive the default form. If the depositary decides any distribution is unlawful or impractical for some holders, it may distribute nothing to them.
ADS holder rights on voting through the depositary
How ADS holder rights on voting work
ADS holders cannot vote at the issuer’s general meeting directly. They may instruct the depositary how to vote the deposited shares their ADSs represent. If the issuer asks the depositary to solicit instructions (and the issuer is usually not required to do so), the depositary notifies holders of the meeting, explains the procedure and sets a deadline.
As far as practical, and subject to the law of the issuer’s place of incorporation and its articles, the depositary votes or arranges for its agents to vote as instructed. Voting is typically on a poll: the depositary will not vote on a show of hands.
To give holders a realistic opportunity to instruct, deposit agreements commonly require the issuer to notify the depositary at least 45 days before the meeting. Shares for which no valid instruction is received are not voted. If the issuer does not request solicitation, holders may still send instructions, but the depositary is not required to act on them.
The disclaimer that matters
The issuer and depositary disclaim responsibility for failure to carry out voting instructions or for the manner in which they are carried out, provided they act without negligence or bad faith. In practice, a holder who wants certainty on a contested vote (for example on a scheme of arrangement, a squeeze-out or a related-party transaction) should withdraw the shares well before the record date and vote as a registered shareholder.
ADS holder rights versus shareholder rights: comparison table
| Right | Registered shareholder (Cayman holdco) | ADS holder |
|---|---|---|
| Attend and vote at general meetings | Directly, under the articles and Cayman law | Only by instructing the depositary; issuer may decline to request solicitation |
| Cash dividends | Paid by the issuer in the declared currency | Paid by the depositary in US dollars, net of per-ADS fees and conversion spread |
| Pre-emptive or rights offerings | Subscribe per the offer terms | Rights may be sold or lapse if registration or exemption is unavailable |
| Information | Notices from the issuer | Communications the depositary receives and makes available; inspection of ADS register (limited purpose) |
| Standing to sue on corporate matters | As shareholder, subject to Cayman rules on derivative and unfair prejudice claims | Generally must first become a registered shareholder; US securities claims remain available |
| Exit | Transfer under the articles; usually no liquid market for ordinary shares | Sell ADSs on the US exchange, or cancel and withdraw shares |
Vietnam-specific angles on ADS holder rights
ADS holder rights of Vietnamese residents
Vietnamese founders, executives and employees frequently end up holding equity of the listed holdco, either as founder shares converted at IPO, as ADSs bought in the market, or under an equity incentive plan. The acquisition and holding of foreign securities by Vietnamese residents is regulated as outward investment. Direct holdings by founders in the offshore holdco should rest on an outward investment registration.
Portfolio purchases of foreign securities by individuals are narrowly permitted under the outward indirect investment framework (the outward indirect investment rules and State Bank of Vietnam implementing rules) and are normally channelled through licensed institutions. Each route should be verified before founders rely on ADS liquidity at lock-up expiry.
Employee equity plans
Share options and RSUs granted by the offshore parent to employees of the Vietnamese subsidiary raise three separate questions: foreign exchange (how employees pay exercise prices and receive sale proceeds), personal income tax (whether the benefit is taxed as employment income or as investment or capital income depends on the plan terms and the current personal income tax rules, with separate treatment of later sale gains), and the subsidiary’s withholding and reporting obligations.
The ADS layer adds a mechanical step: employees typically receive ADSs into a plan broker account rather than ordinary shares, so the plan rules and the deposit agreement must fit together.
Tax on dividends and disposals for Vietnamese resident holders
A Vietnamese tax resident is taxable on worldwide income, so ADS dividends and gains on sale are within the Vietnamese personal income tax net, subject to any applicable treaty relief. The depositary disclaims any duty to help holders obtain treaty benefits or foreign tax credits, so residents should keep their own records of foreign tax withheld.
ADS holder rights: practical checklist for issuers and investors
- Dividend policy: align declared ADS dividends with the Vietnamese audit, tax finalisation and remittance calendar; avoid promising interim dividends the onshore company cannot fund.
- FX terms: negotiate disclosure of the depositary’s conversion methodology and, if dividends will be material, benchmark the spread.
- Capital raising: decide early whether future rights offerings will be SEC-registered, and disclose the lapse risk to ADS holders.
- Meeting logistics: build the 45-day depositary notice into the general meeting timetable and decide the default policy on requesting solicitation.
- Founder and employee holdings: confirm each Vietnamese resident’s outward investment basis before IPO and before lock-up expiry.
- Contested matters: institutional holders seeking certainty should plan share withdrawal ahead of the record date.
Frequently Asked Questions
Do ADS holder rights include attending the issuer’s general meeting?
Not as an ADS holder. The holder may instruct the depositary how to vote, or cancel the ADSs and withdraw the shares to attend and vote as a registered shareholder.
Why can ADS holder rights in a rights offering produce nothing?
If the issuer has not registered the new securities with the SEC and no exemption applies, the depositary may be unable to offer or sell the rights, which then lapse without value.
Does Vietnam tax dividends paid by the Vietnamese subsidiary to its offshore parent?
Vietnam currently imposes no withholding tax on after-tax profits remitted to corporate foreign investors, but remittance requires audited accounts, tax finalisation and no accumulated losses.
Can Vietnamese employees receive ADSs under an equity plan?
Yes, in principle, but the plan must be structured to comply with Vietnamese foreign exchange and personal income tax rules, with the local employer handling withholding and reporting.
Conclusion: ADS holder rights in practice
ADS holders enjoy economic exposure to a Vietnamese business through a chain of contracts, currencies and jurisdictions. The deposit agreement decides how much of each dividend, rights issue and vote actually reaches them; Vietnamese law decides when the cash can start its journey. Issuers that design the onshore and offshore steps together give their US investors a cleaner, more credible equity story. A practical first step is to map your remittance calendar against the ADS dividend and meeting timetable before the next board cycle.
Disclaimer: this article provides general information only and is not legal or tax advice for any specific matter. The law is stated as of 2 November 2026 and may change.
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Further reading: the U.S. Securities and Exchange Commission explains how depositary receipts work for investors, and Vietnamese rules on profit remittance can be checked in the national legal documents database. See also our capital markets practice.
This article is provided for general information only and does not constitute legal advice for any specific case. Regulations may change – please consult a qualified professional before acting. Should further analysis be required, please contact one of our lawyers below.
