FOREIGN TRADE UNIVERSITY
FACULTY OF LAW
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MID-TERM REPORT
LEGAL RISK ASSESSMENT IN A CROSS-BORDER SHARE TRANSFER
AGREEMENT
Lecturer : Dr. Dao Kim Anh
Class : PLUE401GD2.1
Group :7
Group Members:
Phạm Thảo Nhi 2313250095
Nguyễn Ngọc Khánh Linh 2312250066
Nguyễn Ngọc Hà 2312250033
Phạm Hà Vy 2312250124
Lưu Thiên An 2313250002
Hanoi, 15th May 2025
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TABLE OF CONTENTS
INTRODUCTION..................................................................................................................2
I.KEY LEGAL RISKS AND CONTRACTUAL SOLUTIONS.............................................4
1. Risks Arising from External or Uncontrollable Events.........................................................4
2. Risks Arising from Incomplete Disclosure and Unlimited Liability Exposure......................5
3. Analysis of Risks related to Limitations on Mr. A's Business Freedom.................................6
4. Analysis of Risks related to to the interests of A, B, and C in the company...............................8
II.SPA CLAUSE SAMPLE...............................................................................................11
CONCLUSION................................................................................................................16
REFERENCES...............................................................................................................17
APPENDIX.....................................................................................................................18
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INTRODUCTION
This report presents a legal risk assessment of the proposed cross-border share transfer
agreement between Mr. Nguyen Van A, the major shareholder of X Joint Stock Company
(“Company X”), and Y Joint Stock Company (“Y JSC”), a multinational technology
corporation based in Singapore. Company X, a rapidly growing fintech enterprise in Vietnam,
has attracted investment interest due to its strong market traction and innovative technology
solutions for SMEs. Given the cross-border nature of the transaction and the early-stage
development of Company X, it is crucial to identify and evaluate potential legal risks that
may arise in the structuring, negotiation, and execution of the share transfer agreement. This
report, prepared on behalf of Company X, aims to highlight key areas of concern, assess the
implications of various contractual terms, and provide recommendations to protect Company
X’s legal interests before finalizing the agreement.
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I.KEY LEGAL RISKS AND CONTRACTUAL SOLUTIONS.
1. Risks Arising from External or Uncontrollable Events.
1.1. Risk Description.
Unforeseeable events such as economic volatility, regulatory changes in the fintech sector,
cybersecurity incidents, or the loss of major clients may negatively impact the valuation of
Company X during the period between signing and closing.
Even if these events are not caused by Mr. A, the absence of specific contract provisions may
expose him to buyer demands for price adjustments or post-closing compensation — leading
to financial pressure.
1.2. Applicable Legal Provisions.
a. Civil Code 2015 – Article 402 (Force Majeure Events):
"Parties may agree to limit or exempt liability in the event of a force majeure that is beyond
control and unforeseeable."
This article serves as a legal foundation to limit liability due to macro-level or legal shocks.
However, Vietnamese courts generally only recognize natural disasters or wars as force
majeure, while economic downturns or regulatory shifts are rarely accepted.
b. Civil Code – Article 377 (Good Faith and Transparency):
“Requires parties to act in good faith during contract performance.”
This principle does not provide a definitive legal shield for the seller if the company’s value
drops due to external events. Without a tailored clause such as a MAC provision, Mr. A may
struggle to avoid liability even for uncontrollable events.
1.3. Contractual Solution
a. Material Adverse Change (MAC) Clause:
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Clearly defines events considered as materially adverse (e.g., major economic, legal, or
cybersecurity disruptions).
Expressly excludes systemic risks beyond the seller’s control from giving rise to
compensation claims.
b. Liability Cap Clause:
Limits the seller’s maximum compensation liability in the event of adverse changes (e.g.,
capped at 30% of purchase price).
c.Exclusion of Certain Systemic/Technical Risks:
Clarifies that Mr. A shall not be liable for cyber incidents or regulatory shifts not caused by
his negligence or misconduct.
2. Risks Arising from Incomplete Disclosure and Unlimited Liability Exposure.
2..1. Risk Description
If Mr. A fails to fully disclose known risks (e.g., pending legal disputes, financial instability,
or client loss), or if there is no limitation on the claim period or thresholds for damages, he
may:
Be liable for claims related to undisclosed issues
Face demands for minor or insignificant damages
Be exposed to liability for an extended period even after closing
2.2. Applicable Legal Provisions
a.Civil Code – Article 116 (Duty of Good Faith Disclosure):
“Requires each party to act in good faith and disclose all material facts that may affect the
performance of the contract”.
Failure to disclose known risks may result in post-closing liability for bad faith or
misrepresentation.
b.Civil Code – Article 431 (Statute of Limitations for Contractual Claims):
"The time limit for initiating claims for breach of contract is 10 years unless otherwise
agreed."
If the SPA does not reduce this statutory period, Mr. A may remain exposed for a decade.
c. Absence of Minimum Thresholds for Claims:
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Vietnamese law does not provide any de minimis limit — meaning that the buyer can claim
compensation for even minor damages if the SPA does not explicitly set a minimum.
2.3. Contractual Solution
a. Disclosure Schedule:
Mr. A lists all known risks in detail.
The buyer confirms that it is aware of and accepts these risks, thereby waiving post-closing
claims based on them.
b. Survival Clause (Limitation on Claim Period):
Limits the time frame in which the buyer may bring claims (e.g., within 18 months from the
closing date).
c.De Minimis Threshold:
Per-claim threshold: Claims are only valid if they exceed a minimum amount (e.g., USD
50,000).
Aggregate threshold: Compensation is payable only if the total value of all claims exceeds a
fixed percentage of the purchase price (e.g., 1%).
3. Analysis of Risks related to Limitations on Mr. A's Business Freedom
3.1. Risk Description
As part of the cross-border share transfer to Y JSC, Mr. A may face contractual obligations
such as non-compete, non-solicitation, and confidentiality clauses. These may restrict his
ability to launch a new B2B technology venture, particularly if the scope of the restrictions
overlaps with Company X’s fintech operations.
Without careful drafting, these clauses could unduly limit Mr. A’s entrepreneurial freedom
prevents him from hiring former employees, or reuse expertise and contacts gained during his
time at Company X — even if his new business does not directly compete with the company.
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3.2. Applicable Legal Provisions
a. Law on Enterprise 2020 – Article 165 (Responsibilities of managers of the company),
clause 1(c):
“To be faithful to the interests of the company and shareholders; to refrain from abusing their
positions and posts, and using business information, know-how and opportunities, and other
assets of the company for personal gain or for the benefits of other organizations or
individuals”
This article outlines the key responsibilities of company managers, requiring them to act
honestly, prudently, and in the best interests of the company and its shareholders. They must
remain loyal and are prohibited from using the company’s assets, information, or business
opportunities for personal gain or for the benefit of others. In the case of Mr. A, if he retains
any managerial role in Company X after transferring his shares, he may be legally restricted
from starting a new business that competes with Company X. Any violation of these duties
could expose him to personal liability and potential legal action from the company or its
shareholders.
b. Law on Enterprise 2020 – Article 166 (Right to initiate lawsuits against members of the
Board of Directors, Chief Executive Officer), claus 1:
“1. A shareholder or a group of shareholders owning at least 1% of the total number of
ordinary shares have the right, in their own name or on behalf of the company, to initiate
lawsuits with regard to personal or joint liability against members of the Board of Directors
and Chief Executive Officer to request the return of interests or compensation for the damage
of the company or others if the members of the Board of Directors and the Chief Executive
Officer:
a/ Violate the responsibilities of the company managers as specified in Article 165 of
this Law;
b/ Fail to implement, inadequately or untimely implement, or implement their rights
and obligations in contravention of law, the company charter, or resolutions and decisions of
the Board of Directors;
c/ Abuse their positions and posts, and use business information, know-hows and
opportunities and other assets of the company for personal gain or for the benefits of other
organizations or individuals;
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d/ Fall in other cases as specified by law and the company charter.”
This article gives shareholders—who own at least 1% of the company’s shares—the legal
right to sue managers such as Mr. A if they breach their duties outlined in Article 165. This
includes failing to act in the company’s best interests, abusing their position, or using
company assets for personal benefit. In Mr. A’s case, if his new business or actions harm
Company X or violate his managerial duties, minority shareholders like Mr. B and Mr. C can
legally take action against him to recover losses or benefits improperly gained. This provision
acts as an important check on managerial power and helps protect the company and its
shareholders from misconduct.
3.3. Contractual Solution
a. Limited Non-Compete Clause
- Defines a narrow scope and reasonable time limit (e.g., 1–2 years, limited to fintech
sector) to allow Mr. A future business opportunities outside direct competition.
- Includes carve-outs for businesses unrelated to Company X’s core operations, giving
Mr. A freedom to pursue new ventures.
b. Reasonable Confidentiality Obligations
- Ensures Mr. A can use general knowledge and skills gained from his experience,
while protecting only truly sensitive company data.
- Limits duration of confidentiality to a reasonable period (e.g., 2–3 years), avoiding
overly burdensome restrictions.
c. Clear Role Separation Clause
If Mr. A exits his management role, confirms he is free from further managerial duties and
legal responsibilities to avoid conflict-of-interest risks.
4. Analysis of Risks related to to the interests of A, B, and C in the company
4.1. Risks to Mr. A (Founder and Majority Shareholder): Loss of Control Following Share
Transfer
4.1.1. Risk Description
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Mr. A currently holds 80% of Company X’s charter capital, granting him full control over
shareholder and board decisions. If he transfers shares to Y JSC and his stake drops below
51%, he will lose the ability to approve or block key resolutions, appoint board members, and
influence strategic direction. Vietnamese law offers no legal safeguards to preserve control
once voting power is diluted, making this a critical risk to Mr. A’s long-term interests and
influence over the company.
4.1.2. Applicable legal provisions
- Law on Enterprises 2020 – Article 115.1:
“Shareholder rights, including voting, are proportionate to the percentage of shares
held.”
This provision forms the legal basis for shareholder control. In Vietnam, there is no statutory
mechanism to preserve influence once voting power is reduced. If Mr. A’s ownership drops
below key thresholds, he automatically loses the legal ability to pass, block, or influence
shareholder resolutions — regardless of his founder status or past role.
- Law on Enterprises 2020 – Article 148.1-2:
Resolutions of the GMS require minimum thresholds of 51% or 65% of total voting shares to
be valid. Mr. A must retain at least 51% to block or pass resolutions. Therefore, unless Mr. A
retains at least 51%, he cannot unilaterally pass or veto decisions such as amendments to the
Charter, capital restructuring, or merger
4.1.3. Contractual solutions
a.Minimum Shareholding Clause
Include a clause in the Share Purchase Agreement (SPA) preventing dilution of Mr. A’s
ownership below 51%, unless he consents in writing.
Example:
“Mr. Nguyen Van A shall not be obligated, and no party shall have the right to require Mr. A,
to transfer any shares that would reduce his ownership below 51% of the company’s charter
capital, unless expressly agreed in writing by Mr. A.”
b.Reserved Matters / Veto Rights (if ownership is diluted in the future)
If ownership eventually drops below 51%, the SPA should preserve Mr. A’s influence via a
list of strategic decisions that require his affirmative vote, such as:
- Changes to the company charter
- Appointment/removal of CEO or BoD
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- Approval of capital increases, major M&A, or share issuances
c.Board Representation Guarantee
Ensure that Mr. A has the right to nominate at least one BoD member as long as he maintains
a minimum threshold (e.g., 15%).
4.2. Risks of Governance Failure, Lack of Oversight, Dilution, and Exit for Mr. B and Mr. C
(Minority Shareholders).
4.2.1. Lack of Governance and Oversight
4.2.1.1. Risk description:
With only 20% combined shareholding, Mr. B and Mr. C are not entitled to automatic board
representation under Vietnamese law. This weakens their ability to influence strategic
decisions, approve major transactions, or monitor management behavior.
4.2.1.2. Applicable Legal Provisions:
-Article 115.2, Law on Enterprises 2020:
Shareholders with ≥5% shares can:
- Access key documents (except trade secrets),
- Request a General Meeting,
- Ask the Supervisory Board to investigate issues,
- Use other rights under law/charter.
These rights boost transparency, help check management power, and protect shareholder
interests.
-Article 115.5, Law on Enterprise 2020:
Shareholders with ≥10% shares can:
- Nominate candidates to the Board of Directors (BOD) and Supervisory Board,
- Must notify group formation before the General Meeting,
- If they nominate fewer candidates than allowed, others can nominate the rest,
- Have other rights per law/charter.
This ensures shareholder representation in key governance roles, giving them influence over
company direction. It also encourages diversity in leadership selection.
4.2.1.3. Contractual Solution:
a.Board Representation Clause:
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- Mr. B and Mr. C shall have the joint right to nominate one (01) member to the Board
of Directors, provided that they collectively hold at least 15% of the total issued
shares of the company.
- The company and all shareholders agree to support the appointment of such nominee
by voting in favor at the General Meeting of Shareholders and taking all necessary
actions.
b.Reserved Matters Clause
The company shall not proceed with any of the following actions without the prior:
- Issuing new shares or convertible securities.
- Amending the company charter.
- Mergers, acquisitions, or disposal of assets exceeding [X]% of total company
assets.
- Dissolution or change of core business activities.
- Appointing or removing the CEO or any board member nominated by Mr. B and
Mr.C written approval of both Mr. B and Mr. C.
4.2.2. Dilution and Exit Risk
4.2.2.1. Risk description:
Without pre-emptive rights, Mr. B and Mr. C could be diluted in future funding rounds.
Without tag-along rights, they might be excluded from favorable exit deals or forced to sell
shares on poor terms.
4.2.2.2. Applicable Legal Provisions:
- Article 124, Law on Enterprise 2020:
Offering shares to existing shareholders means the company issues additional shares and sells
them to current shareholders in proportion to their ownership.
This method helps:
- Protect shareholder rights: prevents dilution of ownership.
- Raise capital fairly: gives current shareholders the chance to invest more.
- Reduce conflicts: ensures transparency by not favoring outsiders.
4.2.2.3. Contractual Solution:
a.Pre-Emptive Rights Clause
- If the company issues new shares, all existing shareholders shall have the right to
purchase such shares in proportion to their current ownership (pro-rata basis).
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- The company must notify shareholders and give at least 15 working days to exercise
this right.
- Any shares not subscribed during this period may be offered to other parties under the
same or less favorable terms.
b.Tag-Along Rights Clause
- If Mr. A proposes to sell more than 25% of his shares to any third party, Mr. B and Mr.
C shall have the right to sell all or part of their shares to that third party on the same
terms and conditions.
- Mr. A must ensure that the buyer agrees to include Mr. B and Mr. C in the transaction.
- If Mr. A fails to do so, the sale shall be considered invalid unless waived in writing by
Mr. B and Mr. C.
II.SPA CLAUSE SAMPLE
1. Material Adverse Change (MAC) and External Events
1.1 Definition of Material Adverse Change (MAC):
-A “Material Adverse Change” refers to any event, circumstance, or change that materially
and adversely affects the financial condition, business, operations, or regulatory status of the
Company, occurring between the Signing Date and Completion Date.
-However, the following shall not be deemed a Material Adverse Change:
a.Changes in general economic, financial, or political conditions, including currency
fluctuations, inflation, or market volatility, unless such changes disproportionately impact the
Company compared to similar businesses in the same sector.
b.Changes in laws or regulations applicable to the fintech or electronic payment industry,
including but not limited to data privacy, eKYC, cybersecurity, or e-transaction regulations.
c.Cybersecurity breaches or operational failures, unless resulting from the Seller’s gross
negligence or willful misconduct.
d.Loss of any customer, vendor, or partner, unless such loss is due to fraud, concealment of
material facts, or breach of representation by the Seller.
1.2 Limitation of Liability for MAC Events:
In the event of a Material Adverse Change, the Seller’s liability shall be strictly limited to
thirty percent (30%) of the Purchase Price. No claim may be made under this clause unless
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the Buyer demonstrates (i) that the MAC was not caused by an excluded event as defined in
Clause 1.1; and (ii) that such MAC directly and materially reduces the value of the Company.
2. Disclosure and Limitations on Liability
2.1. Disclosure Schedule and Exclusion of Known Risks:
- The Seller shall deliver a comprehensive Disclosure Schedule prior to Completion,
listing all known risks, legal proceedings, regulatory concerns, cybersecurity
vulnerabilities, and material customer relationships.
- The Buyer acknowledges that it has reviewed the Disclosure Schedule and agrees that
the Seller shall not be liable for any claims arising from disclosed matters. No
indemnity shall be payable for losses or damages resulting from these disclosed items.
2.2. Survival Period for Claims:
Except for claims related to fraud or fundamental representations (such as title to shares or
ownership of intellectual property), the Buyer may only bring indemnity claims within
eighteen (18) months from the Completion Date. After this period, all claims shall be deemed
waived and barred.
2.3 De Minimis and Basket Thresholds:
a) Individual Threshold: No claim shall be brought unless the amount of the claim
exceeds USD 50,000.
b) Aggregate Threshold (Basket): The Buyer may only recover indemnification once the
total value of all valid claims exceeds 1% of the Purchase Price, after which the Buyer
may recover only for amounts exceeding such threshold
3. Non-Compete Clause
3.1 Limited Non-Compete Obligation
The Seller (Mr. A) agrees that, for a period of [1–2 years] following the Closing Date, he
shall not directly or indirectly engage in any business activities that are in direct competition
with the core fintech business of the Company within the territory of Vietnam.
3.2 Permitted Activities
For the avoidance of doubt, the Seller shall not be restricted from:
+ Engaging in businesses that are unrelated to the fintech sector, including but not limited to
B2B SaaS, logistics, education, or healthcare.
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+Holding passive investments (under 10% shareholding) in any competing business without
active management or executive involvement.
4. Confidentiality Clause
4.1 Confidential Information
The Seller shall maintain the confidentiality of any proprietary business information, trade
secrets, customer data, or financial information of the Company for a period of [2–3 years]
following the Closing Date.
4.2 Exclusions from Confidentiality
This obligation shall not apply to:Information that becomes publicly available through no
fault of the Seller;
5. Role Separation Clause
5.1 Resignation from Management Position
The Seller shall, effective as of the Closing Date (or a mutually agreed transition period),
resign from any executive, directorial, or managerial role within the Company and its
subsidiaries.
5.2 No Continuing Managerial Obligation
Following such resignation, the Seller shall have no further fiduciary or managerial
obligations to the Company and shall not be deemed to owe any duty of loyalty, non-
competition, or reporting beyond those expressly stated in this Agreement.
6. Reserved Matters Clause
6.1 Notwithstanding any change in Mr. A’s shareholding, the following matters (the
“Reserved Matters”) shall not be undertaken, authorized, or approved without the prior
written consent of Mr. Nguyen Van A:
(a) Any amendment or modification to the Charter of the Company;
(b) Issuance of any new shares, preference shares, or convertible securities;
(c) Approval of mergers, acquisitions, or disposals of assets representing more than [X]% of
the total asset value of the Company;
(d) Appointment or removal of the Chief Executive Officer or any member of the Board of
Directors;
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(e) Dissolution, liquidation, or reorganization of the Company;
(f) Any change to the principal business activities of the Company.
6.2 All Shareholders shall vote against any resolution on Reserved Matters that does not
comply with this Clause.
7. Board Representation Clause
As long as Mr. Nguyen Van A holds at least fifteen percent (15%) of the Company’s charter
capital, he shall have the right to nominate one (1) member to the Board of Directors.
Similarly, Mr. B and Mr. C, holding collectively at least fifteen percent (15%), shall have the
joint right to nominate one (1) member to the Board.
All Shareholders shall take all necessary actions to ensure the appointment and continuation
of such nominees.
8. Pre-Emptive Rights Clause
Prior to any issuance of new Shares or convertible securities, the Company shall offer such
securities to existing Shareholders pro rata to their current shareholding.
Each Shareholder shall have fifteen (15) Business Days from notice to exercise such right.
Unsubscribed securities may only be offered to third parties on terms no more favorable than
those offered to Shareholders.
9. Tag-Along Rights Clause
If Mr. A proposes to sell more than twenty-five percent (25%) of his shares to a third party,
Mr. B and Mr. C shall have the right to sell their shares on the same terms.
Mr. A shall ensure the buyer agrees in writing to include Mr. B and Mr. C.
Any transfer violating this clause shall be invalid unless waived in writing.
10. Charter Amendment Clause
To enforce protections internally:
“Within ten (10) business days of Closing, the Seller and Purchaser shall procure
amendments to the Company Charter reflecting the rights granted herein, including board
representation, reserved matters, pre-emptive and tag-along rights.
11.Minimum Shareholding Protection
11.1 The Parties agree that:
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“Mr. Nguyen Van A shall not be required to, and no Party shall have the right to compel or
oblige Mr. Nguyen Van A to, transfer or dispose of any shares if such transfer would result in
his shareholding in the Company falling below fifty-one percent (51%) of the charter capital,
unless such transfer is expressly approved in writing by Mr. Nguyen Van A.”
11.2 This clause is intended to preserve Mr. A’s majority rights under Articles 115.1 and
148.1–2 of the Law on Enterprises 2020.
CONCLUSION
In conclusion, the proposed share transfer to Y JSC offers Company X access to capital and
strategic resources but also presents significant legal risks. These include: (i) potential loss of
control by Mr. A; (ii) absence of veto or reserved matters protection; (iii) overly broad non-
compete and non-solicit clauses; and (iv) lack of safeguards for minority shareholders such as
pre-emptive rights, board seats, tag-along rights, and information access.
To mitigate these risks, Mr. A and minority shareholders should negotiate enforceable
protections in the Shareholders’ Agreement and Charter—such as tailored non-compete
clauses, reserved matters, conditional drag-along provisions, and minority rights protections.
All terms must comply with Vietnamese laws, including the Enterprise Law 2020 and Civil
Code 2015.
Well-structured agreements will help balance control, protect shareholder interests, and
ensure a stable, mutually beneficial partnership with Y JSC.
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REFERENCES
1. Vietnam National Assembly (2020) Law on Enterprises 2020, No. 59/2020/QH14.
Available at: https://thuvienphapluat.vn (Accessed: 10 May 2025).
2. Vietnam National Assembly (2015) Vietnam Civil Code 2015, No. 91/2015/QH13.
Available at: https://thuvienphapluat.vn (Accessed: 10 May 2025).
3. Vietnam National Assembly (2019) Vietnam Labour Code 2019, No. 10/2012/QH13.
Available at: https://thuvienphapluat.vn (Accessed: 10 May 2025).
4. International Chamber of Commerce (ICC) (2020) Model Shareholders’ Agreement
Clauses, 5th edition. Paris: ICC Publishing.
5. Practical Law (2024) Minority Shareholder Protections in Vietnam: Key Legal
Considerations. Available at: https://www.practicallaw.com (Accessed: 10 May 2025).
6. Lexology (2024) Corporate Governance in Vietnam: Trends and Regulatory Changes.
Available at: https://www.lexology.com (Accessed: 10 May 2025).
7. International Financial Law Review (IFLR) (2024) Vietnam’s Corporate Governance:
Legal Insights. Available at: https://www.iflr.com (Accessed: 10 May 2025.
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APPENDIX
Group member Student ID Contribution %
Description Contribution
Lưu Thiên An 2313250002 Legal research, 20%
Legal analysis
Nguyễn Ngọc Hà 2312250033 Legal analysis, 20%
Structuring report
Nguyễn Ngọc 2312250066 Legal analysis, 20%
Khánh Linh Draft writing
Phạm Thảo Nhi 2313250095 Legal analysis, 20%
Final review
Phạm Hà Vy 2312250124 Legal analysis, 20%
Content editing
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