In the context of globalization and the rapid development of Vietnam’s market, the joint-stock company model has become a popular business form, attracting considerable attention from investors. Joint-stock companies not only provide opportunities for efficient capital mobilization but also create conditions for sustainable growth through risk and profit-sharing mechanisms. However, alongside these prominent advantages, this model also presents several notable disadvantages.
1. What is a Joint-Stock Company?
According to Clause 1, Article 111 of the Law on Enterprises 2020, a joint-stock company is a type of enterprise where:
- Charter capital is divided into equal parts called shares;
- Shareholders can be individuals or organizations who own shares. The company must have at least 3 shareholders, with no maximum limit. Shareholders are only liable for the company’s debts and other obligations to the extent of their contributed capital;
- Profits received by shareholders from owning shares are called dividends;
- The company can raise capital by issuing shares;
- A joint-stock company has full legal status under Article 74 of the 2015 Civil Code. Once a business registration certificate is issued, the company officially gains legal status.
2. Advantages of Joint-Stock Companies
A joint-stock company is a popular organizational structure that offers numerous benefits. The most significant advantage of a joint-stock company is its ability to mobilize capital quickly and effectively. In addition to this, joint-stock companies possess the following advantages:
- Expansion of operational scale: With substantial capital resources, the company can expand its business operations, invest in new technologies, and access broader markets.
- Enhanced competitiveness: Capital investment allows companies to improve product and service quality, thereby increasing their competitiveness in the market.
- Risk distribution: When multiple investors contribute capital to a company, business risks are widely shared. This helps reduce financial pressure on individual stakeholders.
- Flexible share issuance mechanism: Companies can issue shares at different times, depending on their capital needs.
- Stock market access: The stock market provides a transparent channel for stock trading, helping companies attract a wider range of investors.
- Reduced personal risk: Shareholders are only liable for their contributed capital and are not personally responsible for the company’s debts.
- High liquidity: Shares are freely traded on the market, allowing investors to buy, sell, or withdraw capital when needed.
- For instance: A startup with an innovative business idea but insufficient capital can issue shares to attract venture capital investors. This allows the company to scale quickly and achieve success.
- Transparency: Companies are required to disclose financial information periodically, ensuring transparency and accountability.
- Clear governance structure: Joint-stock companies have a well-defined governance structure, including the General Meeting of Shareholders, Board of Directors, and Supervisory Board, ensuring transparency in operations and facilitating effective decision-making.
- Talent attraction: The opportunity to own shares and participate in company management attracts top talent.
3. Disadvantages of Joint-Stock Companies
The most significant disadvantage of joint-stock companies is often the conflict of interest among shareholders. Several factors contribute to this issue:
- Diverse shareholder groups: Joint-stock companies typically have multiple shareholder groups with different goals and interests. For example: One group may prioritize short-term profit maximization, while another may focus on the company’s sustainable development.
- Unequal voting rights: Voting rights are usually proportional to the number of shares owned. This means large shareholders can easily impose their opinions on company decisions, potentially disadvantageous to smaller shareholders.
- Delayed decision-making: Differences in interests among shareholders can lead to delayed or even deadlocked decision-making, reducing the company’s adaptability to market changes.
- High management costs: Resolving conflicts of interest, organizing shareholder meetings, and other governance activities incur significant costs.
Additionally, joint-stock companies face the following challenges:
- Market pressure: Public companies face immense pressure from the stock market, requiring consistent business performance to maintain share prices.
- Costly and time-consuming processes: Establishing and managing a joint-stock company involves complex administrative procedures and high expenses.
- Lower information security: Due to transparency requirements, joint-stock companies must disclose extensive information, potentially compromising business confidentiality.
In conclusion, Joint-stock companies in Vietnam offer significant benefits, such as flexible capital mobilization, risk distribution, and strong growth potential. However, disadvantages such as high management costs, financial reporting pressures, and complex governance structures also need to be carefully considered. To maximize the advantages and mitigate the drawbacks, businesses must adopt sound management strategies and thoroughly prepare for operations. Only then can the joint-stock company model reach its full potential and contribute positively to the country’s economic development.
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1. Lawyer Vu Thi Phuong Thanh, Manager of TLA Law LLC, Ha Noi Bar Association
Email: vtpthanh@tlalaw.vn
2. Lawyer Tran My Le, Chairman of the Members’ Council, Ha Noi Bar Association
Email: tmle@tlalaw.vn.
Dinh Phuong Thao