Guidance on the 35% Threshold for Related-Party Transactions in Public Companies
RegHub explainer by New MarketerLast updated:
Based on:155/2020/ND-CP - Ministry of Finance
This explanation was generated by AI and checked by an automated AI review, not by a human expert. It is not legal, tax or accounting advice and may contain errors. Check the official document before you rely on it.
The State Securities Commission (under the Ministry of Finance) issued guidance clarifying how public companies must calculate the total value of related-party transactions when determining whether General Meeting of Shareholders (GMS) approval is required under Decree 155/2020/ND-CP. First, on aggregating transactions over a 12-month period: the aggregation applies to ALL transactions between the company and the same related party, regardless of contract type (goods purchase/sale, service provision, financial transactions, asset leasing, etc.). This is significant because companies might otherwise assume aggregation only applies within groups of transactions sharing the same economic nature. Second, on the timing for determining GMS authority: this is not based solely on the value of each individual contract at signing, but must also account for the total value of transactions already incurred and expected to arise within 12 months from the first transaction. Third, if the GMS has already passed a resolution approving a maximum annual (or multi-year) transaction limit with a related party, specific transactions within that approved limit are carried out under the existing resolution, without needing to re-apply the 35% threshold and 12-month aggregation test for each individual transaction. Public companies should review their internal related-party transaction tracking processes to avoid breaching approval authority requirements.
Background
A public company submitted a request to the State Securities Commission (SSC) for guidance on how to determine the total value of related-party transactions, which serves as the basis for the threshold requiring General Meeting of Shareholders (GMS) approval under Point b, Clause 4, Article 293 of Decree 155/2020/ND-CP.
Question 1: Scope of 12-month transaction aggregation
Issue: Does aggregation of transaction value over 12 months with the same related party apply to all types of contracts, or only within groups of transactions sharing the same economic nature?
Answer: Under Point b, Clause 4, Article 293 of Decree 155/2020/ND-CP, aggregation applies to all transactions arising between the company and the same related party, regardless of contract type (goods purchase/sale, service provision, financial transactions, asset leasing, etc.). The purpose of aggregating all transactions with the same counterparty is to correctly determine approval authority.
Question 2: Timing for determining GMS authority
Issue: Is GMS authority determined at the time each individual contract is signed, or based on the total expected value of transactions over 12 months?
Answer: Determining whether a transaction falls under GMS authority is not based solely on the value of each individual contract at the time of signing, but must also be based on the total value of transactions already incurred and expected to arise within 12 months from the date of the first transaction.
Question 3: Where a GMS resolution has already approved a transaction limit
Issue: If the GMS has approved a maximum transaction limit (annual or multi-year) with a related party, must transactions within that limit still separately apply the 35% threshold and 12-month aggregation mechanism?
Answer: Where the GMS has issued a resolution approving a transaction or approving a maximum transaction limit with a related party, specific transactions carried out within the approved limit are governed by that GMS resolution - there is no need to re-apply the 35% threshold / 12-month aggregation test to each individual transaction within the approved limit.
Legal basis
Point b, Clause 4, Article 293 of Decree 155/2020/ND-CP dated December 31, 2020 provides that a public company may only carry out a transaction valued at 35% or more (or a transaction that causes the aggregate value of transactions within 12 months from the first transaction to reach 35% or more) of total assets per the latest financial statements, with: members of the Board of Directors, Supervisory Board, General Director (Director), other managers and their related persons; shareholders holding more than 10% of ordinary share capital and their related persons; or enterprises related to the persons specified in Clause 2, Article 164 of the Law on Enterprises - only after GMS approval.
Implications for businesses
Public companies should establish a tracking system that consolidates all transactions (regardless of contract type) with each related party over a rolling 12-month window, so GMS approval can be sought promptly once the 35% threshold is crossed. Seeking advance GMS approval for an annual or multi-year transaction limit is a practical approach that reduces the need for repeated approvals for each small transaction within that limit.