HOW CAN A SHAREHOLDER EXIT A COMPANY? Part 2 – Validity and Enforceability of Put Option under Vietnamese law

Introduction

Put options have become a standard feature of Vietnamese M&A documentation, particularly in private equity and venture capital investments where an investor takes a minority stake and needs a contractual exit mechanism. In its simplest form, a put option gives the option holder (typically the investor) the right, but not the obligation, to require a counterparty (typically the founder, a controlling shareholder, or the target company itself) to purchase the investor’s shares at a pre-agreed or pre-agreed-formula price upon the occurrence of a specified trigger event.

Unlike jurisdictions with well-developed option jurisprudence, Vietnam does not have a dedicated statutory regime for share options. Put options are instead analyzed through the general lens of the Civil Code 2015, the Law on Enterprises 2020 (LOE), the Law on Investment 2025, and questionably, the Commercial Law 2005. This patchwork creates two distinct but related questions that recur in Vietnamese M&A practice: (1) is the put option valid as a matter of contract law, and (2) even if valid, is it enforceable in the manner the parties intended — particularly where enforcement is sought without the cooperation of the counterparty. This article addresses both questions in turn.

Because many Vietnamese-facing deals are structured through offshore holding vehicles, or simply borrow drafting conventions from English and Singapore precedents, this article also steps outside Vietnamese law to compare how common law jurisdictions characterize an option — a question that turns out to be genuinely unsettled, and that has real consequences for what happens if a grantor dies before an option is exercised. We examine that question for Vietnamese law as well, together with two further enforcement issues that existing commentary has left largely unaddressed: whether the Commercial Law’s statutory cap on contractual penalties even applies to a share transaction, and how the enforcement mechanisms discussed in this series hold up if the put obligor dies before the option is exercised.

In a Share Subscription Agreement (SSA)

Where an investor subscribes for newly issued shares, a put option is commonly used as a “safety net” tied to milestone or exit events — for example, a failure to complete an IPO within an agreed timeframe, a failure to meet agreed financial or operational KPIs, or a breach of the founders’ post-completion covenants. The put option effectively converts an equity investment into a quasi-debt instrument if the growth thesis does not materialize, giving the investor a contractual route to recover its investment (often with a minimum return) from the founders or the company.

In a Share Purchase Agreement (SPA)

In secondary transactions, a put option is typically used as a post-closing protection mechanism — for instance, allowing the seller to require the buyer to purchase a remaining minority stake (a “put” on the seller’s residual holding), or allowing the buyer to require the seller to repurchase shares if warranties prove untrue, licenses are not obtained, or regulatory approvals fail to materialize within an agreed period. It therefore operates as an alternative, or a supplement, to indemnification and price-adjustment clauses.

In a Shareholders’ Agreement (SHA)

Put options in an SHA are generally structured as exit and deadlock-resolution tools among continuing shareholders. Typical triggers include a breach of the SHA (e.g., breach of non-compete, transfer restrictions, or reserved-matter protections), a change of control of a shareholder, deadlock between founder and investor factions, or simply the lapse of an agreed holding period. Put rights in an SHA often interact with — and need to be carefully coordinated with — drag-along, tag-along, and pre-emption provisions to avoid internal conflicts.

Across all three instruments, the commercial function is the same: to allocate downside risk and provide a contractually certain exit for the option holder, without the option holder having to rely solely on damages litigation.

Validity of Put Options under Vietnamese Law

As a starting point, Vietnamese law recognizes broad freedom of contract. Under the Civil Code 2015, parties may freely agree on the content of a civil transaction provided it does not violate prohibitions of law or contravene social ethics (Articles 3 and 385). A put option can be characterized doctrinally as a conditional civil transaction under Article 120 of the Civil Code — the underlying obligation to transfer/purchase shares is a civil transaction whose effect is made conditional on the occurrence of a future, uncertain event (the trigger). On this basis, Vietnamese courts and arbitral tribunals have generally been willing to recognize put options as valid contractual arrangements, provided the general validity conditions of Article 117 of the Civil Code are satisfied: the parties have relevant capacity, consent is genuine and voluntary, the purpose and content do not violate a legal prohibition, and any mandatory form requirement is observed.

Several statute-specific constraints, however, can affect validity or the scope of what can validly be agreed:

Company buyback capacity capped by share class. Where a put option runs against the company itself, the company’s own statutory capacity to complete the redemption is not unlimited. Under Article 133 of the LOE, a share buyback carried out by the company’s own decision — the general gateway a company would use to honor a contractual put — is capped at no more than 30% of the total number of issued ordinary shares (cổ phần phổ thông), whereas dividend preference shares (cổ phần ưu đãi cổ tức — a distinct class from the redeemable preference shares discussed elsewhere in this series) may be repurchased in part or in full, with no percentage ceiling. A put option granted over ordinary shares can therefore run into a hard statutory ceiling on the company’s capacity to perform — a constraint that does not apply in the same way where the option is instead structured over a class of preference shares not subject to the 30% cap. This is a further reason, alongside the points raised elsewhere in this article, to consider whether a put option’s economics might be better secured through a dedicated share class than through a generic buyback of ordinary shares.
Foreign ownership limits and conditional sectors. Under the Law on Investment 2020 and sector-specific regulations, foreign ownership in certain business lines is capped, or foreign investment is conditional on satisfying specified requirements (e.g., banking, education, logistics, media, land-related activities). A put option that would, if exercised, result in a foreign holder acquiring shares beyond the applicable foreign ownership limit, or in a regulated sector without the requisite approvals, risks being unenforceable (or void as to the excess) as contrary to a mandatory statutory prohibition, even if the option itself was validly agreed as between the parties.
Disguised guaranteed-return / credit characterization. Where a put option is combined with a fixed, guaranteed return (e.g., “invested amount plus X% per annum,” payable regardless of the company’s actual performance) rather than a fair-value or formula-based price, regulators and courts have at times scrutinized the arrangement for its economic substance rather than its legal form. If the arrangement functions, in substance, as a loan with a guaranteed interest return disguised as an equity investment, it may be recharacterized and subjected to lending/foreign-loan rules (including SBV registration requirements for foreign loans under offshore-borrowing circulars), rather than treated purely as a share transfer mechanism. This recharacterization risk is heightened when the put obligor is the target company itself (raising capital-maintenance and financial-assistance concerns) rather than an individual shareholder.
Form requirements. Share/capital transfer agreements are not, as a general matter, subject to a mandatory notarization requirement under Vietnamese law (unlike, for example, real property transfers), but the underlying transfer must still be reflected in the company’s shareholder/member register and, for certain changes (e.g., change of an LLC member, or a change affecting the enterprise registration certificate), notified to/registered with the licensing authority. Failure to observe these registration/notification formalities does not necessarily invalidate the underlying put option contract as between the parties, but it does affect whether the resulting transfer is effective and enforceable against the company and third parties.

In short: a put option, as a contractual mechanism, is generally valid under Vietnamese law. The principal validity risks arise not from the option structure itself but from (a) conflicts with mandatory transfer restrictions or foreign ownership caps, and (b) the risk that a fixed guaranteed-return feature causes the arrangement to be recharacterized as a disguised loan subject to separate regulatory regimes.

Enforceability of Put Options

Two enforceability questions arise particularly often in Vietnamese practice.

1. Is a put option price triggered by an event of default a “penalty”?

Vietnamese law distinguishes between liquidated damages/actual damages (bồi thường thiệt hại) and a contractual penalty (phạt vi phạm). Under the Commercial Law 2005 (which applies to commercial contracts, and arguably, may be referred by Vietnamese courts when deailing with M&A agreements), Article 300 permits parties to agree on a penalty for breach, but Article 301 caps the aggregate penalty at 8% of the value of the breached obligation. By contracts, the Civil Code does not impose any cap for a penalty for breach of contract – which means that the parties have a freedom to agree on the penalty without being subject to any statutory ceiling amount.

This distinction (penalty vs damages) matters directly for put options. Where a put option is drafted so that its trigger is expressly an “event of default” or “breach” by the counterparty (e.g., breach of warranties, breach of covenants, failure to meet KPIs framed as a contractual obligation) and the put price is a pre-fixed sum or formula not genuinely tied to fair value (for example, invested capital plus a fixed guaranteed return, irrespective of the company’s actual condition), a court or arbitral tribunal may look past the “option” label and characterize the arrangement, in substance, as a liquidated-damages or penalty clause for breach of contract. If so characterized as a penalty under the Commercial Law, the enforceable amount may be capped at 8% of the value of the relevant obligation, and any amount in excess may be reduced or disallowed — undermining the investor’s expected downside protection. Notwithstanding the foregoing, this analysis has not been tested extensively in the Vietnamese courts, and there remains some uncertainty as to how such a characterization would be treated in practice.

By contrast, a put option that is genuinely structured as a price mechanism for an optional sale — i.e., the option holder is not required to prove breach or fault, the trigger is a neutral event (e.g., non-occurrence of an IPO by an agreed date, expiry of a holding period, a change-of-control event) rather than a “default,” and the price reflects a fair-value or independently determinable formula (e.g., valuation by an independent expert, a multiple of revenue/EBITDA, or a reasonable IRR reflecting genuine investment risk rather than a punitive uplift) — is more likely to be upheld as an enforceable option rather than re-characterized as a penalty. The practical lesson is that how the trigger and pricing mechanism are drafted, not merely how the clause is labelled, determines its treatment.

2. Do pre-signed, undated transfer documents allow immediate self-help enforcement?

A common practical workaround in Vietnamese deal documentation is for the put obligor (the seller-to-be under the option) to pre-sign, at signing/closing, an undated share transfer agreement and a set of supporting registration documents (e.g., minutes of shareholders’/members’ meeting, board resolutions, powers of attorney), which the option holder can then “activate” by inserting a date and submitting the dossier to the company or to the licensing authority upon exercise, without needing the obligor’s fresh cooperation.

In practice, this mechanism provides considerably less certainty than parties often assume, for several reasons:

Registration formalities require current, consistent documentation. Updating the shareholder/member register, and — where required — the enterprise registration content with the Department of Finance, typically requires documentation that is internally consistent as of the date of use (correct company details, correct signatories/legal representative as of that date, consistent charter capital, and often an accompanying explanation of the underlying transaction). A document pre-signed months or years earlier, used with a backdated or artificially inserted date, is frequently rejected by registrars or challenged by the company/obligor as not reflecting a genuine, contemporaneous transaction.
Genuine consent at the time of the transaction. Under Articles 117 and 122 of the Civil Code, a civil transaction must reflect the genuine will of the parties at the time it takes legal effect. A pre-signed document that is unilaterally dated and deployed by the option holder — without the obligor’s involvement or acknowledgment at the time of exercise — is exposed to challenge on the basis that it does not evidence the obligor’s actual consent to a transfer taking place on that later date, particularly if intervening circumstances (share pledges, disputes, insolvency, death, or incapacity of the obligor) have arisen in the interim.
The company’s and the counterparty’s practical cooperation is usually still required. Issuance of a new share certificate, entry in the shareholder register, and (for certain transactions) notification to the business registration authority typically require an active step by the company (through its legal representative) or an acknowledgment from the transferor, which a stale pre-signed document does not, by itself, compel. If the obligor or the company refuses to cooperate at the point of exercise, the option holder’s practical recourse is ordinarily to pursue specific performance or damages through litigation or arbitration (including seeking interim/injunctive measures), rather than to rely on the pre-signed dossier as a self-executing instrument.
Powers of attorney are revocable and can lapse. An “irrevocable” power of attorney included in the pre-signed dossier does not, under Vietnamese law, guarantee irrevocability in the way parties may intend — a power of attorney can terminate by operation of law (e.g., on the death, incapacity, or dissolution of the grantor, or in some circumstances by unilateral revocation), which can defeat reliance on the pre-signed dossier at the critical moment.

Consequently, pre-signed and undated documentation is best understood as evidence of the parties’ original intent and as leverage to encourage voluntary cooperation, rather than as a mechanism that reliably achieves immediate, self-executing enforcement of a put option without the transferor’s active involvement.

Recommendations

Reinforce the put option with a third-party guarantee. A guarantee (bảo lãnh) from a creditworthy third party (e.g., a parent company, a controlling shareholder, or a bank), under which the guarantor undertakes to perform the grantor’s payment and/or share-transfer obligations under the put option if the grantor fails to do so upon exercise, gives the option holder a direct claim against the guarantor without first having to compel a reluctant grantor’s cooperation through litigation alone. However, the guarantee may be structured to cover the grantor’s obligation to pay the put price, but not its obligation to complete the corresponding share transfer, since the guarantor cannot itself effect the share transfer on behalf of the grantor.
Price the put option as a genuine valuation or formula mechanism, not a punitive uplift tied to fault. Avoid drafting that expressly ties the put price to a “breach” or “default” if the price includes a fixed guaranteed-return component; where possible, decouple the trigger (a neutral event) from the pricing (a fair-value or independently verifiable formula) to reduce the risk of recharacterization as a penalty subject to the 8% statutory cap.
Confirm compliance with transfer restrictions and foreign ownership caps at the drafting stage, and build in conditions precedent/alternative mechanisms (e.g., a cash-settled put, or a put to a Vietnamese-qualified purchaser) for scenarios where a direct share transfer to the option holder would breach a foreign ownership limit or a conditional-sector restriction.
Build in specific-performance, injunctive relief, and interim-measure provisions, and select an institutional arbitration forum (e.g., VIAC) experienced with option disputes, since a court/tribunal order compelling cooperation is often the ultimate enforcement route if the counterparty does not cooperate voluntarily.
Periodically refresh signed transfer documentation (or use a bring-down/re-execution mechanism triggered on exercise) rather than relying solely on documents signed years before exercise, to reduce the risk that registrars or courts treat the documentation as stale or non-reflective of genuine, contemporaneous consent.
Coordinate the put option with other exit/transfer mechanisms in the SHA (drag-along, tag-along, pre-emption rights) to avoid internal inconsistency that could itself be a ground for challenge or delay at the point of exercise.
Address the grantor’s death or incapacity expressly. Draft the transfer obligation to bind the grantor’s successors, heirs, and estate, define death/incapacity as a trigger event with realistic notice timelines directed at the estate’s representative, and do not rely on a power of attorney to bridge the gap — it will not survive the grantor’s death.
If a founder-level put could otherwise be capped at 8%, consider whether the Commercial Law applies at all. Where the put obligor is an individual disposing of personally held shares rather than a trading enterprise, the argument that the transaction is a civil (not commercial) transaction — and therefore not subject to the Commercial Law’s 8% penalty cap — is worth raising affirmatively, particularly in arbitration.