* How to determine pre-tax profit and after-tax profit
Pre-tax profit (income before tax) of enterprises in general and joint stock companies in particular is understood as the difference between revenue and expenses incurred to achieve that revenue when the company has not paid corporate income tax. Or in other words, profit before distribution, setting aside funds according to the provisions of law in the process of business activities, financial activities and other activities.
The after-tax profit of a joint stock company must be set aside for investment and development funds depending on whether the company is a securities company, fund management company, insurance company or credit institution...
2.3.2. Assessment of the current status of profit distribution
* According to current Enterprise Law
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In a joint stock company, shareholders are paid dividends based on the principles stipulated in Clause 2, Article 93 of the current Enterprise Law. Shareholders receive dividends after the joint stock company has fulfilled its obligations to the State and set aside funds in the company. Although the current Enterprise Law does not specifically stipulate the funds that must be set aside before paying dividends, in principle, the General Meeting of Shareholders decides on the payment level based on the proposal of the Board of Directors while still ensuring capital safety and balancing the interests between the company and shareholders. Shareholders may receive dividends in cash, in shares of the company or in other assets stipulated in the Company Charter.
According to the current Enterprise Law, the Board of Directors of a JSC has the authority to propose the dividend level to be paid, decide on the time limit and procedures for paying dividends or handling losses arising during the company's operations [Point n, Clause 2, Article 108]. The amount of dividends that shareholders receive depends on the resolution of the General Meeting of Shareholders or internal regulations on the allocation rate from after-tax profits to funds as well as the company's dividend payment principles.
According to the provisions of the current Enterprise Law, shareholders owning preferred shares, dividends are distributed depending on the commitment of the company when issuing preferred shares. As for voting preferred shares, shareholders owning these shares have the right to vote, decide on business issues, and distribute profits. This can affect the interests of other shareholders. Therefore, the Enterprise Law needs to have specific provisions specifying the scope of rights of shareholders with voting preferential rights. For dividend preferred shares and redeemable preferred shares, shareholders owning this type of shares have priority over the company's capital and assets. This is clearly stated in Articles 82 and 83 of the current Enterprise Law. Dividend preferred shares pay higher dividends than the dividends of common shares or a stable annual level. Dividends distributed annually include fixed dividends and bonus dividends, in which fixed dividends do not depend on the company's business results. Therefore, the specific fixed dividend rate and the method of determining bonus dividends are stated on the dividend preference shares so that shareholders can protect their own interests.
In principle, State shareholders are entitled to receive dividends like other shareholders. However, when owning more than 50% of the total issued shares, State shareholders can, through their capital representative, have the vote to decide on the dividend payment level. Therefore, it is necessary to have measures to ensure the interests of other shareholders when State shareholders hold a controlling position in the company.
* According to the current Securities Law, Law on Credit Institutions and Law on Insurance Business
Because securities companies, credit institutions and insurance companies are a form of existence of joint stock companies, stemming from the specific nature of business activities in the financial sector, these companies must comply with the current Enterprise Law and be subject to the regulation of specialized laws, Government Decrees and guiding circulars of the State Bank and the Ministry of Finance on the organization of activities as well as financial management.
According to Circular No. 226/2010/TT-BTC dated December 31, 2010 of the Ministry of Finance stipulating financial safety indicators and handling measures for securities trading organizations, securities companies and fund management companies are subjects that must comply with financial safety indicators [2]. Accordingly, after-tax profits must be set aside for a reserve fund to supplement charter capital, a development investment fund, a reserve fund and the owner has the right to decide on the appropriate level of deduction. For public companies, they have the right to recover all profits earned by members of the Board of Directors, Directors or General Directors, Deputy Directors or Deputy General Directors, persons in charge of finance, accounting and other managers in the company's management apparatus from the purchase or sale of the company's securities within 06 months from the time of purchase or sale. Accordingly, shareholders of public companies have the right to file a lawsuit in court to recover profits from the above transactions if they discover unfair transactions [Articles 31, 15].
According to the provisions of Article 23 of Decree No. 57/2012/ND-CP dated July 20, 2012 of the Government on the financial regime for credit institutions, foreign bank branches, credit institutions that are joint stock companies, the State owns more than 50% of the charter capital, the representative of the State capital portion at a commercial bank must consult the State Bank of Vietnam and agree with the Ministry of Finance on the distribution of remaining profits for voting at the General Meeting of Shareholders. For joint stock credit institutions, there must be common shares and at the same time, there may be preferred shares, including dividend preferred shares and voting preferred shares [11]. Compared to the current Enterprise Law, the current Law on Credit Institutions stipulates in detail and specifically that fixed dividends are only paid when the credit institution makes a profit. In case a credit institution makes a loss or makes a profit but not enough to pay fixed dividends, the fixed dividends paid for dividend preference shares will be accumulated in the following years [Clause 3, Article 52].
According to the provisions of Article 30 and Article 31 of Decree No. 46/2007/ND-CP dated March 27, 2007 of the Government regulating the financial regime for insurance enterprises and insurance brokerage enterprises, in principle, after paying corporate income tax and setting up mandatory reserve funds, insurance enterprises and insurance brokerage enterprises are entitled to distribute profits according to the provisions of law. Accordingly, the mandatory reserve fund is set aside at a rate of 5% of annual after-tax profits, but the maximum set aside is 10% of the enterprise's charter capital [7].
The author gives two typical examples of profit distribution of two joint stock companies through the report of the Board of Directors submitted to the General Meeting of Shareholders as follows:
Table 2.2: Report on profit distribution and dividend payment in 2013 of the Board of Directors of SMC Investment - Trading Joint Stock Company (See Appendix 1).
Table 2.3: Report on 2013 profit distribution and 2014 dividend plan of the Board of Directors of Imexpharm Pharmaceutical Joint Stock Company submitted to the General Meeting of Shareholders (See Appendix 2).
Through Table 1 and Table 2, it can be seen that the current situation of profit distribution at SMC Investment - Trading JSC and Imexpharm Pharmaceutical JSC presented to the General Meeting of Shareholders all set aside pre-tax profits, post-tax profits, development investment funds, bonus funds as well as plans for using those funds in a specific and clear manner. At the same time, the dividend level paid to shareholders, remuneration costs for the Board of Directors, Board of Supervisors... This disclosure not only ensures the rights of the company's shareholders but also ensures transparency and objectivity in profit distribution.
2.3.3. Principle of profit sharing
* Guarantee the rights of investors
In a joint stock company, when shareholders do not directly participate in management and operation, their interests are only guaranteed by business performance and efficiency.
strict control of revenue, costs and profits. The charter capital of a joint stock company is formed by contributions from shareholders. Normally, increasing charter capital is to supplement capital to carry out investment projects. Compared to borrowing from banks, increasing charter capital is often used by companies to save costs and create profits for shareholders, especially for companies with advantages in dominating the market. In addition, for companies that raise capital by issuing bonds to the public, meeting the minimum charter capital requirement is a mandatory condition. In the UK and the US, the company's capital is considered a means of repaying debts [26]. This view is similar to the legislative idea in our country's Enterprise Law, which is to prioritize the payment of debts due when the General Meeting of Shareholders decides to pay dividends. However, capital transactions of owners that affect the interests of creditors have not been specifically regulated in the Enterprise Law.
In fact, many joint stock companies distribute surplus capital in the form of issuing bonus shares to existing shareholders, which, although beneficial to shareholders, reduces the value of the company's available capital on the accounting books. On August 10, 2012, the Ministry of Finance issued Circular 130/2012/TT-BTC replacing Circular 18/2007/TT-BTC dated March 13, 2007, stipulating that the total number of bonus shares issued under the option program in each 12 months must not exceed 5% of the company's outstanding shares and the purpose of issuing bonus shares is specifically to distribute to employees, while the issuance of bonus shares under Circular 18 is intended to distribute to existing shareholders. Compared to Circular 18, Circular 130 does not clearly stipulate the source of capital used to issue bonus shares, but only stipulates the condition that "the company must have sufficient capital to implement based on the most recent audited financial report from the following sources: Capital surplus, development investment fund, undistributed profit after tax, other funds used to supplement charter capital".
* Ensure balance of interests among entities in profit distribution of JSC
In a joint stock company, profit distribution has a significant impact on the interests of entities such as shareholders, owners, investors, etc. Therefore, it is extremely necessary to balance the interests of these entities. Meanwhile, the total profit of the company is reflected in the financial statements. Capital contributors are only entitled to distribute profits after the company has fulfilled its tax obligations to the State and set aside funds according to the provisions of the law, the Charter and the internal regulations of the company. Ensuring these interests requires managers and executives such as the General Meeting of Shareholders, the Board of Directors, and the Board of Supervisors to make timely and reasonable adjustments to avoid conflicts of interest from the entities.
Chapter 3: ORIENTATION AND RECOMMENDATIONS FOR IMPROVING VIETNAMESE LAW ON REVENUE, EXPENSES AND PROFIT MANAGEMENT IN JOINT STOCK COMPANIES
3.1. Perfection orientation
The shortcomings of the law on revenue, cost and profit management in joint stock companies are one of the factors that can affect the effectiveness of state management and socio-economic development. Because the state implements policies through the promulgation and enforcement of laws. In reality, all policies of the Communist Party of Vietnam can only be implemented when they are transformed into laws. Law is a tool for the state to manage society and promote the development process. To determine the correct orientations for perfecting the law requires policy makers and policy makers to carefully and accurately analyze the orientations that are suitable for socio-economic conditions, the issue of international economic integration, the policies of the Communist Party of Vietnam, and to correctly identify development goals on the basis of a correct development theory that ensures strict reasoning and clearly understands the aspirations of the people. Determining directions for improving current Vietnamese laws on revenue, cost and profit management also needs to meet the following requirements.
3.1.1. Ensuring fairness among business entities
As analyzed, in a joint stock company, not all shareholders can grasp specific information about revenue, cost and profit management. Because in reality, most joint stock companies have an unlimited number of shareholders. Therefore, major shareholders are mainly individuals and authorized representatives of legal shareholders often participate in the management and operation of the company. Therefore, shareholders can only access information about revenue, cost and
Basic profits through financial statements, annual business performance reports of the company or the results of the Board of Supervisors' responses to inspections and reviews of issues related to the management and operation of the company. Thus, it is inconceivable that the specific access to finance as well as revenue, expenses and profits of shareholders depends on those who directly manage and operate the company such as the Board of Directors, Board of Directors, Board of Supervisors and the accounting system. This leads to consequences if these managers and operators are not truly objective and honest, will the interests between the entities in the joint stock company really ensure fairness? Especially for minority shareholders when there is a situation where a group of large shareholders collude to seize power to serve their interests. In fact, a series of lawsuits related to the sale of shares to strategic partners, large shareholders, the establishment of subsidiaries or fraudulent financial statements in the recent past are clear evidence. And in most of these cases, the interests of minority shareholders are excluded. It seems that major shareholders often seek to exploit their own profits to the fullest extent, regardless of who is at risk. In addition, according to Dr. Nguyen Dinh Cung (2009): "On the part of minor shareholders, no shareholder requests the company to provide information on the company's documents and accounting records... or they may not know that they have that right. Based on these weaknesses, many joint stock companies, when wanting to change the content of the Charter of Operations or business plan, the Chairman of the Board of Directors only probes for the agreement of major shareholders and ignores minor shareholders" [24, p.353]. Therefore, the participation in revenue and cost management of this group of shareholders almost does not take place because they do not understand or care little about their own interests, so they entrust their capital, as long as they receive annual dividends. In addition, there are some typical violations surrounding charter capital increase and information disclosure in companies that cause great damage to small shareholders. For example, at Transport JSC