Corporate investment arms now hot fashion

Transferring individual holdings to one hand means more effective management

Recently Tran Kim Thanh, chairman of Kinh Do Corporation (KDC) and his wife, announced they would transfer all of their 14.5 million shares of KDC into PPK Company, a one-member limited investment holding company 100 per cent owned by the KDC chairman.

The transfer will take place from August 17 to October 16 this year.

This announcement follows a similar exercise by close relatives of the chairman of Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank or STB) who transferred nearly 15 million shares in the bank to Thanh Thanh Cong Commercial and Production Company, which is chaired by the STB chairman’s wife.

And in another similar move, in late 2009 Nguyen Duy Hung, chairman and general director of Saigon Securities Incorporated (SSI) transferred all over 14.2 million SSI shares to Nguyen Duy Hung, another one-member limited company 100 per cent owned by him, making him the first executive to head down this road.

Later the SSI chairman’s young er brother also transferred all 2.7 million shares of SSI into Nguyen Sai Gon, a one-member limited company 100 per cent owned by him.

Market analysts said the trend wasn’t about to stop in the short term.

So why are executives choosing this course of action? Firstly, it is about enjoying lower income tax. Individuals are subject to 0.1 per cent tax on each trading value or 20 per cent on total pre-tax profit in a year after deducting some relative costs. Relative costs, however, are very small, limiting in some area such as legislation costs, fees and some others.

Companies, meanwhile, face 25 per cent corporate income tax but their relative costs are higher, including salaries, marketing costs, sales and even losses from other investment activities. It is more difficult for individuals to prove their costs for income tax purposes than it is for companies. Moreover, when companies suffer losses, they will be noted or transferring within five years but individuals cannot. Individuals must calculate and pay all income annually. Therefore, for income tax purposes, it is more advantageous for individuals to hold shares within a company structure than to own the shares themselves. 

Second, the legal responsibilities are lower. Legally speaking, a joint stock or limited company is only responsible for its chartered capital registration. An individual or private firm’s legal responsibility is, on the other hand, unlimited.

Thirdly, asset allocation focus is more easily managed. Executives normally own different and complicated investment portfolios which are difficult to manage. Therefore, transferring all different holdings into one hand means more effective management.

Fourth, this approach leads to a better image for some investment activities. Executives, founding members or individuals using their shares as collateral at banks to secure loans or even announcing plans to liquidate would usually cause negative impacts on the market.

However, these activities are normal for companies. Additionally, it is more normal and professional for a company than an individual in negotiating businesses.

 Therefore, it remains beneficial for executives and individuals to transfer their share holdings into companies for the time being.