Redemption of the contributed capital in limited liability companies in Vietnam

Redemption of contributed capital is the purchase by a limited liability company of a member of the company with assets owned by the company. In other words, it can be understood that redemption of contributed capital can be understood as a way for company members to withdraw capital from the company (applicable in some cases).

Legal basis

• Law on Enterprise 2020;
• Decree 01/2021/ND-CP on business registration.

Redemption the contributed capital of a multiple-member limited liability company

Conditions for redemption of contributed capital

According to Article 51 of the Enterprise Law 2020, a multiple-member limited liability company is entitled to redeem a member’s contributed capital with certain conditions, including:

• A member has the right to request the company to redeem his/her contributed capital, if such member has voted against the resolution of the Members’ Council on the following issues:
• Amending and supplementing contents in the company’s charter related to the rights and obligations of members and the Members’ Council;
• Reorganization of the company;
• Other cases as prescribed in the company’s charter.
• After paying the redeemed capital contribution, the company still pays all debts and other property obligations.

Limiting the conditions to be able to redeem the above capital contribution is to protect the owner whose interests are directly affected by the resolution of the company. Only decisions and resolutions have a direct impact on the existence of the company (reorganization of the company with forms such as division, separation, consolidation, merger, transformation of the company type) and the rights of the owner (change of rights and obligations of the owner in the Charter), the new owner has this right. The limitation of the types of decisions or resolutions within the scope of the right to claim redemption is also intended to avoid the arising of arbitrary, spontaneous, and unreasonable claims of the owners.

Procedures for redemption of contributed capital

• The request for redemption of contributed capital must be in writing and sent to the company within 15 days from the date of adoption of a resolution or decision that members vote against.
• At the request of a member, the company shall redeem the contributed capital within 15 days from the date of receipt of the member’s request at the market price or the price determined according to the principles specified in Article 2 of company’s charter, unless the parties agree otherwise on the price.
• If the company fails to pay the contributed capital, the member has the right to freely transfer the contributed capital to another member or to another person who is not a member without having to follow the transfer principle in Article 52 of the Enterprise Law 2020. The transfer can take the form of: sale, donation, inheritance, etc. Thus, the company is only obligated to repurchase when the company can pay the requested capital contribution without affecting the repurchase. affect the company’s ability to pay its other debts.
• The time of successful transfer of contributed capital is from the time the buyer’s information specified at Point 2, Article 48 of the Law on Enterprises is recorded in the member register, the transferor will terminate his rights and obligations. with the company in proportion to the amount of capital contributed.

In addition to the case of redemption of contributed capital as prescribed in Article 51, a member’s contributed capital may also be redeemed by the company in the cases specified in Clause 4, Article 53 of the Enterprise Law 2020, including:

• The heir does not want to become a member;
• The person to whom the contributed capital is donated is not approved by the Members’ Council as a member;
• Company members are dissolved or bankrupt organizations.

Note the procedure

• When the company requests the company to redeem the contributed capital, it means that the owner withdraws capital from the company, leading to the reduction of the company’s charter capital corresponding to the value of the contributed capital that is repurchased by the company. Therefore, the company must register to reduce its charter capital. A member whose entire contributed capital is acquired by the company will cease to be an owner in the company.
• For individuals transferring contributed capital, it is necessary to pay attention to the payment of personal income tax in accordance with the provisions of tax law.

Purchase price of contributed capital

The price of the contributed capital is based on the market price or the price determined according to the principles specified in the company’s charter, unless the two parties can agree on the price.

Redemption the contributed capital of a single-member limited liability company

• Currently, the Enterprise Law does not have specific provisions on the redemption of contributed capital in a single-member limited liability company.
• However, based on Clause 3, Article 87 of the Enterprise Law 2020 on the single-member limited liability company, there is no case of a reduction in charter capital because the company buys back the contributed capital of the owner, but only a case where the charter capital is reduced. The intrinsic is similar when (i) affects the capital of the owners of the capital contribution to the company, (ii) reduces the charter capital of the company. That is the case of returning the contributed capital to the owner of a single-member limited liability company.
• It can be seen that the regulation on redemption of contributed capital in a single-member limited liability company is not necessary. Because the acquisition of contributed capital in a single-member limited liability company depends on the will of the company owner, in other words, the decision of the company is essentially the decision of the company owner. Therefore, there is no basis for this owner to oppose his own decision to ask the company to redeem his share of capital.
• The price and value of assets contributed here are determined mainly on the basis of agreement and agreement between the parties in the contract.

Conditions for partial return of contributed capital to owners of single-member limited liability companies

According to the provisions of Clause 3, Article 87 of the Enterprise Law 2020, a single-member limited liability company will reduce its charter capital in the following two cases:

• The company has operated continuously for 02 years or more from the date of business registration; and
• To ensure full payment of debts and other property obligations after the capital contribution has been returned to the company’s owners.

Procedures for returning the contributed capital to the owner of a single-member limited liability company

Step 1: Prepare documents

A single-member limited liability company, when it wants to return the contributed capital to the owner, needs to prepare documents, including:

• Notice of change of business registration contents signed by the legal representative of the company.
• Resolution, decision of the owner of the single-member limited liability company on the change of charter capital.
• Copy of business registration certificate.
• Commitment of the company owner to ensure enough contributed capital as well as assets to pay all debts and fulfill other property obligations.
• Power of attorney for individuals or organizations to carry out procedures at competent state agencies.

Step 2: Submit your application

The company submits documents at the Business Registration Office where the one member limited liability company is headquartered:

• If the owner of a single-member limited liability company transfers a part of the contributed capital to another individual or organization, the company now has more than one owner, so it must carry out procedures for conversion of the form. Transformational enterprise: Multiple-member limited liability company or Joint-stock company.
• If the owner of a single-member limited liability company transfers all of the contributed capital to another individual or organization, the company must change the owner.
• Within 10 days from the date of signing the transfer contract, the individual or company must submit the personal income tax declaration dossier to the transferor at the tax authority.

Step 3: Disclosure of information on reducing charter capital of one member limited liability companies

• After the charter capital is reduced, the single-member limited liability company must publish the changed information on the National Business Registration Portal within 30 days from the date of change.
• After the company completes the procedures for announcing the reduction of charter capital on the National Business Registration Portal, the Business Registration Office – Provincial Department of Planning and Investment will issue the company a Receipt. publish the contents of enterprise registration.

Step 4: Carry out tax declaration procedures

The case of reducing the charter capital of a single-member limited liability company will reduce the amount of license tax payable by the company. At that time, the company needs to carry out the following procedures:

• Declare and submit the declaration of adjustment and supplement of tax registration information according to form 08-MST issued together with Circular No. 105/2020/TT-BTC.
• File an additional license tax return in the tax period of the following year.

Personal income tax when redeeming contributed capital

When transferring capital in a limited company, the income from the capital transfer is a taxable income according to Article 4.2 of Circular 111/2013/TT-BTC (as amended from time to time). Specifically:

• For the above two cases of capital reduction of the two types of limited liability companies, when the capital transfer is not at par, the person receiving the income arising from the capital transfer (the owner of the contributed capital) will have to pay personal income tax. multiplied based on the profit received.
• For both single-member limited liability companies and two or more-member limited liability companies, even if the transfer is equal to or less than charter capital, if the fiscal year is profitable, traders still need to pay PIT due to capital transfer. .

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