Reduce capital of limited liability company in Vietnam

Charter capital plays an important role throughout the operation of an enterprise. When registering to establish a business, it is the capital committed by members and shareholders to contribute within a certain period. In business path, many limited liability companies have to reduce their charter capital to suit specific situations and conditions. To help clients better understand this regulation, Viet An Law Firm would like to present an article on the conditions to reduce capital of limited liability company in Vietnam.

Legal basis

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

What is a limited liability company?

Limited liability companies (LLCs) is one of the popular types of businesses. According to Clause 7, Article 4 of the Enterprise Law 2020, limited liability companies include two types: single-member limited liability companies and multiple-member limited liability companies or more, specifically:

• A single-member limited liability company is a business owned by an organization or individual. The company owner is responsible for the company’s debts and other property obligations within the company’s charter capital.
• A multiple-member limited liability company is an enterprise with from 02 to 50 members who are organizations and individuals. Members are responsible for debts and other property obligations of the enterprise within the amount of capital contributed to the enterprise. Members’ capital contributions can only be transferred according to the provisions of Articles 51, 52, and 53 of the Enterprise Law.

A limited liability company has legal status. Therefore, the company has independent assets, its seal, its headquarters and can independently participate in legal relations on its behalf without being dependent on the status of the owner.

Charter capital of a limited liability company

Charter capital is the total value of assets contributed or committed to by company members and owners when establishing a limited liability company. The Enterprise Law 2020 also specifically stipulates the types of assets used to contribute to companies and businesses, which can be Vietnamese Dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technology, know-how, and other assets that can be valued in Vietnamese Dong.

• The charter capital of a single-member limited liability company when registering to establish a business is the total value of assets committed to contribute by the company owner and recorded in the company charter;
• The charter capital of a multiple-member limited liability company when registering to establish a business is the total value of the capital contributions committed by the members and recorded in the company’s charter.

Charter capital plays an important role in the company’s financial structure system with many important meanings such as:

• Used to determine the ratio of capital contribution or share ownership of members and shareholders in the company. It serves as a basis for the division of rights, benefits, and obligations among members and shareholders in the company.
• Used to determine business conditions for several conditional business lines.
• Charter capital is also a commitment to the material responsibilities of members to clients, and partners, as well as to equivalent businesses.

Conditions to reduce capital of limited liability company in Vietnam

For single-member limited liability company

A single-member limited liability company reduces its charter capital in the following cases:

• Refund a portion of capital contribution to the company owner provided that the company has operated continuously for 2 years or more from the date of business registration and ensures full payment of debts and other property obligations after returning the capital contribution to the company owner;
• The charter capital is not paid in full and on time by the company owner according to the provisions of Article 75 of the Enterprise Law. Accordingly, the company owner must contribute capital to the company with sufficient and correct types of assets as committed when registering to establish a business within 90 days from the date of issuance of the Enterprise Registration Certificate, excluding time for transporting and importing capital contribution assets and carrying out administrative procedures to transfer asset ownership. During this period, the company owner has rights and obligations corresponding to the committed capital contribution.

Note:

• Company members can only contribute capital to the company with assets other than the committed assets if approved by more than 50% of the remaining members.
• In case of failure to fully contribute charter capital within the time limit specified above, the company owner must register to reduce charter capital equal to the value of the contributed capital within 30 days from the last day to fully contribute capital. In this case, the owner must be responsible in proportion to the committed capital contribution for the company’s financial obligations arising during the period before the last day the company registered to change its charter capital according to the provisions of this Law.

For multiple-member limited liability companies

A multiple-member limited liability company may reduce its charter capital in the following cases:

Return capital to members

Refund a portion of capital contribution to members according to the proportion of their capital contribution in the company’s charter capital if the following conditions are satisfied:

• Has been in continuous business operation for 2 years or more from the date of business establishment registration;
• Ensure full payment of debts and other property obligations after repaying members;

Repurchase of stakes (contributed capital)

The company repurchases members’ stakes according to the provisions of Article 51 of the Enterprise Law. Accordingly, a member is entitled to request the company to repurchase his/her capital contribution if that member has voted against the resolutions and decisions of the Board of Members on the following issues:

• Amending and supplementing contents in the Company Charter related to the rights and obligations of members and the Board of Members;
• Reorganization of the company;
• Other cases as prescribed in the Company’s Charter.

Not paying enough when establishing a business

As referred above, after the time limit specified above, if there are still members who have not contributed capital or have not fully contributed the committed capital contribution, it will be handled as follows:

• Members who have not contributed capital as committed are no longer members of the company;
• Members who have not fully contributed their committed capital have rights corresponding to their capital contribution;
• The members’ uncontributed capital is offered for sale according to the resolutions and decisions of the Board of Members.

Some questions related to conditions for reducing limited company capital

What types of documents are included in the capital reduction application for a limited liability company?

Pursuant to Article 51, the application for reducing the charter capital of a limited company includes the following types of documents:

• Notice of change in business registration content signed by the legal representative of the enterprise;
• Resolutions and decisions of the company owner for single-member limited liability companies; Resolutions, decisions, and meeting minutes of the Board of Members for multiple-member limited liability companies.
• Document from the Investment Registration Agency approving the capital contribution, share purchase, or capital contribution purchase by foreign investors or foreign-invested economic organizations in cases where procedures must be carried out. Register to contribute capital, purchase shares, and purchase capital contributions according to the provisions of the Investment Law.
• Financial statements closest to the time of the decision to reduce charter capital in case a limited liability company with two or more members reduce charter capital according to the provisions of Points a and b, Clause 3, Article 68 of the Law on Enterprises.

What are the procedures for reducing the capital of a limited liability company in Vietnam?

After receiving the application, the Business Registration Office issues a Receipt, checks the validity of the application, and issues an Enterprise Registration Certificate to the enterprise within 03 working days from the date of receipt of the application. valid (under Clause 1, Article 33 of Decree 01/2021/ND-CP).

At the same time, the company needs to publish the business registration content on the National Business Registration Portal when reducing charter capital and investment capital.

In addition, if the reduction of charter capital leads to a change in the number of shareholders/members of the company below the minimum number of shareholders/members as prescribed by the Enterprise Law 2020, the company needs to proceed with procedures. continue to transform the type of business.

Service to reduce capital of limited liability company in Vietnam of Viet An Law

• Consulting and discussing with clients on conditions for capital reduction of single-member limited liability companies, and multiple-member limited liability companies;
• Consulting and discussing with clients documents and procedures for capital reduction of single-member limited liability companies and multiple-member limited liability companies.
• Drafting business capital reduction documents for clients;
• Representing clients to carry out capital reduction registration procedures with competent state agencies.

Clients who need advice on conditions for reducing capital of limited liability companies, please contact Viet An Company for the best support.