Comparison of forms of charter capital reduction in a limited liability company in Vietnam

Buying back the contributed capital or returning the contributed capital are all forms of reducing charter capital in a limited liability company. These two forms also have certain similarities and differences, so in order for customers to have an image of these two forms of capital reduction, the following article by Viet An Law firm will give the comparison of forms of charter capital reduction in a limited liability company in Vietnam.

Legal basis

• Vietnam Enterprise Law 2020.

Similarities of forms of charter capital reduction in multiple-member limited liability companies

It can be seen that there are similarities between the redemption of the contributed capital and the return of the contributed capital. Accordingly, the similarities between these forms of charter capital reduction include:

• Whether it is the redemption of the contributed capital or the return of the contributed capital, these forms all have the effect of reducing the charter capital of a multiple-member limited liability company.
• Both forms of charter capital reduction are specified in Clause 3, Article 68 of the Vietnam Enterprise Law 2020.

Differences between forms of charter capital reduction in limited liability companies

What many customers are most interested in when comparing forms of charter capital reduction in a limited liability company under Vietnamese law is the difference between redemption of contributed capital and return of contributed capital. Specifically, the differences between the forms of charter capital reduction in limited liability companies include:

Procedures for redemption of contributed capital in a limited liability company

The procedure for redemption of contributed capital is an important part, helping enterprises operating under the form of public limited liability to repurchase the contributed capital or return the contributed capital in a favorable manner.

Procedures for redemption of contributed capital in a single-member limited liability company

Step 1 (Preparing documents):

• 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 enterprise 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 application): The company submits the application at the Business Registration Office where the single-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 a 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 reduction of company’s charter capital): After reducing charter capital, a single-member limited liability company must publish changed information on the National Business Registration Portal in within 30 days of the change.

Step 4 (Perform tax declaration procedures): In case of reducing the charter capital of a single-member limited liability company, the license tax payable by the company will be reduced. 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.

Procedures for redemption of contributed capital in a limited liability company with two or more members

Step 1 (Send request for redemption of contributed capital): Within 15 days from the date of adoption of a resolution or decision that a member votes against, that member has the right to submit a written request to buy back the share. capital contributed to the company.

Step 2 (Process of redemption of the contributed capital): Upon request of the member, the company shall repurchase the contributed capital within 15 days from the date of receipt of the member’s request according to

• Price agreed by the parties (if any);
• Market price; or
• The price is determined according to the principles specified in the company’s charter.

Step 3 (Transfer when the company fails to redeem the contributed capital): 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. There is no need to follow the transfer principle in Article 52 of the Enterprise Law 2020.

Procedures for return of contributed capital in a limited liability company

Procedures for return of contributed capital in a single-member limited liability company

Step 1 (Preparation of documents): A single-member limited liability company needs to prepare a dossier on returning the contributed capital to the owner, including:

• Notice of change of business registration information (signed by the legal representative).
• Resolution, and decision of the company owner on the change of charter capital.
• Copy of Enterprise Registration Certificate.
• Commitment of the company owner to ensure payment of all debts and performance of other property obligations after the return of the contributed capital.
• Power of attorney for individuals or organizations to perform tasks with competent state agencies.

Step 2 (Submit application): The company submits the application at the Business Registration Office:

• If the company owner transfers a part of the contributed capital to another individual or organization, it must convert the type of enterprise (into a multiple-member limited liability company or a joint stock company).
• If the company owner transfers the entire contributed capital to another individual or organization, the owner must be changed.
• Within 10 days from the date of signing the transfer contract, the individual or company must submit a personal income tax declaration file for the transferor at the tax authority.

Step 3 (Disclosure of charter capital reduction information):

• After receiving the application, the Business Registration Office shall hand over the receipt, check the validity of the application, and issue the Enterprise Registration Certificate to the enterprise within 03 working days from the date of receipt of the valid application (based on Clause 1, Article 33 of Decree No. 01/2021/ND-CP).
• Within 30 days from the date of charter capital reduction, the company must publish information about changes when reducing charter capital on the National Business Registration Portal.

Step 4 (Perform tax declaration procedures): In case of reducing the charter capital of a single-member limited liability company, the license tax payable by the company will be reduced. At that time, the company needs to carry out the following procedures:

• Declare and submit an amended and supplemented declaration of registration information according to form 08-MST issued together with Circular 105/2020/TT-BTC.
• File an additional license tax return in the tax period of the following year.

Procedures for return of contributed capital in a limited liability company with two or more members

Step 1 (Meeting of Members’ Council): The Members’ Council of a multiple-member limited liability company conducts a meeting related to the return of contributed capital to members of the company.

Step 2 (Approval of resolutions, decisions, and minutes): After the meeting, the Members’ Council issues resolutions, decisions, and minutes on the issue of reducing charter capital by returning contributed capital.

Step 3 (Return of contributed capital): The company will return the member’s contributed capital according to the proportion of the member’s contributed capital in the charter capital of the company.

Step 4 (Notice of reduction of charter capital): After completing the return of the member’s contributed capital and the company’s charter capital is reduced, the company must register for a change of charter capital with the competent business registration within 10 days from the date of completion of the reduction of charter capital through the return of contributed capital (According to Clause 4, Article 68 of the Law on Vietnamese Enterprises 2020).

Step 5 (Business Registration Agency updates information): Within 03 working days from the date of receiving the notice of registration of change of charter capital of the enterprise by returning contributed capital, the Business Registration Agency update information on the reduction of charter capital of limited liability companies with two or more members.

Step 6 (Perform tax declaration procedures): When the company’s charter capital decreases, it will reduce the license tax that the company has to pay. At that time, the company needs to carry out the following procedures:

• Declare and submit an amended and supplemented declaration of registration information according to form 08-MST issued together with Circular 105/2020/TT-BTC.
• File an additional license tax return in the tax period of the following year.

Notes for businesses

Through comparing the forms of charter capital reduction in limited liability companies according to Vietnamese law, it can be seen that, although they are all forms with the purpose of reducing charter capital in limited liability companies, term, but there are certain differences between the form of redemption of contributed capital and the return of contributed capital.

Therefore, when customers need to reduce the charter capital in their company, they can apply one of these two methods, and when using these forms, they should seek the advice and support of the company. experienced experts such as a team of lawyers, and consultants of Viet An Law Firm to be able to perform in the most effective way.

Clients who have any questions about comparison of forms of charter capital reduction in a limited liability company in Vietnam, please contact Viet An Law for the best support!