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Conditions for reducing company charter capital in Vietnam

Nowadays, contributing capital to establishing a company in Vietnam has become extremely popular. The number of businesses is growing rapidly, operating more diversely and more popularly in the Vietnamese market and around the world. Business owners in the process of contributing capital to establish a business and the process of putting their business into operation will encounter financial difficulties and have a legitimate desire to withdraw their capital contribution to cover living expenses. Vietnamese law and Enterprise Law 2020 have specifically stipulated the conditions and procedures for withdrawing capital, or in other words, conditions for reducing company charter capital in Vietnam. To learn about legal regulations related to conditions for reducing company charter capital in Vietnam, Viet An Luat offers some consulting opinions in the following article.

capital reduction

Legal basis

  • Enterprise Law 2020;
  • Decree 122/2021/ND-CP regulates sanctions for administrative violations in the field of planning and investment.

What is charter capital?

  • Charter Capital is an economic term that is widely used in the world economic market and is used to describe the total amount of capital that members or shareholders contribute or commit to contribute in the future. a certain period and recorded in the charter of the company or business organization.
  • Pursuant to Clause 34, Article 4 of the Law on Enterprises 2020, charter capital is: “the total value of assets contributed or committed to be contributed by company members and owners when establishing a limited liability company, partnerships; is the total par value of shares sold or registered to buy when establishing a joint stock company. As mentioned, the entities that must carry out capital contribution activities include company members; the company owner; and shareholders of joint stock companies.

Regulations on capital contribution to enterprises

Capital contribution is an activity whereby the capital contributor commits to contribute his or her assets to the enterprise. Capital contribution to an enterprise is distinguished into 2 cases:

  • Contribute capital at the time of business establishment; and
  • Contribute capital to an active enterprise.

Capital contribution activities at the time of enterprise establishment

Type of business Conditions for capital contribution Subject contributing capital
Multiple-member limited liability company Within 90 days from the date the enterprise is granted a Enterprise Registration Certificate Owner: includes all individuals and organizations (minimum 02 and maximum 50) (not in cases prohibited by law)
Single-member limited liability company The owner is an individual or organization (Only 01 owner)
Joint Stock Company Shareholders (minimum 03 shareholders)
Partnerships No specified Partnership members and capital-contributing members

Regulations on procedures for withdrawing charter capital and specific conditions for each type of enterprise in Vietnam

Type of business Conditions for capital withdrawal
 

 

 

Multiple-member limited liability company

If the owner does not contribute the correct or full amount of capital as committed at the time of enterprise registration, the committed capital contribution will be eliminated, the legal representative must carry out procedures to adjust the charter capital of the enterprise with state management agencies.
The company repurchases the capital contribution under the provisions of law and the company’s charter
Refund a part of capital contribution to members according to the proportion of their capital contribution in the company’s charter capital if they have operated continuously for 02 years or more from the date of enterprise registration and ensure payment of all debts and other property obligations after repaying members
Single-member limited liability company If the owner does not contribute the correct or full amount of capital as committed at the time of enterprise registration, the business owner must carry out procedures to adjust the charter capital of the enterprise with the state management agency.
Refund (not fully refund) the capital contribution of the company owner if the company has operated continuously for 02 years from the date of issuance of the Enterprise Registration Certificate and guaranteed after completing the refund procedure, the enterprise will still be able to pay its property obligations to entities related to operations.
Joint stock company At the time of business establishment:

  • Shareholders who have not paid for the shares they registered to buy are naturally no longer shareholders of the company;
  • Shareholders who only pay part of the number of shares registered to buy will be recorded corresponding to the amount purchased;
  • Unpaid shares will be offered for sale by the Board of Directors;
  • unpaid shares have been sold within this period; Register to change founding shareholders.
The company refunds a part of the capital contribution to shareholders according to the shareholder’s ownership ratio in the company according to the decision of the General Meeting of Shareholders when the company has been in operation for 2 years or more (from the date of issuance of Enterprise Registration Certificate) and must ensure sufficient capacity to pay financial obligations to other relevant entities.
The company repurchases sold shares by the law and the company’s charter
Partnerships For capital contributing members: Failure to contribute the full amount of committed capital will be considered a debt of that Partnership member to the company and may be expelled from the company;

For Partnership members: If damage is caused due to failure to contribute enough capital as committed, compensation must be paid to the company.

Legal consequences of reducing charter capital

When reducing charter capital, a business may face the following legal consequences: (1) Change in business type, (2) Bankruptcy, and (3) Normal operation.

Change the type of business

  • As mentioned above, cases, where an enterprise reduces its charter capital, include 3 cases: when it does not contribute enough charter capital as committed at the time of establishing the enterprise; after 02 years from the date of establishment of the enterprise, and according to a special decision.
  • In the case of multiple-member LLCs and Joint Stock Companies, at the stage of establishing the business, the owners/shareholders do not fulfill their commitments on stake/share purchase, leading to the above members not becoming owners of the business, thereby indirectly not ensuring the minimum number to establish a business (minimum is 02 members for multiple-member LLCs and 03 founding shareholder for joint stock companies). Therefore, a Joint Stock Company can be converted into a multiple-member LLC or a single-member LLC, and a multiple-member LLC can become a single-member LLC or other type. other businesses that suit the needs of the business owner.

Business bankruptcy

Although the Enterprise Law stipulates that when businesses want to carry out procedures to reduce charter capital, they must ensure that after completing the procedure, they must be able to fulfill their financial obligations. However, the business depends largely on market factors, so there is no solid basis to ensure that in the short term, the business can guarantee the ability to pay other entities, thus leading to businesses being forced to go bankrupt.

Operating normally

Unlike the two legal consequences above, businesses in many cases still operate normally and there are no financial risks to the business because, during the capital reduction process, legal advice is provided for compliance. following the law and minimizing potential risks for businesses.

Procedures for reducing charter capital

The enterprise conducts a meeting between owners/shareholders to decide on reducing the enterprise’s charter capital, then amends the charter, sends a written notification to the state agency, and implements procedures for changing the Enterprise Registration Certificate by the provisions of law.

Legal consequences of reducing charter capital without carrying out reporting procedures to state agencies

Based on Article 47 of Decree 122/2021/ND-CP, an enterprise that does not adjust its charter capital after the enterprise has reduced its charter capital will be understood as performing an act of under-declaring capital and subject to the following penalties:

  • Fine from 20,000,000 VND to 30,000,000 VND for false declaration of charter capital worth less than 10 billion VND.
  • Fine from 30,000,000 VND to 40,000,000 VND for false declaration of charter capital valued from 10 billion VND to less than 20 billion VND.
  • Fine from 40,000,000 VND to 60,000,000 VND for false declaration of charter capital valued from 20 billion VND to under 50 billion VND.
  • Fine from 60,000,000 VND to 80,000,000 VND for false declaration of charter capital valued from 50 billion VND to less than 100 billion VND.
  • Fine from 80,000,000 VND to 100,000,000 VND for false declaration of charter capital valued at 100 billion VND or more.

Reducing company charter capital services of Viet An Law

  • Consulting on conditions for reducing company charter capital in Vietnam;
  • Consulting on implementing charter capital reduction activities according to the provisions of law;
  • Representing the client to carry out registration procedures with state agencies in case the company reduces its charter capital.
  • Regularly advise businesses after capital reduction and during operations.

Above is preliminary advice on conditions for reducing company charter capital in Vietnam from Viet An Law. If you need advice on the above issue, please contact Viet An Law for the most effective advice.

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