Reduce capital of joint stock company in Vietnam

Charter capital helps businesses basicize the process of dividing profits, rights and obligations among capital contributing members. However, in many cases, joint stock companies must reduce charter capital to suit specific circumstances and conditions. To help customers better understand this regulation, Viet An Law Firm would like to present the following article on conditions to reduce capital of joint stock company in Vietnam.

Legal basis

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

What is the joint stock company?

Pursuant to Clause 1, Article 111 of the Law on Enterprises 2020, a joint stock company is a type of enterprise, in which:

• Charter capital is divided into equal parts called shares;
• Shareholders can be organizations or individuals; The minimum number of shareholders is 03 and there is no limit to the maximum number;
• Shareholders are only responsible for the debts and other property obligations of the enterprise within the amount of capital contributed to the enterprise;
• Shareholders have the right to freely transfer their shares to others, except for the cases specified in Clause 3, Article 120 and Clause 1, Article 127 of this Law.

A joint stock company has legal status from the date of issuance of the Enterprise Registration Certificate and has the right to issue shares, bonds and other securities of the company.

Charter capital of a joint stock company

Clause 34, Article 4 of the Enterprise Law stipulates that 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 or a joint venture company; is the total par value of shares sold or registered to buy when establishing a joint stock company.

Clause 1, Article 112 of the Enterprise Law also clearly states that the charter of a joint stock company is the total par value of all types of shares sold. The charter capital of a joint stock company when registering to establish a business is the total par value of all types of shares registered to buy and recorded in the company’s charter.

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

• Create a foundation to determine the capital contribution ratio of shareholders in the company. Through this, the company has a basis to divide profits, rights, benefits, and obligations among participating parties. Shareholders or members will be responsible for debt and other property obligations.
• It is an important basis for evaluating a company’s ability to meet the specific business conditions of a specific type of business.
• Based on charter capital, partners, customers, and the government have a clear view of the company’s scale, performance, and position in the market. This helps create trust and effective cooperation in business relationships.
• High total charter capital value represents the company’s value and positioning in the market compared to its competitors.

Conditions for reducing charter capital of joint stock companies

To reduce charter capital, a joint stock company must:

• Commit to ensure full payment of debts and other property obligations after capital reduction according to Clause 4, Article 51 of Decree 01/2021/ND-CP; and
• Belonging to one of the cases specified in Clause 5, Article 112 of the Enterprise Law 2020, specifically:

Refund of part of capital contribution

According to the decision of the General Meeting of Shareholders, the company returns a portion of capital contribution to shareholders in proportion to their share ownership in the company if:

• The company has been in continuous business operation for 02 years or more from the date of business establishment registration; and
• Ensure full payment of debts and other property obligations after repaying shareholders.

Repurchase shares from shareholders

The company buys back sold shares according to the provisions of Article 132 and Article 133 of the Enterprise Law, according to which there are 2 following cases:

Case 1: Repurchase shares at the request of shareholders.

• Shareholders who voted not to pass a resolution on reorganizing the company or changing the rights and obligations of shareholders stipulated in the company charter have the right to request the company to repurchase their shares.
• The request must be in writing, clearly stating the name and address of the shareholder, the number of shares of each type, the intended selling price, and the reason for requesting the company to repurchase.
• The request must be sent to the company within 10 days from the date the General Meeting of Shareholders passed the resolution on the above issues.
• Repurchase price: according to market price or price calculated according to the principles stipulated in the company charter. In case a price cannot be agreed upon, the parties can request a valuation organization to determine the price. The company introduces at least 03 valuation organizations for shareholders to choose from and that choice is the final decision.
• Redemption period: within 90 days from the date of receipt of the legal request.

Case 2: Repurchase shares according to the company’s decision.

• The company has the right to repurchase no more than 30% of the total number of common shares sold, part or all of the dividend preference shares sold.
• Right to decide:
  • The Board of Directors has the right to decide to Repurchase no more than 10% of the total number of shares of each type sold within 12 months.
  • In other cases, the repurchase of shares is decided by the General Meeting of Shareholders; The Board of Directors decides the share repurchase price.
• Repurchase price:
  • For common shares, the repurchase price must not be higher than the market price at the time of repurchase.
  • For other types of shares, if the company charter does not stipulate or the company and related shareholders have no other agreement, the repurchase price must not be lower than the market price.

Charter capital is not paid in full and on time by shareholders

If after the prescribed time limit of 90 days, the shareholder has not paid or can only pay a part of the shares registered to buy according to the provisions of enterprise law, the company must êegister to reduce charter capital by the par value of fully paid shares and change founding shareholders.

Implementation period: 30 days from the end of the period to pay in full for the number of shares registered to buy according to regulations.

Then the legal consequences for the parties are as follows:

• Shareholders who have not paid for the shares they have registered to buy will automatically no longer be shareholders of the company and may not transfer the right to buy those shares to others;
• Shareholders who pay only a portion of the shares registered to purchase will have the right to vote, receive dividends, and other rights corresponding to the number of shares paid; The right to buy unpaid shares is not allowed to be transferred to another person;
• Unpaid shares are considered unsold shares and the Board of Directors has the right to sell.

Procedures for registering a reduction in capital of joint stock companies

Pursuant to Article 51 of Decree 01/2021/ND-CP, procedures for registering a reduction in capital of a joint stock company include the following steps:

• Step 1: The enterprise prepares all documents as prescribed in Article 51 of Decree 01/2021/ND-CP and sends the application to change the business registration content to the Business Registration Office where the company is located. headquarters.
• Step 2: Within 3 working days of receiving all valid documents, the Business Registration Office carries out procedures to change and reduce the charter capital for the joint stock company and issue a Enterprise Registration Certificate.
• Step 3: The company announces information about changes in charter capital reduction on the National Business Information Portal within 30 days from the date of change (pay publication fee when performing capital reduction registration procedures).

Note: If the reduction of charter capital leads to a change in the number of shareholders of the company below the minimum number of shareholders as prescribed by the Law on Enterprises 2020, the company needs to carry out procedures to convert the type of business to a single-member or multiple-member LLC.

Registering reduce capital of joint stock company in Vietnam service of Viet An Law

• Consulting on conditions for reducing charter capital of joint stock companies;
• Consulting on documents and procedures to reduce the charter capital of joint stock companies;
• Drafting documents to reduce the capital of joint stock companies;
• Representing customers to reduce the capital of joint stock companies;
• Regular consulting for businesses after capital reduction.

Clients who need advice on conditions to reduce capital of joint stock company in Vietnam, please contact Viet An Law for the best support.