Register to reduce company charter capital in Vietnam

During the operation, for various reasons, the company needs to reduce the registered and contributed charter capital of the company. Accordingly, reducing the charter capital is an administrative procedure that the company must perform when the company reduces the charter capital registered with the business registration agency, contributed, or not contributed to the company. This procedure applies to all types of partnerships, limited liability companies, and joint stock companies. Viet An Law will guide the agency information for you to register to reduce the charter capital of the company legally in the article below.

When to register to reduce company charter capital?

According to the provisions of the Enterprise Law 2020, there are two main cases where a company needs to register to reduce its charter capital as follows:

However, to comply with the regulations when legally reducing capital, each type of enterprise needs to note the following:

Reducing charter capital of multiple-member LLC

According to the Enterprise Law 2020, a 2-member LLC can reduce charter capital in the following cases:

1 – Charter capital is not paid in full and on time by members

• According to Article 47 of the Enterprise Law 2020, within 90 days from the date of receiving the enterprise registration certificate, members must contribute capital to the company in full and with the correct type of assets as committed when registering to establish the enterprise.
• In case a member has not contributed capital or has not contributed enough capital as committed, the company must register to change the charter capital and the capital contribution ratio of the members by the contributed capital within 30 days from the last day to fully contribute the capital contribution as prescribed in Clause 2, Article 47 of the Law on Enterprises 2020.
• Note: Company members can still contribute capital to the company with assets other than the previously committed assets if approved by the majority of the remaining members.

2 – Return part of the capital contribution to members according to their capital contribution ratio in the company’s charter capital

For a two-member limited liability company to reduce its charter capital by returning a portion of its capital contributions to members in proportion to their capital contributions in the company’s charter capital, the following conditions must be met:

• This limited liability company has been operating continuously for more than 2 years;
• Ensure full payment of debts and other financial obligations after repayment to members.

3 – The company purchases back the member’s capital contribution

• Members have the right to request the company to buy back their capital contribution with the following necessary and sufficient conditions:
• That member has voted against the resolution of the Board of Members, and this vote of disapproval must be on one of the following issues:
• Amend and supplement the contents of the Company Charter related to the rights and obligations of members and the Board of Members;
• Company reorganization;
• Other cases as prescribed in the Company Charter.
• The request to buy back capital contribution must be in writing and sent to the company within 15 days from the date of approval of the resolution specified in this clause.

Reducing charter capital of Joint Stock Company (JSC)

1 – Charter capital is not paid in full and on time by shareholders when registering to establish the enterprise

Charter capital is not fully and timely paid by shareholders. Must register to reduce charter capital within 30 days from the end of the deadline for full payment of the registered shares purchased.

2 – Return part of the capital contribution to shareholders according to their capital contribution ratio in the company’s charter capital

• According to the decision of the General Meeting of Shareholders, the company shall return a portion of the capital contribution to shareholders in proportion to their share ownership in the company if the company has been operating continuously for 02 years or more from the date of business registration and ensures full payment of debts and other financial obligations after returning to shareholders;
• The company buys back the sold shares on condition that after buying back the shares The company still ensures full payment of debts and other financial obligations.

3 – The company repurchases shares

Unlike a limited liability company, a joint stock company can buy back shares when one of the following two conditions is met:

At the request of the shareholders

• The company buys back shares at the request of shareholders. Shareholders who have voted against the resolution on the reorganization of the company or the change of the rights and obligations of shareholders as stipulated in the company’s charter have the right to request the company to buy back their shares.
• Shareholders must submit a request within 10 days from the date the resolution/decision is passed. The company must buy back the shares within 90 days from the date of request, at the market price or the price specifically specified in the Company Charter.

According to the company’s decision

• The company has the right to buy back no more than 30% total number of common shares sold, part or all of the dividend preference shares sold.
• The company can buy back shares from each shareholder in proportion to their share ownership ratio in the company according to the prescribed procedures, according to which shareholders agree to sell, the company will buy.

Note the deadline for registering a reduction in charter capital

The company must register to reduce its charter capital corresponding to the total par value of the shares repurchased by the company within 10 days from the date of completion of the payment for the share repurchase.

Reduction of charter capital of a partnership

A partnership may reduce its charter capital by expelling a contributing member from the company and terminating its membership. Specifically as follows:

Not contributing enough and on time as committed

In case a capital contributing member fails to contribute the committed capital in full and on time, the uncontributed capital shall be considered as that member’s debt to the company; the relevant capital contributing member may be expelled from the company according to the decision of the Board of Members.

The general partner is terminated

• Voluntary withdrawal of capital from the company.
• Being expelled from the company in the cases specified in Clause 3, Article 185 of the Law on Enterprises 2020.
• Serving a prison sentence or being banned by the Court from practicing a profession or doing certain work as prescribed by law.
• Death, disappearance, limited or loss of civil capacity, difficulty in cognition and behavior control.
• Other cases as prescribed by the Company Charter.

Reducing charter capital of private enterprises

During the operation, the owner of a private enterprise has the right to decide to reduce his investment capital in the business operations of the enterprise.

However, regardless of the registered investment capital, unlike other types of enterprises, the owner of a limited liability company or joint stock company is only liable to a limited extent within the scope of the capital contributed to the company’s charter capital. As for the owner of a private enterprise, he or she is liable to unlimited liability for the business activities of the private enterprise.

Registration dossier for charter capital reduction in Vietnam

Instructions for capital reduction registration documents:

• Do not handwrite on application forms; do not use staplers to staple applications (use staples); applications and certified copies of personal identification documents, practice certificates, and other accompanying documents must be on A4 paper;
• Enterprises are responsible for registering changes within 10 working days from the date of the Decision (or Resolution) to change and reduce the company’s charter capital.
• Enterprises must register contact phone numbers and arrange business lines according to the Vietnamese Economic Sector System in case the Business Registration Certificate does not have the above information when registering to reduce the company’s charter capital;
• Enterprises must update information on business registration and tax registration in case of any discrepancies when submitting documents to reduce charter capital;
• In case of reducing charter capital for enterprises operating in industries or professions that require legal capital, the enterprise may only register to reduce charter capital if the registered capital level after reduction is not lower than the legal capital level applicable to that industry or profession.
• The company’s financial statements for the period closest to the time of the decision to reduce the charter capital (in case of reducing the charter capital). For companies with foreign ownership of more than 50%, the financial statements must be certified by an independent auditor;

Competent Authority

Once the application is completed, the enterprise can choose one of the following three methods to submit to the Business Registration Office – Department of Planning and Investment where the enterprise is headquartered;

• Submit directly to the Business Registration Office – Department of Planning and Investment;
• Submit by postal service, must have authorization letter for postal service;
• Submit via electronic information network: dangkyquamang.dkkd.gov.vn using a business registration account or public digital signature.

The time limit for processing applications for the reduction of company charter capital

Within 4-6 working days from the date of receiving complete and valid documents, the Business Registration Office – Department of Planning and Investment will issue a certificate of registration for the establishment of a two-member limited liability company to the company.

Enterprises are granted an Enterprise Registration Certificate after reducing the company’s charter capital when meeting all the following conditions:

• The business has registered contact phone number information;
• Business lines registered according to the Vietnam Economic Sector System;
• Have full information on business registration and tax registration on the National Enterprise Information System;
• There is a valid record of change in company capital reduction according to the provisions of law;
• Pay full fees for changing business registration/enterprise registration as prescribed by law.

Declaration form 08, Business license tax declaration

In case the reduction of capital of an enterprise reduces the business license tax that the enterprise must pay, the enterprise needs to carry out the following procedures:

• Declare and submit form 08-MST;
• Submit additional business tax declaration;

Some questions related to reducing charter capital

Can a company that has not completed its tax obligations register for capital reduction?

The company must ensure that when registering to reduce its charter capital, in case of returning the capital contribution to the members in proportion, it must be able to pay its debts. The business registration authority may request the submission of commitments on tax obligations on debts to ensure that the enterprise complies with regulations.

What are the conditions for a company to reduce its charter capital?

• The company is only allowed to return a part of the capital contribution to shareholders according to their share ownership ratio in the company;
• The company has been in continuous business operation for more than 02 years from the date of business registration;
• After paying back shareholders, the company must ensure full payment of all debts and other financial obligations;

What is the responsibility of a member due to failure to contribute capital leading to a reduction in charter capital?

For a limited liability company with two or more members, members who have not contributed capital or have not contributed enough capital as committed shall be responsible in proportion to their committed capital contribution for the company’s financial obligations arising during the period before the date the company registers to change the charter capital and the capital contribution ratio of the members.

For joint stock companies, shareholders who have not paid or have not fully paid for the registered shares must be responsible for the total par value of the registered shares for the company’s financial obligations arising within the period before the date the company registers to adjust its charter capital.

Charter capital change registration service of Viet An Law Firm

• Viet An Law advises on capital reduction conditions for LLCs and Joint Stock Companies;
• Viet An Law advises on appropriate capital reduction ratio according to the provisions of the law;
• Viet An Law advises businesses on conditions, procedures, and processes for reducing charter capital;
• Viet An Law advises businesses to prepare financial statements by business operations and legal regulations to qualify for reducing charter capital of LLCs and joint stock companies;
• Viet An Law drafts documents to change and reduce charter capital for enterprises;
• Viet An Law represents and submits on behalf of clients the application for changing and reducing the company’s charter capital to the competent state agency.
• Consulting businesses on procedures after capital reduction in LLCs and joint stock companies;

We are always proud to be chosen by many domestic and foreign clients. With many years of experience in corporate legal consulting, Viet An Law Firm always wants to provide the best legal services to clients and based on research, as well as in-depth experience, Viet An Law Firm will advise and find out the current legal problems of the business to provide the best solution for clients when reducing charter capital. Please contact us for the best support.