PLF Tutorials

LEGAL TUTORIALS FOR DOING BUSINESS IN VIETNAM

Charter capital increase and decrease in Joint Stock Companies in Vietnam


Understanding ‘charter capital’

Charter capital of a Joint Stock Company is the total par value of sold shares.

Charter capital of a Joint Stock Company at the time of establishment is the total aggregate par value of shares registered for subscription and recorded in the Corporate Charter.  

Charter capital of an enterprise is formed by various assets contributed as capital by its shareholders, such as money, property rights, intellectual property rights, etc.

Charter capital is the basis for determining ownership ratio of shares, rights, interests, and obligations of shareholders in the enterprise.

Clause 29 Article 4 and Clause 1 Article 111 of the 2014 Law on Enterprises
 

Cases of charter capital increase

Offer to sell new shares to mobilize more capital through the following methods:

  • Selling shares to existing shareholders.

This is when a company increases the number of shares permitted to be offered for sale and sells all said shares to all shareholders in proportion to the respective ratios of shares they hold in the company.
  • Public offering
This will be implemented in accordance with laws on securities.
  • Private offering.

Convert issued bonds into shares.

In this case, a joint stock company can issue convertible bonds, a type of bonds able to be converted into ordinary shares following the conditions set forth in the bond issuance plan.

Pay dividends by shares.

In this respect, the company is not required to carry out procedures of shares offering; rather, registration for charter capital increase in correspondence with the total par value of shares used to pay dividends is compulsory.

Article 122, 124, and 127 of the 2014 Law on Enterprises
 

Cases of charter capital decrease

Returning part of the contributed capital to shareholders in proportion to their respective shares ownership ratios in the company when the following 2 conditions are met:

  • business operations have been carried out continuously for more than 2 years from the date of enterprise registration, and

  • debts and other property obligations are ensured to be paid in full after returning part of the contributed capital to the shareholders.

Redemption of issued shares upon demand by shareholders

Redemption of issued shares pursuant to the company’s decision

Joint stock companies have the right to repurchase no more than 30% of total ordinary shares sold.

Joint stock companies are entitled to redeem part or all of the dividend preference shares sold in the following cases:

  • The Board of Management has the right to decide to redeem no more than 10% of the total number of shares of each category already offered within a period of 12 months. In other cases, repurchase of shares will be decided by the General Meeting of Shareholders.
  • The Board of Management will decide on the price for redemption of shares.

The price for redemption of ordinary shares must not be higher than the market price at the time of redemption.

With respect to shares of other classes, the price for redemption must not be lower than the market price.

  • The company can redeem shares of each of the shareholders in proportion to their shares ownership ratios in the company.

Shareholders fail to sufficiently contribute to the charter capital within a 90-day period after being granted the Enterprise Registration Certificate.

Article 129, 130, and 132 of the 2014 Law on Enterprises
 

Things to know when changing charter capital

Modifying charter capital means also adjusting the contents of the Enterprise Registration Certificate.

The General Meeting of Shareholders of a joint stock company will decide on the method(s) as well as how much to increase/decrease the charter capital.

The company’s legal representative is liable for registering content modification (regarding charter capital) of the Enterprise Registration Certificate within 10 working days when there are any changes.

charter-capital-increase-and-decrease-in-multiple-member-limited-liability-companies-in-vietnam


After adjusting the charter capital, this information must be posted on the National Business Registration Portal.

Change of charter capital may lead to change of license tax rate; the company is obliged to redeclare and resubmit the license tax declaration to relevant tax authorities.

If increasing charter capital also causes the license tax rate to change, the company must prepare and submit license tax declaration for the next year.

In this case, the deadline for license tax declaration is not clearly stipulated in current regulations, though previously prescribed by past provisions to be December 31st of the year of charter capital increase. However, tax authorities still apply said milestone while waiting for specific regulations and guidelines from competent authorities.

Clause 2 Article 6 of Decree 139/2016/ND-CP
 

Regulations on procedures of charter capital increase

Apart from the general procedures, companies are expected to carry out additional procedures in certain circumstances.

Shares offering to existing shareholders

The company must inform its shareholders by sending registered mails (to the addresses provided in the Register of Shareholders) at least 15 days before the deadline of registration of shares purchase.

Enclosed with the abovementioned written notification is a registration form to purchase shares issued by the company. Unless the form is submitted to the company within the notified time limit, shareholders will be deemed to have not accepted the preemptive right to purchase shares.

Shareholders are entitled to transferring their preemptive purchase right to others.

If the number of shares intended to be offered is not fully purchased by transferee(s) of the preemptive purchase right, the company may sell the remaining shares to others, provided that the conditions applied are not more favorable than those offered to shareholders.

Article 124 of the 2014 Law on Enterprises

Private offering

Within 5 working days after the company issues a decision on the private offering, it must be notified to the Business Registration Office.

Attached with the private offering are:

  • The resolution of the General Meeting of Shareholders on the private offering;
  • The private offering plan approved by the General Meeting of Shareholders (if any).

The company reserves the right to proceed with the sale of shares after 5 working days from the date of sending the notice in case no objection from the Business Registration Office was issued.

Article 123 of the 2014 Law on Enterprises

Public offering

The issuing company (the “issuer”) files a dossier of application for public offering with the State Securities Commission.

The State Securities Commission then receives and examines the dossier. In case of any lack of information, the Commission will send a written notice requesting for adjustment or supplementation.

The issuer has 60 days to modify or append the dossier from the date of receipt of said notice. Thereafter, if the issuer fails to do so, the State Securities Commission will end its consideration of the application.

In the event where the dossier is deemed sufficient and valid, the State Securities Commission will send a notice to the issuer.

Within 3 working days upon receiving the above-mentioned notice, the issuer must provide the State Securities Commission with 6 originals of the Official Prospectus to fulfill the formalities for Certification of public offering registration.

Within a time limit of 7 days after the Certificate of public offering registration takes effect, the issuer is required to publish a notice of public offering on 3 consecutive issues of nation-wide online or print newspapers.

The company can then begin the public offering and transfer money to escrow account(s) opened.

The issuer must report to the State Securities Commission about the public offering result within 10 days from the end of the offering, included with a written confirmation from the bank, by which the issuer’s escrow account(s) was opened, affirming the amounts gained from the offering.

In case capital is increased through converting issued bonds into shares, procedures will be carried out similarly to those of a public offering.

In case capital is increased through dividends payment by shares, the company is not expected to implement shares offering procedures.

Clause 1 Article 13, Clause 5 Article 21, Clause 3 Article 22 of the 2006 Law on Securities and 2010 Law Amending, Supplementing A Number of Articles Of Law On Securities.

Article 5, 22, 23, and 24 of Circular 162/2015/TT-BTC

 

Regulations on procedures of charter capital decrease

Redemption of shares at the request of shareholders

Shareholders voting against the resolution on reorganization of the company or against a change in the rights and obligations of shareholders provided in the Corporate Charter have the right to request the company to redeem their shares.

Such request must be made in writing and sent to the company within 10 days after the General Meeting of Shareholders passes a resolution.

The company is obliged to redeem the shares requested by shareholders at the market price or a price determined based on the principle provided in the Corporate Charter within 90 days after receiving the request.

In case the parties fail to reach an agreement on a price, they may request valuation by a professional valuation organization.

The company needs to recommend at least 3 professional valuation organizations for the shareholders to select from and such selection is the final decision.

Article 129 of the 2014 Law on Enterprises

Redemption of shares pursuant to a decision of the company

The decision to redeem shares of the company must be notified through sending registered mails to shareholders within 30 days after such decision is passed.

Shareholders who agree to have their shares redeemed will send a “shares offering” through registered mail to the company within 30 days from the date of notification. The company only redeems offered shares within the above-mentioned time limit.

Article 130 of the 2014
Law on Enterprises

 

Dossier of registration for charter capital modification

The dossier of application for charter capital modification is quite plenty.

Should investors wish to have PLF represent in implementing all procedures to increase/decrease charter capital, they only need to provide:

  • The decision and legitimate copy of the minutes of meeting of the General Meeting of Shareholders on the increase/decrease of charter capital;
  • The company’s latest financial statements, closest to the time of decision of charter capital decrease;
  • Information of the applicant;
  • The original or notarized copy of the Enterprise Registration Certificate.

In case where foreign investors contribute capital or purchase shares of a joint stock company in Vietnam, in addition to the listed documents, a written approval from the Department of Planning and Investment on capital contribution and shares purchase made by foreign investors must also be obtained.

Clause 2 Article 44 of Decree 78/2015/ND-CP

Instructions on related forms and preparation procedures for the above documents will be provided by PLF. For more information, please contact:
Tổ chức, tham gia hội chợ, triển lãm thương mạiPLF LAW FIRM
12th Floor, Ruby Tower, 81-85 Ham Nghi Street, District 1, Ho Chi Minh City, Vietnam.

Tel: +8428 3821 2161
Email: legal@plf.vn

Business hours:
8AM - 5.30PM (UTC+7)
Monday - Friday

Feedback or Questions