Understanding ‘charter capital’
Charter capital of a Multiple-member Limited Liability Company means the total value of assets contributed or committed to be contributed by its members upon establishment of the company.
Charter capital of an enterprise is formed by various assets contributed as capital by its members, such as money, property rights, intellectual property rights, etc.
Charter capital is the basis for determining ratios of contributed capital, rights, interests, and obligations of members in the enterprise.
Clause 29 Article 4 of the 2014 Law on Enterprises
Cases of charter capital increase
Increasing capital contributed by members.
The to be additionally contributed capital will be allocated to members in proportion to their contributed capital amount in the company’s charter capital.
In case where members object the decision to increase the charter capital, their to be additionally contributed capital amount will be divided among other members in proportion to their respective contributed capital amounts in the company’s charter capital, unless otherwise agreed by the members.
The initial charter capital of Sky Company is a total of USD1,000,000 , of which Peter contributes USD250,000, Mary USD250,000, and John USD500,000 (respective ratio is 1:1:2).
The company decides on an increase of charter capital of USD600,000, which is divided among the members as follows: Peter USD150,000, Mary USD150,000, and John USD300,000.
Provided that Peter rejects the decision to increase charter capital, the extra amount to be contributed by him (USD150,000) will be divided among Mary and John following the 1:2 ratio, which means Mary is to contribute an addition of USD50,000 and John USD100,000. Consequently, after capital increase:
- Total charter capital: USD1,000,000 + USD600,000 = USD1,600,000
- Peter: USD250,000
- Mary: USD250,000 + USD150,000 + USD50,000 = USD450,000
- John: USD500,000 + USD300,000 + USD100,000 = USD900,000
Accept the capital contribution of new members.
Article 68 of the 2014 Law on Enterprises
Cases of charter capital decrease
Returning part of the contributed capital to members in proportion to their respective capital contribution ratios in the company’s charter capital if:
- the company’s business operations have been carried out continuously for more than 2 years from the date of enterprise registration; and
- all debts and other property obligations are ensured to be fully paid after returning part of the contributed capital to members.
Redemption of contributed capital amounts at the members’ request.
Members may request the company to redeem their contributed capital amount if disagreeing with a resolution of the Members’ Council regarding:
- Amendment and supplementation to the Company Charter related to the rights and obligations of members and of the Members’ Council;
- Reorganization of the company;
- Other cases provided in the Company Charter.
A request for redemption of contributed capital amounts must be made in writing and sent to the company within 15 days after a resolution is passed.
Upon receiving the members’ request, the company will redeem their contributed capital amounts at the market price or at the price calculated in accordance with the principles provided by the Company Charter within 15 days after receiving such request.
Payment can only be made if, after fully paying the redeemed contributed capital amounts, the company can still pay all debts and other financial obligations.
In case the company does not redeem the contributed capital amounts, members reserve the right to freely transfer their contributed capital amounts to another member or a non-member.
Members fail to make sufficient capital contribution within 90 days after the Enterprise Registration Certificate is granted.
In this situation, the company needs to register to adjust the charter capital and capital contribution ratios of its members pursuant to the already-contributed capital amount within 60 days after the above-mentioned 90 days.
Members who fail to contribute the full capital amount as previously committed must be held liable (in proportion with their committed capital amounts) for the company’s financial obligations that arise before the date of registration for decrease of charter capital and members’ contributed capital amounts.
A person committed to make a USD250,000 capital contribution to a limited company. but only managed to provide USD150,000 by the end of the 90-day period (on September 1st). The company will proceed to register its charter capital on October 1st.
He is responsible for the company’s financial obligations that arise before October 1st, pursuant to his committed capital contribution (5 billion VND).
In the event where changing the capital amounts contributed by members causes only one member to remain, the company must be converted into a Single-member limited liability company.
Article 48, 52, and 68 of the 2014 Law on Enterprises
Procedures of charter capital modification (adjustment of contents of Enterprise Registration Certificate)
Modifying charter capital of a limited liability company means also adjusting the contents of the Enterprise Registration Certificate.
The Members’ Council 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.
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
Dossier of registration for charter capital modification
The application dossier for charter capital modification is quite plenty.
Should investors wish to have M&A Vietnam 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 Members’ Council 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 to or purchase contributed capital from a multiple-member limited liability company in Vietnam, in addition to the listed documents, a written approval from the Department of Planning and Investment on capital contribution and purchase of contributed capital made by foreign investors must also be obtained.
Clause 2 Article 44 of Decree 78/2015/ND-CP