Reducing Charter Capital of Joint Stock Companies in Vietnam

Regulations on reducing charter capital of joint stock companies in Vietnam according to the 2020 Enterprise Law.

Is Reducing Charter Capital Allowed?

Joint-stock companies in Vietnam are permitted to reduce their charter capital under specific conditions and procedures as regulated by Vietnamese law, specifically the 2020 Enterprise Law. The reduction of charter capital can be carried out for purposes such as financial restructuring, eliminating unnecessary charter capital after losses have been addressed, or to more effectively meet the real needs of business operations.

Cases for Reducing Charter Capital of Joint Stock Companies in Vietnam

According to Article 112, paragraph 5 of the 2020 Enterprise Law, cases of charter capital reduction for joint-stock companies include:

• The company returns a portion of the capital contribution to shareholders proportionally to their shareholding in the company. In this case, the company must have been continuously operating for at least two years and ensure full payment of debts and other obligations after the reduction of charter capital. The decision to reduce charter capital in this case is approved by the General Meeting of Shareholders.
• The company repurchases shares it has sold at the request of shareholders (in cases where shareholders have voted not to approve resolutions on corporate reorganization or changes to shareholders’ rights as stated in the company’s charter that require the company to repurchase their shares) or repurchases shares based on the company’s decision.
• The registered charter capital has not been fully and timely paid by the shareholders within 90 days from the date of issuance of the business registration certificate.

Regulations for Reducing Charter Capital of Joint Stock Companies in Vietnam

In Vietnam, the reduction of charter capital of a joint-stock company can be implemented in the following cases as regulated by the Enterprise Law and related guiding documents:

• Financial Restructuring: A company may decide to reduce its charter capital to restructure its finances to more accurately reflect its financial situation or adjust the capital ratio in line with actual business needs and operations.
• Withdrawal of Unissued Shares or Treasury Shares: If a company has decided to withdraw unissued shares or treasury shares without plans for reissuing, reducing charter capital can be carried out to adjust the charter capital value accordingly.
• Loss Handling: When a company wishes to address parts of the capital that have incurred losses in the past, reducing the charter capital can be part of a loss handling plan, adjusting the charter capital to a lower level to accurately reflect the company’s financial situation.
• Optimizing Capital Structure: A company may decide to reduce its charter capital to optimize its capital structure, such as reducing unnecessary capital ratio to enhance capital usage efficiency and optimize profits for shareholders.
• Mergers, Acquisitions, or Division of Companies: In case a company participates in mergers, acquisitions, or splits, reducing charter capital may be part of the restructuring process to accurately reflect the size and capital needs of the company after completing these processes.
• Other: There may be other cases where, according to the assessment and decision of the Board of Directors or the General Meeting of Shareholders, reducing charter capital is necessary to serve the best interests of the company and its shareholders.

In all cases, the process of reducing charter capital must comply with legal regulations, including approval at the General Meeting of Shareholders, notifying creditors, and carrying out registration procedures for changes with competent state authorities.

Procedure for Reducing Charter Capital of Joint Stock Companies in Vietnam

In Vietnam, the procedure for reducing the charter capital of joint-stock companies is mainly regulated within the Enterprise Law and its implementing documents. The reduction of charter capital is carried out according to specific principles and procedures as follows:

• Reason for Reduction: A joint-stock company may decide to reduce its charter capital for several reasons such as financial restructuring, cancellation of shares to increase business efficiency, or after having addressed all debts and financial obligations.
• Decision to Reduce: The reduction of charter capital must be approved by the company’s General Meeting of Shareholders. This decision needs to achieve a certain minimum vote ratio as stipulated by the company’s charter or by law.
• Notification and Protection of Creditors: The company must publish information about the reduction of charter capital in mass media and directly notify creditors. This regulation ensures the protection of creditors’ interests, allowing them to request the company to pay off debts or provide payment guarantees before reducing capital.
• Notification Period: There is a specific period from the notification to the implementation of the capital reduction to ensure that creditors have enough time to submit their requests to the company.
• Implementation of Reduction: After notifying and addressing creditor requests, the company proceeds with the necessary procedures to formally reduce the charter capital, including adjusting the Business Registration Certificate and publishing reduction information as regulated.
• Update and Registration: The company needs to update information about the charter capital after reduction in the Business Registration Certificate and register this change with the business registration authority.

The specific process and regulations may change over time and should be directly referenced from the latest legal documents or professional legal advice to ensure compliance with the law and protect the interests of all related parties.