Issue 021121 – Procedures for increasing/decreasing charter capital of a joint-stock company

Dear Valued Clients,

Charter capital of a joint-stock company is the total of nominal values of the sold or subscribed shares when a joint-stock company is established. During the company’s operation, the charter capital can be changed, either increased or decreased, depending on the business operations as well as demands of the company. The following article will point out cases of the charter capital amendment and provide instructions to implement such procedures in a joint-stock company in accordance with the 2020 Law on Enterprises and other relevant legal documents.

Cases of charter capital increase

• • Offer to sell new shares to mobilize more capital by the following methods: (i) Selling shares to existing shareholders; (ii) Public offering; and (iii) Private offering.
  • Convert issued bonds into shares.
  • Pay dividends by shares.

Cases of charter capital decrease^[1]

• • • Redeeming part of the contributed capital to shareholders in proportion to their holdings in the company under 02 conditions: (i) the company has operated for at least 02 consecutive years from the enterprise registration date; and (ii) the company is able to fully pay its debts and other liabilities after the return of capital to shareholders.
    • Redemption of issued shares upon demand by shareholders^[2].
    • Redemption of issued shares pursuant to the company’s decision^[3].
    • Shareholders fail to sufficiently contribute to the charter capital within a 90-day period from the date of the Enterprise Registration Certificate’s issuance, or otherwise prescribed in the company’s Charter or in the share subscription contracts.

Charter capital amendment notes

• • • Modifying charter capital also means adjusting the contents of the Enterprise Registration Certificate. The company is liable for submitting documents for registering modification on the contents (regarding charter capital) of the Enterprise Registration Certificate to the Department of business registration where the company’s head office is located^[4] within 10 working days from the amendment date^[5].
    • If the increase of charter capital leads to the change of the license tax rate (excess 10 billion VND), the company must prepare and submit license tax declaration for the next year^[6], no later than January 30 in the following year of the modification year^[7].

Procedures for increasing charter capital

Beside the general procedures hereinabove, a joint-stock company needs to perform several additional procedures in some certain cases as follows:

1.  Shares offering to existing shareholders of a non-public joint-stock company^[8]

The company shall send a written notification by express mail to the shareholders’ mailing addresses written in the shareholder register at least 15 days before the deadline for subscribing for shares.

Enclosed with the abovementioned written notification is a share subscription form issued by the company. In case the form is not sent to the company on time according to the notification, shareholders will be deemed to refuse the preemptive right to purchase shares.

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

2.  Private share offering of a non-public joint-stock company^[9]

Conditions: (i) The offering is not made through mass media; and (ii) Shares are offered to fewer than 1investors, excluding professional securities investors or only offered to professional securities investors.

The company shall issue a decision on private placement of shares and carry out other procedures as specified at points b and c, sub-section “Offering shares to existing shareholders of a non-public joint-stock company” hereof.

Note: Private placement of shares to foreign investors shall be implemented according to the procedures for purchasing shares in the Law on Investment.

3.  Public share offering

After meeting the conditions for offering shares (stocks) to the public^[10], a joint-stock company needs to submit an application for registration for a public offering of securities^[11] together with the decision of the Board of Directors on approving the application to the State Securities Commission.

After obtaining the Certificate of Registration for the public offering of securities, within 7 working days from the effective date of this Certificate, the company shall announce the issuance on 01 online newspaper or 03 issues of a physical newspaper^[12].

Subsequently, the company can initiate a public offering and transfer money to its opened escrow account(s)^[13].

4.  Public share offering Convert issued bonds into shares

In this case, the joint-stock company may issue convertible bonds, a type of bond that can be converted into ordinary shares under the terms and conditions specified in the bond issuance plan^[14].

5.  Payment of dividends in shares^[15]

In this case, a joint-stock company does not have to carry out the procedures for offering shares, instead, it is mandatory to register an increase in charter capital corresponding to the total par value of shares used to pay dividends.

Procedures for decreasing charter capital

Redemption of shares at the request of shareholders^[16]

This case only applies to shareholders who have voted against the resolution on the reorganization of the company or the change of rights and obligations of shareholders as stipulated in the company’s charter.

These shareholders must send a written request for the redemption of shares to the company within 10 days from the date the General Meeting of Shareholders passes the resolution on the above issues.

The company must redeem shares upon the request at the market price or the price calculated according to the principles specified in the company’s charter within 90 days from the date of receipt of the request. If the price cannot be reached, the parties may request a price appraisal organization (out of at least 03 price appraisal organizations introduced by the company) to make a final decision.

Redemption of shares at the request of the company^[17]

• • • A joint-stock company has the right to redeem up to 30% of the total ordinary shares, part or all of the sold dividend preference shares in the following cases:
    • The Board of Directors has the right to decide to redeem up to 10% of the total number of shares of each type sold within 12 months. In other cases, the redemption of shares shall be decided by the General Meeting of Shareholders.

The Board of Directors decides the share redemption price. For ordinary shares, the redemption price must not exceed the market price at the time of redemption, unless the case of redemption of shares by each shareholder in proportion to their holding in the company^[18]. For other types of share, unless otherwise provided for in the company’s Charter or the company and related shareholders do not otherwise agree, the redemption price must not be lower than the market price.

Kind regards,

ENT Law LLC

The full version of this Legal Article can be found here.

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[1] Under Article 112.5 of the 2020 Law on Enterprises.

[2] Under Article 132 of the 2020 Law on Enterprises.

[3] Under Article 133 of the 2020 Law on Enterprises.

[4] The components of the documents are stipulated in Article 51.1 of the Decree No. 01/2021/ND-CP on enterprise registration.

[5] Under Article 31.2 and Article 123.4 of the 2020 Law on Enterprises.

[6] Under Article 4 of the Consolidated Document No. 20/VBHN-BTC on license tax.

[7] Under Article 5.4 of the ConsolidateNo. 20/VBHN-BTC on license tax.

[8] Under Article 124 of the 2020 Law on Enterprises.

[9] Under Article 125 of the 2020 Law on Enterprises.

[10] Under Article 15 of the 2019 Law on Securities.

[11] The application components are stipulated in Article 18 of the 2019 Law on Securities.

[12] Under Article 25.3 of the 2019 Law on Securities.

[13] Under Article 25.4 of the 2019 Law on Securities.

[14] The process of offering convertible bonds is implemented in accordance with Article 11.2 of the Decree 153/2020/ND-CP dated December 31, 2020 prescribing private placement and trading of private placed corporate bonds in the domestic market and offering of corporate bonds in the international market.

[15] Under Article 135.3 of the 2020 Law on Enterprises.

[16] Under Article 132 of the 2020 Law on Enterprises.

[17] Under Article 133 of the 2020 Law on Enterprises.

[18] Under Article 133.3 of the 2020 Law on Enterprises.