Issue 031121 – Procedures for increasing/decreasing charter capital of a limited liability company

Dear Valued Clients,

Charter capital of a limited liability company is the total value of assets that have been contributed or promised by the members/the owner when a limited liability 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 shall point out several options of charter capital amendment and provide guidance on implementing such procedures in a limited liability company in accordance with the 2020 Law on Enterprises and other relevant legal documents.

Procedures for increasing/decreasing charter capital[1]

A limited liability company (“LLC”) increases its charter capital in the following cases:

1.  Increase capital contribution of the existing members (for multi-member LLCs)/the owner (for single-member LLCs).

For a multi-member LLC, the increase will be distributed among the members in proportion to their holdings in the company. Members may transfer their right to contribute capital to other persons. In case a member does not contribute or only contributes a part of the additional capital, the remaining capital of that member’s additional capital contribution shall be divided among other members in proportion to their holdings in the company unless otherwise agreed by the members.

2.  Receipt of capital contribution from new members.

Particularly for single-member LLCs, if the charter capital is increased by mobilizing additional capital contributions from other people, the company must organize as a multi-member LLC or a joint-stock company. The organization of the company shall be performed as follows:

• • In the form of a multi-member LLC, the company must inform the change of business registration information within 10 days from the date of completion of the change.
  • In the form of a joint stock company, the company must register with the Business Registration Office within 10 days from the date of the conversion completion.

A LLC decreases its charter capital in the following cases:

1.  Redeem a part of contributed capital to the members/the owner, upon the following conditions:

• • The company has operated for at least 02 consecutive years from the enterprise registration date
  • The company is able to fully pay its debts and other liabilities after the return of capital to the members/the owner

2.  A multi-member LLC redeems the capital contribution of the members.

The redemption of contributed capital is performed only in case the members vote against the resolution or decision of the Members’ Council on specific issues[2].

Those members must send a written request for the redemption of the contributed capital to the company within 15 days from the date of the issuance of such resolution or decision.

Within 15 days from the date of the request receipt, the company must redeem the contributed capital of the members at the market price or the price determined according to the principles specified in the company’s Charter, unless the two parties agree otherwises. The payment can only be made if after the adequate redemption, the company still be able to  fully pay all debts and other property obligations.

In case the company fails to redeem the requested contributed capital, such members have the right to freely transfer their contributed capital to other members or persons who are not members of the company.

3.  The members/owner of the company fails to adequately contribute the charter capital within 90 days from the issuance date of the Enterprise Registration Certificate.

Notes on the adjustment of charter capital

1.  Adjusting the charter capital means adjusting the contents of the Enterprise Registration Certificate.

Unless the members/the owner of the company fails to adequately and promptly contribute the charter capital, the company is responsible for submitting an application for registering the change in the content (related to the charter capital) of the Certificate of Business Registration to the Business Registration Office where the company’s head office is located[3] within 10 days from the date the increase or decrease of the charter capital has been paid[4].

Particularly for the case of a multi-member LLC, there must be the resolution, decision and meeting minutes of the Members’ Council attched to the notice; In case of charter capital decrease by returning or redeeming the contributed capital, the latest financial statement must be provided.

2.  If the increase of charter capital leads to the change of the company’s license tax rate (in excess of VND 10 billion), the company must prepare and submit a license tax declaration for the following year[5], no later than January 30 of the following year. increase charter capital[6].

Kind regards,

ENT Law LLC

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

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[1] Under Articles 68 and 87 of the 2020 Law on Enterprises.

[2] Under Article 51.1 of the 2020 Law on Enterprises, those issues are:

a) Amendments of the company’s Charter related to the rights and obligations of the members and the Board of Members;

b) Reorganization of the company;

c) Other issues prescribed in the company’s Charter.

[3] The application components are stipulated in Article 51 of the Decree No. 01/2021/ND-CP on enterprise registration.

[4] Under Articles 31.2, 68.4 and 68.5 of the 2020 Law on Enterprises.

[5] Under Article 4 of the Decree No. 139/2016/ND-CP dated 04/10/2016, amended and supplemented by Decree No. 22/2020/ND-CP dated 24/02/2020 on license tax.

[6] Under Article 5.4 of the Decree No. 139/2016/ND-CP dated 04/10/2016, amended and supplemented by Decree No. 22/2020/ND-CP dated 24/02/2020 on license tax.