Conditions for reducing charter capital in joint stock companies

Reducing charter capital in joint stock companies is a process an enterprise carries out to adjust its capital contribution. This process needs to comply with the Law on Enterprises 2020 and the company charter when there is a need to change. Basically, the change requires shareholder consensus, approval from competent authorities and ensuring minimum requirements. Capital reduction may impact business operations. This article analyzes the conditions for reducing charter capital that joint stock companies need to meet.

Reducing charter capital in joint stock companies

What is charter capital in a joint stock company?

Charter capital in a joint stock company is the total par value of shares sold or registered to buy when establishing the business. This is the minimum amount of capital that a joint stock company must have to conduct business activities. The charter capital is recorded in the company charter and registered with the business registration agency. In a joint stock company, charter capital is the total par value of all types of shares sold.

Based on the content in: Clause 34, Article 4 of the Law on Enterprises 2020

A joint stock company can change its charter capital during its business operations. The increase or decrease in charter capital must comply with the provisions of law and the company’s Charter. Changing charter capital directly affects the rights of shareholders and the ability to invest and do business of the enterprise.

Cases of reducing charter capital in joint stock companies

Return capital contributions to shareholders

A joint stock company can reduce its charter capital by returning part of its capital contribution to shareholders. This refund will only be made when the company has been in continuous business operation for more than 2 years from the date of establishment registration. The prerequisite is that the company still ensures payment of all debts and other property obligations after repaying shareholders.

The return of contributed capital must ensure fairness among shareholders. The return rate must correspond to the shareholder’s share ownership ratio in the company. After repayment, the company must register the adjustment of charter capital with the business registration agency.

Based on the content in: Clause 5, Article 112 of the Law on Enterprises 2020

The company buys back issued shares

A joint stock company can reduce its charter capital by buying back issued shares. However, the company can only buy back shares when it meets the financial conditions and implementation process.

The law stipulates two cases of share repurchase:

• At the request of shareholders
• As decided by the company.

When repurchasing at the request of shareholders, the company must repurchase within 90 days from the date of receipt of the request. The repurchase price is agreed upon by both parties or decided by the Board of Directors if no agreement can be reached.

Share repurchases must ensure principles of fairness and transparency. The company must disclose information about share repurchases to all shareholders. The number of shares to be repurchased must not exceed 30% of the total number of common shares sold, except in the case of repurchasing fractional shares according to the plan to issue shares to pay dividends or issue shares from equity sources. own.

After repurchasing shares, the company must register to reduce its charter capital corresponding to the total par value of the shares repurchased by the company. Share repurchases can affect the shareholder structure and voting rights in the company. The Board of Directors needs to consider carefully before implementing this option.

Based on the content in: Article 132, Article 133 of the Law on Enterprises 2020

Shareholders do not pay in full and on time

A joint stock company can reduce its charter capital when shareholders do not pay in full and on time for the shares they registered to buy. This is an unfortunate case when shareholders violate their capital contribution obligations.

In this case, the company must send a notice requesting shareholders to pay for the outstanding shares. The notice must clearly state the new payment deadline, payment location and amount to be paid. If shareholders still do not pay, the company has the right to recover the unpaid shares.

After recovering the unpaid shares, the company becomes the owner of these shares. The company can resell the revoked shares according to the provisions of the company’s charter. If it cannot be sold, the company must register to reduce its charter capital corresponding to the total par value of the shares recovered by the company.

Based on the content in: Article 113 of the Law on Enterprises 2020

Procedures for reducing charter capital in joint stock companies

Profile components

Decree 01/2021/ND-CP stipulates documents for changing charter capital of joint stock companies. Accordingly, the application for charter capital reduction for a joint stock company will include the following documents:

• Notice of change in business registration content registered by the legal representative of the enterprise (according to the Form specified in Appendix II-1 issued under Circular 01/2021/TT-BKHDT);

>>> Download: Form Appendix II-1 issued under Circular 01/2021/TT-BKHDT

• Decision of the General Meeting of Shareholders on reducing charter capital;
• Valid copy of the meeting minutes of the General Meeting of Shareholders on the reduction of charter capital;
• Commitment letter to ensure full payment of debts and other property obligations after capital reduction.

Notice of change in business registration content

Procedural procedure

Step 1: Submit application

There are 2 ways to submit applications, specifically:

• Method 1: Submit your application directly at the one-stop shop of the Business Registration Office under the Department of Planning and Investment where the enterprise is headquarter.
• Method 2: Register online at the National Information Portal on business registration using a public digital signature or use a business registration account (for Hanoi and Ho Chi Minh City, you must register via network).

Step 2: Receive and process documents

Step 3: Get results

• Processing time: 03 (three) working days from receipt of complete documents.

Consulting on procedures for reducing charter capital in joint stock companies

Long Phan provides in-depth consulting services on conditions and processes for reducing charter capital in joint stock companies, to help businesses implement these changes effectively and legally. We are committed to providing comprehensive solutions, protecting rights and strictly complying with current legal regulations.

With a deep understanding of corporate law and extensive practical experience, Long Phan’s consulting team ensures to bring the most suitable solutions for each case of charter capital reduction. We not only advise on reducing charter capital in joint stock companies but also support the implementation of related legal procedures, ensuring accuracy and transparency in the implementation process.

Consulting on reducing charter capital in joint stock companies

Reducing charter capital is an important decision of a joint stock company, affecting business and investment activities. Businesses need to consider carefully before implementing, ensuring shareholder rights and operational capabilities. To avoid legal risks, you should consult experts at Long Phan to understand more about the conditions for reducing charter capital in joint stock companies in your case. For further information, you can contact via hotline: 090.673.5386 for the best support.