Conditions for reducing charter capital of joint stock companies according to regulations

Conditions for reducing charter capital of joint stock companies play an important role when businesses want to reduce charter capital and adjust operating scale and financial structure. The reduction of charter capital must comply with strict legal conditions and procedures, ensuring not affect the rights of shareholders and ensuring the company’s financial obligations to related parties. In the following article, Long Phan provides detailed information about the conditions and procedures for reducing charter capital.

Regulations on reducing charter capital of joint stock companies

According to the provisions of Clause 5, Article 112 of the  Law on Enterprise 2020, a joint stock company can reduce its charter capital in the following cases:

• Return a portion of capital contribution to shareholders in proportion to their share ownership in the company.
• Buy back sold shares at the request of shareholders or according to the company’s decision.
• Charter capital has not been paid in full and on time by shareholders.

These regulations are intended to ensure that changes in charter capital do not affect the company’s ability to pay debts and property obligations.

Conditions for reducing the charter capital of a joint stock company for each specific case

In case the company returns a portion of capital contribution to shareholders according to the share ownership ratio

According to the provisions of Article 112 of the Law on Enterprise 2020, a joint stock company can reduce its charter capital through returning a portion of contributed capital to shareholders, but must ensure the following conditions:

• The company must operate business continuously for 2 years or more from the date of business registration.
• After returning capital to shareholders, the company must ensure full payment of debts and other property obligations.

In case the company buys back sold shares

The company can reduce its charter capital through repurchasing issued shares, divided into two cases:

At the request of shareholders: Shareholders have the right to request the company to buy back their shares in the following cases:

• Shareholders do not agree with resolutions on changes to rights and obligations in the company.
• Requests to buy back shares must be submitted in writing within 10 days from the date the General Meeting of Shareholders passed the resolution.
• The company must buy back shares at the request of shareholders at the market price or price according to the principles in the company charter within 90 days of receiving the request.
• If a price cannot be agreed upon, the parties can request a price appraisal organization. The company must introduce at least 03 valuation organizations for shareholders to choose from, and the shareholder’s decision is final.

According to the company’s decision: The Company has the right to repurchase no more than 30% of the total number of common shares sold and part or all of the dividend preference shares sold, according to the following provisions:

1. Decision rights of the Board of Directors:

• The Board of Directors has the right to decide to buy back no more than 10% of the total number of shares of each type sold within 12 months.
• In other cases, the repurchase of shares must be decided by the General Meeting of Shareholders.

2. Decide on share repurchase price:

• The Board of Directors decides the share repurchase price. For common shares, the repurchase price must not be higher than the market price at the time of repurchase, except for the case specified in Clause 3 of this Article.
• For other types of shares, if the company charter does not stipulate or the company and relevant shareholders have no other agreement, the repurchase price must not be lower than the market price.

3. Buy back shares according to the ratio of share ownership: The company can buy back shares from each shareholder in proportion to their share ownership ratio in the company.

CSPL: Articles 132, 133 of the Law on Enterprise 2020.

In case the charter capital is not paid in full and on time by shareholders

• In case shareholders do not pay in full and on time for the shares registered to buy, the company must reduce its charter capital according to Article 113 of the Law on Enterprises 2020.
• Specifically, the company must register to reduce its charter capital by the par value of the fully paid shares within 120 days after issuance of the Business Registration Certificate.

In some cases, companies are not allowed to register to reduce charter capital

According to the provisions of Clause 1, Article 65 of Decree 01/2021/ND-CP, businesses are not allowed to register or notify changes in business registration content in the following cases:

• The enterprise has its Business Registration Certificate revoked according to the decision of the Business Registration Office.
• The enterprise is in the process of dissolution according to the decision of the competent authority.
• At the request of the Court, Enforcement Agency or investigation agency.
• The enterprise is no longer doing business at the registered address.

Consulting services on conditions for reducing charter capital for businesses

At Long Phan, we provide consulting services conditions for reducing charter capital and support businesses in completing documents and capital reduction registration procedures in accordance with the law. Our services include:

• Consulting on regulations related to reducing charter capital.
• Consulting on conditions for businesses to reduce charter capital.
• Consulting on repurchasing shares from shareholders in the enterprise.
• Support in drafting and preparing related documents to reduce charter capital.
• Representing customers to submit applications and work with competent authorities.
• Consulting on other relevant regulations and procedures.

Meeting the conditions for reducing the charter capital of a joint stock company plays an important role in helping the joint stock company adjust its financial scale and ensure compliance with regulations. Customers who need advice or support in implementing procedures to reduce charter capital, please contact Long Phan via the hotline 0906735386 to receive dedicated and professional support.