Reducing charter capital of joint stock companies: Conditions and procedures

Reducing the charter capital of joint stock companies is an important process for joint stock companies when they want to adjust their capital scale. This process is not simply a reduction of the registered amount, but must also fully comply with the provisions of law to ensure legality and avoid legal risks. Below are some specific cases in which a joint stock company can reduce its charter capital, along with procedures and regulations related to this issue.

Cases of joint stock companies reducing charter capital

According to the provisions of Clause 5, Article 112 of the Law on Enterprise 2020, cases of reducing the charter capital of joint stock companies include:

• Return of capital to shareholders: In case the company decides to return a part of charter capital to shareholders according to their share ownership ratio. The necessary condition is that the company has operated for at least 2 consecutive years and must ensure the ability to pay the company’s debts and other property obligations after reducing capital.
• Share repurchase: A joint stock company can repurchase its own shares according to the decision of the General Meeting of Shareholders. This may include the company repurchasing shares at the request of shareholders or at the company’s discretion.
• Shareholders have not paid in full capital: In case some shareholders have not paid in full the registered capital, the company may reduce the charter capital corresponding to the unpaid capital.

Current procedures for reducing charter capital of joint stock companies

To carry out procedures for reducing the charter capital of a joint stock company, the company must follow the correct process and prepare all required documents. This process includes the following basic steps:

Necessary documents

Documents required to reduce charter capital are specified in Clause 1, Article 51 of Decree 01/2021/ND-CP, including:

• Notice of change in business registration content signed by the company’s legal representative.
• Resolution of the General Meeting of Shareholders on reducing charter capital.
• Minutes of the General Meeting of Shareholders on the decision to reduce charter capital.
• Latest financial statements to prove the company’s financial status at the time of capital reduction.
• Commitment to ensuring the company’s ability to pay financial obligations after reducing charter capital.
• Written approval from the competent authority (if any) for changes related to investment capital.
• Authorization letter for representatives to carry out procedures (if any).

Procedure for reducing charter capital of joint stock companies

The process of reducing the charter capital of a joint stock company includes the following 3 basic steps:

Step 1: Submit change registration application:

• The company must submit documents to change charter capital at the Business Registration Office of the Department of Planning and Investment where the company’s headquarters is located.
• Applications can be submitted directly or through the national business registration portal.

Step 2: Appraisal and approval of documents:

• After submitting the application, the Business Registration Office will check and evaluate the validity of the application.
• If the dossier is complete and valid, the registration agency will issue a Certificate of change in business registration content within 03 working days.
• If the application is lacking, the company will have to supplement, edit and resubmit the application.

Step 3: Get results:

• After the application is approved, the company will receive a Certificate of Change in Business Registration.
• This is the legal basis for the company to make changes in records and documents related to charter capital.

Handling violations when not registering to reduce charter capital

According to the provisions of Article 44 of Decree 122/2021/ND-CP, when a company does not register to reduce charter capital in accordance with the provisions of law, there will be corresponding forms of handling violations as follows:

1. Warning for failure to register a reduction in charter capital within a period of 01 to 10 days from the prescribed expiration date.
2. Fine from 3,000,000 VND to 5,000,000 VND for failure to carry out procedures to reduce charter capital beyond the prescribed time limit from 11 days to 30 days.
3. Fine from 5,000,000 VND to 10,000,000 VND for failure to register to reduce charter capital within a period of 31 days to 90 days.
4. Fine from 10,000,000 VND to 20,000,000 VND for failure to carry out procedures to reduce charter capital for a period of 91 days or more.
5. Fine from 20,000,000 VND to 30,000,000 VND for failure to register a reduction in charter capital without a legitimate reason or failure to carry out procedures according to law.
6. Remedial measures:

• Force the company to carry out procedures to register a reduction in charter capital if it has not yet registered according to the provisions of law.
• Force the company to complete procedures for reducing charter capital in case of violation of provisions in Clauses 1, 2, 3, 4 and 5.

Consulting on implementing procedures to reduce charter capital for businesses

At Long Phan, we support customers in implementing procedures to reduce charter capital, with the following services:

• Consulting on regulations and conditions for reducing charter capital.
• Support assessment of financial situation and ability to repay debt after capital reduction.
• Instructions for drafting resolutions and minutes of the General Meeting of Shareholders.
• Consulting on methods of returning capital to shareholders.
• Carry out registration procedures to change business registration content.
• Support procedures for repurchasing shares at the request of shareholders or according to the company’s decision.
• Consulting on issues arising during the capital reduction process.
• Company representatives carry out procedures with the business registration agency.

Reducing the charter capital of a joint stock company requires the company to follow the correct process and comply with regulations to avoid errors and risks. The company needs to clearly understand the regulations in the Law on Enterprise 2020, especially the provisions on reducing charter capital, in order to carry out this procedure accurately and legally. To ensure correct and quick implementation, please contact Long Phan via the hotline 0906735386.