CONSEQUENCES OF CHARTER CAPITAL REDUCTION OF JOINT STOCK COMPANY

The charter capital of a joint stock company is the total nominal value of the shares of various types sold. The charter capital of a joint stock company at the time of business registration is the total nominal value of the shares of various types registered for purchase and recorded in the company’s charter. Charter capital reduction of joint stock company implies reducing the scope of its business activities. In this article, let’s examine some issues related to the regulations, procedures, and legal consequences of charter capital reduction of joint stock company.

Cases of charter capital reduction of joint stock company

charter capital reduction of joint stock company according to the decision of the General Meeting of Shareholders

In this case, according to the decision of the Shareholders’ Meeting, the company will reimburse a portion of the contributed capital to shareholders in proportion to their shareholding in the company. However, the company needs to meet the following conditions:

– The company has been continuously operating for at least 2 years from the date of business registration;

– Ensure full payment of all debts and other property obligations after reimbursement to shareholders.

Capital reduction in case of repurchase shares by the company

There are two case of charter capital reduction in case of repurchase shares by the company:

– Share repurchase at shareholders’ request (Article 132 of Law on Enterprise 2020):

The shareholders that have voted against the resolution on reorganization of the company or change of shareholders’ rights and obligations in the company’s charter are entitled to request the company to repurchase their shares.

The company must repurchase shares at the request of shareholders.

– Share repurchase under the company’s decision (Article 133 of Law on Enterprise 2020):

The company is entitled to repurchase up to 30% the total ordinary shares, all or part of the participating preference shares that have been sold. 

The repurchase of shares must be approved by the Board of Directors (If the number of shares repurchased does not exceed 10% of the total shares of the Company) or the General Meeting of Shareholders (If the number of shares repurchased is greater than 10 % of total shares of the Company).

The Board of Directors decides the share repurchase price according to the provisions of law.

The company can repurchase shares from each shareholder in proportion to their ownership ratio of shares in the company.

– Charter capital reduction due to failure of shareholders in full and prompt payment of charter capital:

In accordance with Article 113 of the Law on Enterprise, shareholders shall fully pay for the subscribed shares within 90 days from issuance date of the Certificate of Enterprise Registration unless shorter time limit is specified by the company’s charter.

If beyond the aforementioned deadline shareholders have not fully paid for the registered shares, the company must register for an adjustment to reduce its charter capital by the nominal value of the shares that have been fully paid, and change the founding shareholders within 30 days from the last day of the required payment for the registered shares.

Consequences of charter capital reduction of joint stock company

Charter capital impacts many factors, so upon charter capital reduction of joint stock company, it can lead to various consequences that the company needs to pay attention to:

Tax obligations:

Charter capital determines the amount of tax that the company must pay. Therefore, when reducing capital, it will lead to a change in tax obligations.

Business lines:

Some business lines are currently regulated by legal capital. If the company operates in an industry that requires legal capital, then when reducing charter capital, the company should pay attention that the minimum charter capital must be equal to the legal capital.

Shareholder voting rights:

When reducing charter capital, the ownership proportion of shareholders will change, leading to alterations in the voting rights of shareholders.

Company organizational structure:

Charter capital reduction of joint stock company may result in a decrease in the number of shareholders, potentially altering the company’s organizational structure.

Debt obligations:

When reducing capital, the company must pay attention to its debt obligations and ensure they are fulfilled.

>> JURISDICTION OF COMMERCIAL ARBITRATION https://linconlaw.vn/jurisdiction-of-commercial-arbitration/

>> PROCEDURES FOR ISSUANCE OF ELIGIBILITY CERTIFICATE  FOR CONSTRUCTION EXECUTION CLASS II https://linconlaw.vn/procedures-for-issuance-of-eligibility-certificate-for-construction-execution-class-ii/