HANDLE OF FOUNDING SHAREHOLDERS’ INSUFFICIENT CAPITAL CONTRIBUTION

Shareholders who participate in the initial capital contribution during the establishment phase of a company are referred to as founding shareholders. As owners, they must also comply with certain legal requirements upon these founding shareholders’ insufficient capital contribution.

Who are founding shareholders?

Founding shareholders can be individuals or organizations who contribute capital by owning at least a portion of ordinary shares.

They are shareholders who own at least one ordinary share and sign in the list of founding shareholders of the joint stock company. Therefore, among other shareholders, founding shareholders are those individuals or entities who establish the company.

What are the regulations regarding founding shareholders’ capital contribution in joint stock companies?

At the time of establishment, an enterprise must have at least 3 founding shareholders. Each founding shareholder must own at least 20% of the total ordinary shares of the company at the time of establishment.

It’s important to note that within 3 years from the date the company is granted the Enterprise Registration Certificate, the ordinary shares of founding shareholders can be freely transferred to other founding shareholders and can only be transferred to non-founding shareholders with the approval of the General Meeting of Shareholders.

What happens upon the founding shareholders’ insufficient capital contribution?

According to business law regulations on capital contribution deadlines, shareholders must fully pay for the subscribed shares within 90 days from the date the Enterprise Registration Certificate is issued unless the company’s Charter or the share subscription contract specifies a shorter deadline.

For founding shareholders and shareholders in general, failure to fulfill their commitments may result in the following actions:

– Shareholders who fail to pay for the subscribed shares will no longer be considered shareholders of the company and will not be able to transfer the right to purchase those shares to others.

– Shareholders who only partially pay for the subscribed shares will have voting rights, entitlement to dividends, and other corresponding rights only for the shares that have been paid for. They will not be able to transfer the right to purchase the unpaid shares to others.

– Unpaid shares are considered unsold shares, and the Board of Directors has the authority to sell them.

Reference to the situation where founding shareholders fail to contribute capital within the prescribed time frame

Case:

In the case of Company A, a joint stock company with a capital of VND 10 billion, established since February 2020, the deadline for changing the information of founding shareholders has passed due to a shareholder’s failure to contribute capital to the company. Now, the capital contribution deadline has also passed, and notification has been sent to the Department of Planning and Investment. However, one shareholder has not contributed capital and wishes to withdraw from the company, while another shareholder wishes to purchase the remaining shares. The charter capital remains unchanged at VND 10 billion. Question: Should the company change its founding shareholders due to the non-payment of subscribed shares and incur administrative penalties, or can it proceed with changing shareholders through the internal transfer of shares? 

Answer:

Based on Article 112, Clause 5 of the 2020 Enterprise Law, when the charter capital is not fully paid by shareholders within the prescribed time frame according to Article 113 of this Law. Referring to Article 113, Clause 3, Subclause b, shareholders who have not paid for the subscribed shares are no longer shareholders of the company and are not allowed to transfer the right to purchase those shares to others.

Regarding the unpaid shares, they will be considered unsold shares, and the Board of Directors is authorized to sell them.

However, before being penalized for violations, within 30 days from the end of the deadline, the shareholders must fully pay for the subscribed shares as stipulated. The company must register to adjust the charter capital by the nominal value of the shares that have been fully paid (except in cases where the unpaid shares have been sold within this period) and register to change the founding shareholders.

Furthermore, founding shareholders who have not paid for the subscribed shares must bear corresponding responsibilities for the total nominal value of the shares subscribed for regarding the financial obligations of the company arising within the deadline before the company registers to adjust the charter capital as prescribed in clause d of this provision. Members of the Board of Directors and legal representatives are jointly liable for any damages arising from failure to comply with or properly implement the provisions of clause 1 and point d clause 3 of this provision.

Therefore:

In this situation, the founding shareholders are no longer shareholders of the company. The company will register to adjust the charter capital (if the remaining unpaid shares have not been sold) and register to change the founding shareholders. It may face administrative penalties if it fails to comply with the regulations on capital contribution deadlines.

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