Changing the charter capital is an important activity in the development process of a joint stock company, reflecting adjustments in capital scale to meet actual business needs. The increase or decrease of charter capital must strictly comply with legal regulations to ensure the legality and transparency of corporate operations. Below, NPLaw invites readers to explore the legal issues related to changes in the charter capital of joint stock companies
I. The need in changes to charter capital of joint stock companies
The need to change the charter capital of a joint stock company arises from various practical reasons during business operations. An enterprise may need to increase its charter capital to raise additional financial resources for expanding production, investing in new projects, enhancing market competitiveness, or meeting statutory capital requirements in certain conditional business lines.
Conversely, in specific situations, the company may consider decreasing its charter capital to restructure its financial operations, optimize ownership structure, or fail to fulfill capital contribution obligations on time from shareholders. Changing the charter capital is one of the crucial activities that directly affects shareholders’ rights and the company’s development orientation, and therefore must be implemented carefully and in compliance with current legal regulations.
II. Legal provisions on changes to charter capital of joint stock companies
1. What is a change in charter capital of a joint stock company?
Changing the charter capital of a joint stock company means the company adjusts the amount of charter capital that it has registered with the business registration authority, by increasing or decreasing the capital through forms permitted by Law.
2. Forms of changing the charter capital of a joint stock company
According to Section II of Circular No. 19/2003/TT-BTC, the charter capital of a joint stock company may be increased in the following cases:
- Issuing new shares to raise additional capital;
- Converting bonds into stocks;
- Paying dividends by issuing shares;
- Issuing shares for mergers;
- Transferring from surplus capital sources.
Thus, the charter capital of a joint stock company can be changed through the above-mentioned forms, each of which must comply with current legal regulations.
3. Notes when changing the charter capital of a joint stock company
When changing the charter capital of a joint stock company, the enterprise should note the following:
- Ensure the capital increase is implemented through legal forms such as issuing new shares, converting bonds into stocks, paying dividends by shares, or other methods permitted by Law. If capital is increased by issuing new shares, the company must comply with regulations on issuance ratio, rights of existing shareholders, and issuance procedures;
- After completing the capital increase, the company must register the change of charter capital with the business registration authority within 90 days;
- Shareholders are obliged to fully pay for the stocks that they have subscribed to within the stipulated time. If shareholders fail to make full payment, the company must adjust to decrease its charter capital as prescribed;
- When changing charter capital, the company must notify the business registration authority to update information in the National Business Registration Database.
Therefore, changing the charter capital of a joint stock company is a significant process that must be implemented in accordance with legal regulations to ensure legality and business efficiency.
III. Questions about changes to charter capital of joint stock companies
1. Dossier for changing the charter capital of a joint stock company
According to Article 51 of Decree No. 01/2021/ND-CP, the dossier for changing the charter capital of a joint stock company includes:
- Notice of changing enterprise registration contents;
- Resolution, decision, and minutes of the General Meeting of Shareholders on changing the charter capital;
- Approval from the investment registration authority;
- Authorization documents and identification documents.
In case of increasing charter capital through stock offerings (by tranche), the dossier includes:
- Notice of changing enterprise registration contents;
- Resolution and minutes of the General Meeting of Shareholders on stock offerings;
- Resolution, decision, and minutes of the Board of Directors on registering the capital increase after each tranche of stock sales;
- Documents from the investment registration authority.
2. Is there a maximum or minimum limit on the charter capital of a joint stock company?
According to Article 112 of the Law on Enterprise 2020, there is no provision on the maximum or minimum charter capital when establishing a joint stock company. However, shareholders must commit to fully paying for the stocks they have subscribed to. While there are no maximum or minimum limits, increasing or decreasing charter capital during operations is entirely possible, subject to conditions such as decisions of the General Meeting of Shareholders or the company buying back issued stocks. In addition, the company must ensure it can pay all debts and other asset obligations after returning capital to shareholders in case of a capital decrease.
Thus, there is no maximum or minimum limit on charter capital when establishing a joint stock company, but it is necessary to comply with payment of stocks and protection of shareholders’ rights throughout operations is required.
3. Must a joint stock company notify the competent state authority when changing its charter capital?
According to Clauses 1 and 3, Article 31 of the Law on Enterprise 2020, when a joint stock company changes its charter capital, it must notify the competent state authority, specifically the business registration authority. This is mandatory because changing the charter capital alters the enterprise registration contents, including the Charter, a key component of the enterprise registration dossier.
Therefore, a joint stock company is obligated to report changes in charter capital to the competent state authority to ensure that the enterprise registration dossier always reflects the actual situation and complies with the law.
4. What are the procedures and legal process for changing the charter capital of a joint stock company under current Law?
According to Article 51 of Decree No. 01/2021/ND-CP, the procedures and legal process for changing the charter capital of a joint stock company are as follows:
Step 1. Preparing the dossier
The dossier for changing the charter capital of a joint stock company includes:
- Notice of changing enterprise registration contents;
- Resolution, decision, and minutes of the General Meeting of Shareholders on changing the charter capital;
- Approval from the investment registration authority;
- Authorization documents and identification documents.
In case of increasing charter capital through stock offerings (by tranche), the dossier includes:
- Notice of changing enterprise registration contents;
- Resolution and minutes of the General Meeting of Shareholders on stock offerings;
- Resolution, decision, and minutes of the Board of Directors on registering the capital increase after each tranche of stock sales;-
- Documents from the investment registration authority.
Step 2. Submitting the dossier to the competent state authority
Place of submission: The dossier must be submitted to the Business Registration Office under the Department of Planning and Investment where the company’s head office is located.
Step 3. Processing the dossier
Upon receiving the dossier, the business registration authority will review and verify its validity. If the dossier is valid, the authority will update the information on the company’s change in charter capital.
5. In what cases is a joint stock company not allowed to change its charter capital?
A joint stock company is not allowed to change its charter capital in the following cases:
- Under Point a, Clause 5, Article 112 of the Law on Enterprise 2020, the company may decrease its charter capital by returning a portion of contributed capital to shareholders in proportion to their ownership, provided the company has been operating continuously for at least 2 years and ensures full payment of debts and other asset obligations. If these conditions are not met, the company cannot decrease its charter capital.
- According to Clause 3, Article 113 of the Law on Enterprise 2020, if founding shareholders fail to pay in full and on time for stocks they registered to purchase, the company must register an adjustment to its charter capital corresponding to the nominal value of stocks that have been paid. Thus, if after 30 days from the date of issuance of the Enterprise Registration Certificate that shareholders have not fully contributed capital, the company cannot register to increase capital but must adjust to decrease charter capital.
- A company is not allowed to change its capital during dissolution or bankruptcy proceedings under Article 207 of the Law on Enterprise 2020.
Thus, a joint stock company is not permitted to change its charter capital in the above-mentioned cases. Complying with legal regulations on changing charter capital helps the enterprise ensure legality in its operations and avoid unnecessary legal risks.
IV. Legal advisory services on changes to charter capital of joint stock companies
The above is NPLaw’s analysis of the issue of changing the charter capital of joint stock companies. With a team of experienced lawyers and legal experts, NPLaw is always ready to accompany, advise, and assist clients on legal matters related to changing the charter capital of joint stock companies. For support on other legal issues, please contact NPLaw via the information below:
