Financial statements prior to capital reduction are a common issue arising in the course of business operations. The following article outlines the applicable legal regulations on financial statements before capital reduction and addresses several related questions, thereby assisting individuals and organizations in protecting their legitimate rights and interests.

I. Impact of financial statements prior to capital reduction on enterprises

Financial statements prior to capital reduction constitute a legal procedure reflecting the actual financial status of an enterprise, enabling relevant stakeholders to assess business performance and potential risks. In addition, financial reporting provides detailed information for management to make accurate decisions, assess risks, and formulate effective restructuring or downsizing plans.

Financial statements assist management in making well-founded decisions, ensuring legal compliance, and providing transparent information to stakeholders such as shareholders and investors regarding the enterprise’s financial condition.

1. Definition of financial statements prior to capital reduction

Pursuant to Clause 34 Article 4 of the Law on Enterprise 2020, as supplemented by Point d Clause 1 Article 1 of the amended Law on Enterprise 2025, charter capital means the total value of assets contributed or committed to be contributed by company members or owners upon the establishment of a limited liability company or partnership; or the total par value of shares sold or registered for subscription upon the establishment of a joint stock company.

Pursuant to Clause 1 Article 3 of the Law on Accounting 2015, as amended by Clause 1 Article 2 of the Law amending the Law on Securities, the Law on Accounting, the Law on Independent Audit, the Law on State Budget, the Law on Management and Use of Public Assets, the Law on Tax Administration, the Law on Personal Income Tax, the Law on National Reserves, and the Law on Handling of Administrative Violations 2024 (amended Law on Accounting 2024), financial statements mean a system of economic and financial information of an accounting entity, prepared and presented in accordance with accounting standards and accounting regimes.

Accordingly, financial statements prior to capital reduction may be understood as reports prepared by an enterprise summarizing financial information, business performance, and cash flows during an accounting period, presented in the prescribed forms before the enterprise implemented procedures to reduce its charter capital.

2. Why is it necessary to prepare financial statements prior to capital reduction?

Enterprises are required to prepare financial statements prior to capital reduction for several reasons, including:

  • Assessment of financial status: Financial statements provide detailed data on assets, liabilities, and equity, enabling assessment of whether the enterprise can maintain solvency and stable operations after capital reduction.
  • Information transparency: It ensures that shareholders, investors, and other stakeholders are informed of the enterprise’s actual condition, thereby maintaining transparency in decision-making.
  • Basis for decision-making: Financial statements enable management to make reasonable, well-grounded decisions on capital reduction and to mitigate potential future risks.
  • Legal compliance: Financial reporting allows state authorities to examine and supervise compliance with financial and accounting regulations.
  • Evaluation of operating efficiency: It assists in reassessing business performance, thereby facilitating the formulation of appropriate business plans and capital utilization strategies after capital reduction.

Therefore, enterprises must prepare financial statements prior to capital reduction for the above reasons.

3. Is it permissible not to prepare financial statements prior to capital reduction?

Pursuant to Clause 4 Article 44 of Decree No. 168/2025/NĐ-CP, in cases of charter capital reduction, enterprises must commit to ensuring full payment of all debts and other property obligations after the reduction. In cases where a multi-member limited liability company reduces its charter capital under Points a and b Clause 3 Article 68 of the Law on Enterprise, the application dossier for capital reduction must be accompanied by the financial statement nearest to the date of the capital reduction decision.

Under the above provision, the law only requires multi-member limited liability companies to submit the most recent financial statement together with the capital reduction registration dossier. Accordingly, other types of enterprises are not legally required to submit financial statements prior to implementing charter capital reduction.

III. Legal regulations related to financial statements prior to capital reduction

Understanding the legal framework governing financial statements prior to capital reduction is a common concern among enterprises. In response, NPLaw outlines the main applicable regulations as follows.

1. Legal grounds governing financial statements prior to capital reduction

The legal basis is primarily provided in the Law on Enterprise 2020 (as amended and supplemented in 2025), the Law on Accounting 2015, and guiding decrees and circulars, including Decree No. 168/2025/NĐ-CP on capital reduction and Circular No. 200/2014/TT-BTC on financial statements.

  • Pursuant to Clause 4 Article 44 of Decree No. 168/2025/NĐ-CP, enterprises reducing charter capital must commit to full settlement of debts and other obligations. Where a multi-member limited liability company reduces charter capital under Points a and b Clause 3 Article 68 of the Law on Enterprise, the registration dossier must include the financial statement nearest to the capital reduction decision date.
  • Pursuant to Article 97 of Circular No. 200/2014/TT-BTC, financial statements provide information on an enterprise’s financial position, business performance, and cash flows, serving management needs, state authorities, and users making economic decisions. Financial statements must disclose information on:
    + Assets;
    + Liabilities;
    + Equity;
  • Revenue, other income, operating expenses, and other expenses;
  • Profit or loss and distribution of business results;
  • Cash flows.

In addition, enterprises must provide further information in the Notes to the Financial Statements to explain indicators presented in the consolidated financial statements and the accounting policies applied.

2. Contents of financial statements prior to capital reduction

When reducing capital, financial statements must accurately reflect changes in equity. Pursuant to Section 2 Chapter III of Circular No. 200/2014/TT-BTC, while specific contents vary by enterprise type, the core components include:

  • General information about the enterprise, including:
    + Name and address;
    + Type of financial statement (separate, consolidated, or combined);
    + End date of the accounting period;
    + Date of preparation;
    + Accounting currency;
    + Reporting currency.
  • Statement of Financial Position (Balance Sheet): Reflecting changes in assets, liabilities, and equity after capital reduction.
  • Statement of Profit or Loss: Showing business performance before and at the time of capital reduction.
  • Notes to the Financial Statements: Explaining financial changes, including reasons for and methods of capital reduction.
  • Statement of Cash Flows: Providing information on cash movements.
  • Trial Balance: Detailing assets, liabilities, and equity accounts.

3. Procedures for preparing financial statements prior to capital reduction

Pursuant to Article 102 of Circular No. 200/2014/TT-BTC, financial statements must be prepared based on the going-concern assumption and in accordance with accounting standards. Main principles include faithful representation of economic substance over legal form, prudence, proper classification of assets and liabilities, and separate presentation without offsetting unless permitted.

After preparation, under Clauses 4 and 5 Article 44 of Decree No. 168/2025/NĐ-CP, enterprises must submit the financial statements together with the capital reduction registration dossier to the competent authorities. The business registration authority shall review the dossier within three working days and issue the Enterprise Registration Certificate or request amendments where necessary.

4. Legal consequences related to financial statements prior to capital reduction

Failure to submit required financial statements or submission of inaccurate reports may result in administrative sanctions. For example, under Clause 3 Article 46 of Decree No. 122/2021/NĐ-CP, fines ranging from 30,000,000 VND to 50,000,000 VND may be imposed for failure to adjust charter capital or improper asset valuation. Enterprises may also face reputational damage and difficulties in future capital mobilization.

IV. Questions regarding financial statements prior to capital reduction

1. When is the appropriate time to finalize financial statements prior to capital reduction?

Financial statements should be completed immediately after the end of the accounting period and no later than the statutory deadline for submission, ensuring accuracy and compliance.

2. What should an enterprise do if the financial statement is inaccurate?

Enterprises must review and rectify errors by submitting amended financial statements and, where applicable, supplementary tax declarations, in accordance with tax administration regulations.

3. What risks arise if financial statements are not properly prepared?

Potential risks include administrative sanctions, tax arrears and reassessments, increased frequency of tax inspections, loss of investor confidence, and deterioration of relationships with partners and customers.

4. May an enterprise use financial statements from the previous year for capital reduction?

Pursuant to Clause 4, Article 44 of Decree No. 168/2025/ND-CP, in cases where a limited liability company with two or more members reduces its charter capital, the application dossier for registration of the charter capital reduction must be accompanied by the most recent financial statements as of the time the decision on charter capital reduction is made.

Under the above provision, an enterprise may not use financial statements from the previous fiscal year for the purpose of reducing its charter capital; instead, it is required to submit the latest financial statements corresponding to the time of adoption of the charter capital reduction decision.

5. Which components of financial statements affect capital reduction decisions?

Main components include assets, liabilities, equity, profit or loss, and cash flows, particularly as reflected in the balance sheet and statement of profit or loss.

In addition, enterprises must provide further information in the Notes to the Financial Statements to explain indicators presented in the consolidated financial statements and the accounting policies applied.

V. Do you need legal expertise regarding financial statements prior to capital reduction?

The foregoing information is provided for reference purposes only. For case-specific legal advice, please contact Ngoc Phu Law Company Limited - NPLaw for professional consultation and comprehensive legal support.