I. Understanding joint stock companies failing to maintain the minimum number of shareholders
A joint stock company failing to maintain the minimum number of shareholders refers to the situation where the number of shareholders falls below the statutory minimum of three shareholders as prescribed by the Law on Enterprise. This situation may arise due to shareholders withdrawing capital, transferring shares, or losing shareholder status. If additional shareholders are not promptly supplemented, the company may be subject to administrative fines or forced to convert its type of enterprise or dissolve according to the Law.
1. What does it mean for a joint stock company failing to maintain the minimum number of shareholders?
A joint stock company failing to maintain the minimum number of shareholders is understood as a company whose number of shareholders is less than the minimum required under Clause 1, Article 111 of the Law on Enterprise 2020, i.e., fewer than three shareholders. This violates the organizational legality of a joint stock company. If not remedied within the period allowed by law, the company may be required to convert its type of enterprise or be dissolved.
2. Why does a joint stock company fail to maintain the minimum number of shareholders?
This situation often arises due to several specific reasons, such as:
- Shareholder transferring or withdrawing all capital: When one or two shareholders transfer all their shares to outsiders without replacement, or voluntarily withdraw without substitution, the number of shareholders falls below the statutory minimum of three.
- Shareholder being dead or losing civil act capacity: If an individual shareholder dies or is declared by a Court to lack civil act capacity and ownership of shares has not been transferred to heirs or legal representatives, the company will lack eligible members.
- Shareholder losing legal entity status: If a shareholder that is an organization has its enterprise registration certificate revoked or is dissolved/bankrupt, its share ownership may no longer be legally recognized if no lawful transferee exists.
- Having internal disputes or prolonged conflicts: Disputes among shareholders, especially in small-scale companies, may lead to certain shareholders withdrawing or ceasing participation and contribution.
- Failuring to add new shareholders: During operations, if the company fails to attract new investors or shareholders, especially after some have withdrawn, the number of members may fall below legal requirements.
If not remedied within the statutory period, such situations can lead to serious consequences such as administrative sanctions, forced conversion to another type of enterprise, or dissolution.
II. Legal regulations on joint stock companies failing to maintain the minimum number of shareholders
According to the provisions of the Law on Enterprise 2020, joint stock companies must comply with the regulations on the number of members to ensure legal operation. Specifically as follows:
- Minimum number of shareholders in a joint stock company
According to Article 111 of the Law on Enterprise 2020, a joint stock company must have at least three shareholders. This is the minimum requirement for lawful operation, helping ensure diversity and stability in ownership structure, thereby facilitating risk sharing and effective financial management. However, there is no limit on the maximum number of shareholders in a joint stock company.
- Cases where a joint stock company fails to maintain the minimum number of shareholders
If a joint stock company does not maintain at least three shareholders for six consecutive months, it must take necessary measures to rectify the situation. Otherwise, the company faces dissolution or must convert to another type of enterprise. As stipulated in Article 207 of the Law on Enterprise 2020, the company must choose one of the following options:
- Converting to another type of enterprise: The joint stock company may convert into another type, such as a limited liability company, if it cannot maintain the required number of shareholders.
- Dissolving the company: If conversion is not implemented, the company will be dissolved.
- Other cases leading to dissolution of a joint stock company
Besides lacking the minimum number of shareholders, a joint stock company may also be dissolved in these cases:
- Expiry of operation term: When the operation period stated in the company’s charter expires without an extension resolution.
- Resolution of the General Meeting of Shareholders: The company must proceed with dissolution if the General Meeting resolves to dissolve due to inefficient operations or other reasons.
- Revocation of enterprise registration certificate: If the company violates legal regulations and its certificate is revoked.
- Conditions for dissolution of a joint stock company
Before dissolution, the company must ensure all financial obligations are settled, including tax debts, social insurance, health insurance, and unemployment insurance for employees. Additionally, the company must not be involved in any court or arbitration disputes. This is regulated under Articles 207 and 210 of the Law on Enterprise 2020.
- Dossier for dissolution of a joint stock company
To dissolve, the company must prepare a complete dossier, including:
- Notice of enterprise dissolution: The official document declaring the decision to dissolve and cease operations.
- Asset liquidation report: It lists all company assets and the process of liquidation.
- List of creditors and paid debts:
The company must list all creditors and debts that have been paid including taxes, social insurance, health insurance, and unemployment insurance if applicable.
- Legal liability in dissolution dossier
The Board of Directors is responsible for ensuring the truthfulness and accuracy of the dissolution dossier. If there is fraud, forgery, or inaccuracy, members of the Board will be jointly liable. Specifically, they must pay unresolved debts, employee benefits, and unpaid taxes, and also take personal liability under the law for five years from the date of submission of the dissolution dossier.
III. Common questions about joint stock companies failing to maintain the minimum number of shareholders
1. What is the minimum and maximum number of shareholders in a joint stock company?
Clause 1, Article 111 of the Law on Enterprise 2020 provides:
- The joint stock company is a type of enterprise, in which:
- Charter capital is divided into equal parts called shares;
- Shareholders can be organizations or individuals; the minimum number of shareholders is 03 and there is no limit on the maximum number;
- Shareholders are only responsible for the debts and other financial obligations of the enterprise within the scope of the capital contributed to the enterprise;
- Shareholders have the right to freely transfer their shares to others, except in the cases specified in Clause 3, Article 120 and Clause 1, Article 127 of the Law on Enterprise 2020.
Thus, the minimum and maximum number of shareholders of a joint stock company are as follows:
- Minimum number of shareholders: A joint stock company must have at least 03 shareholders.
- Maximum number of shareholders: There is no limit on the maximum number of shareholders, meaning that a joint stock company can have a very large number of shareholders.
2. What should a joint stock company do if it does not have enough shareholders?
When the number of shareholders falls below the statutory minimum (three shareholders), the company should:
- Rectify the shortage: Supplement shareholders within six months by issuing more shares or arranging share transfers among existing shareholders.
- Convert to another enterprise type: If unable to add shareholders, the company may convert to another type, such as limited liability companies to legally operate.
- Dissolve the company: If neither is possible within the statutory period, the company may have to dissolve.
The company needs to comply with these regulations to avoid being handled administrative violations or related legal matters.
3. Will a joint stock company be dissolved if it fails to maintain the minimum number of shareholders?
According to Article 207 of the Law on Enterprises 2020: A joint stock company may also be dissolved in these cases:
- Expiry of operation term.
- Resolution of the General Meeting of Shareholders.
- Revocation of enterprise registration certificate.
Besides, the company must ensure all debts and other assets obligations are settled. Additionally, the company must not be involved in any court or arbitration disputes. The relevant manager and the enterprise specified in Point d, Clause 1 of this Article shall be jointly liable for the debts of the enterprise.
4. What if the company lacks enough shareholders for a long time?
According to Article 207 of the Law on Enterprise 2020, an enterprise shall be dissolved in the following cases:
- The company no longer has the minimum number of members as prescribed by the Law on Enterprise 2020 for a period of 06 consecutive months without completing the procedures to convert the type of enterprise.
Thus, according to the above provisions, a company no longer has the minimum number of members as prescribed by law for a period of 06 consecutive months without completing procedures to convert the type of enterprise.
5. What if the shortage results from shareholders transferring shares?
Regulations on joint stock companies are stipulated in Article 111 of the Law on Enterprise 2020, a joint stock company must have at least 03 shareholders and there is no limit on the maximum number.
Per Article 204 of the Law on Enterprise 2020, the company may convert into a multi-member limited liability company in the following ways:
- Converting into a limited liability company with two or more members without raising additional capital or transferring shares to other organizations or individuals;
- Converting into a limited liability company with two or more members and simultaneously raising additional capital from other organizations or individuals;
- Converting into a limited liability company with two or more members and simultaneously transferring all or part of the shares to other organizations or individuals;
- Combining the methods prescribed in Points a, b and c of this Clause and other methods.
IV. Legal consulting services for joint stock companies lacking the minimum number of shareholders
NP Law provides legal consulting services to help companies handle the shortage of shareholders in compliance with the law. We advise on legal obligations, shareholder supplementation plans, procedures to amend enterprise registration, or dissolution if necessary.
