The dissolution of a joint-stock company is an undesirable situation that no business entity expects to face. Ensuring full compliance with the statutory conditions and procedures for dissolving a joint-stock company can be challenging, particularly when there is a lack of documents or failure to fulfill statutory obligations. To address these concerns, Ngoc Phu Law Company Limited provides the following comprehensive guidance:
I. Definition of dissolution of Joint-Stock Companies
A dissolution of a company refers to a legal procedure that terminates its legal entity, either at the owner’s will or as requested by law. Accordingly, the company must ensure the settlement of all debts and asset obligations before its rights and duties are fully extinguished and its presence ceases to exist in the market.
In addition to the termination of its existence, the company is still required to fulfill all payment obligations to stakeholders by utilizing its remaining assets. This capacity to settle liabilities is a decisive condition determining whether the dissolution can be lawfully executed.
II. Legal provisions governing dissolution of Joint-Stock Companies
1. Cases for dissolution
Under Clause 1, Article 207 of the Law on Enterprise 2020, a joint-stock company shall be dissolved in the following circumstances:
- The duration of operation stated in the company charter has expired without an extension decision;
- Pursuant to a Resolution or Decision of the General Meeting of Shareholders;
- The company has failed to maintain the minimum number of shareholders as prescribed by Law for six consecutive months without converting to another legal form;
- Revocation of the Enterprise Registration Certificate, unless otherwise provided by law.
2. Conditions for dissolution
According to Clause 2, Article 207 of the Law on Enterprise 2020, dissolution is permitted only when:
- All debts and other financial obligations have been fully settled;
- There are no ongoing disputes at a court or arbitration tribunal at the time of dissolution;
- A decision or resolution on dissolution has been duly adopted by the General Meeting of Shareholders or the Business Registration Authority.
These conditions not only form the legal basis for ceasing the company’s existence but also safeguard the interests of related parties, particularly employees and creditors.
3. Procedures for dissolution
The dissolution procedures for joint-stock companies generally apply to both voluntary and compulsory cases, including the following steps:
Step 1: Adoption of a Resolution or Decision on dissolution
A General Meeting of Shareholders must be convened to pass a resolution or decision on the dissolution expressing shareholders’ mutual agreement. Such a resolution must specify:
- The company’s name and registered headquarters address;
- Reasons for dissolution;
- Timeframe and procedures for liquidating contracts and settling debts (not exceeding six months from the date of adoption);
- Plan for handling obligations arising under labor contracts;
- Full name and signature of the Chairperson of the Board of Directors.
Step 2: Public notification
Once the resolution is adopted, the company must notify all stakeholders. If the company has outstanding debts, it must disclose the debt settlement plan to creditors and related parties, including:
- Name and address of creditors;
- Amount, time, venue, and method of payment;
- Time and method for handling complaints of creditors.
Step 3: Asset liquidation and debt settlement
Pursuant to Clauses 2 and 5, Article 208 of the Law on Enterprise 2020, assets shall be liquidated, and debts shall be paid in the following order:
- Salary, severance pay, social insurance contributions, and other lawful benefits of employees;
- Tax liabilities;
- Other debts.
Any remaining assets shall be distributed to shareholders according to their proportion of contributed capital after debt settlement and dissolution expenses.
Step 4: Filing the dissolution dossier
Under Article 210 of the Law on Enterprise 2020, the dissolution dossier includes:
- Notice of company dissolution (Form II-22 attached to Circular 01/2021/TT-BKHĐT);
- Report on the results of asset liquidation;
- List of settled debts and creditors;
- Board of Directors takes responsibility for the accuracy and truthfulness of the dossier;
- Power of attorney for authorized representatives, if applicable.
III. Questions on dissolution of Joint-Stock Companies
1. Must the company be dissolved if the number of shareholders falls below the statutory minimum?
If the number of shareholders drops below the legal minimum of three (03) members, the company must either accept new shareholders or convert to another type of enterprise within six months. Failure to comply will conduct a mandatory dissolution process.
2. Is dissolution mandatory when a company no longer meets operational conditions?
Pursuant to the provisions of Clause 1, Article 207 of the Law on Enterprise 2020 on cases and conditions that require dissolution when a joint stock company no longer meets the conditions for operation, the company may be dissolved. However, the dissolution of a joint stock company is not mandatory but must comply with the procedures and conditions prescribed by law.
In some cases, a joint stock company may seek to resolve the problem and continue operating through restructuring, merger, separation or other measures to ensure compliance with legal regulations and operating conditions. If the company cannot resolve or does not have a reasonable plan to continue operating, dissolution may be considered.
3. Must taxes be fully settled before dissolution?
According to Article 208 of the Law on Enterprise 2020, companies must finalize tax obligations and close their tax codes before filing for dissolution. Certain exemptions or reductions may apply as specified under Article 72 of Circular 80/2021/TT-BTC.
4. In what circumstances can a court mandate the dissolution of a joint-stock company?
Mandatory dissolution may occur when:
- The competent State authority decides to terminate operations due to legal violations in the company’s formation or operations;
- The company fails to meet the minimum shareholder requirement or is fined with revocation of its Enterprise Registration Certificate due to statutory violations.
5. Can the company be dissolved if its largest shareholder dies intestate while the company is incurring losses?
The death of a major shareholder without a will executes the inheritance process as per the law and the company’s charter. However, such a situation only does not automatically result in dissolution. The decision depends on financial conditions, operational viability, and shareholder agreements regarding continuity or cessation.
IV. Legal advisory services on dissolution of Joint-Stock Companies
Ngoc Phu Law Company Limited offers professional legal services for joint-stock company dissolution, including:
- Receiving and reviewing information related to dissolution;
- Guiding the preparation of documents;
- Representing clients in fulfilling customs, tax finalization, and tax code closure procedures;
- Drafting and submitting the dissolution dossier;
- Liaising with competent state authorities to complete the process.
