Resolving disputes between parties regarding capital reduction

Practice shows that disputes between parties regarding capital reduction often arise when there is a conflict of interests or violations of legal procedures and formalities as prescribed by law, thereby requiring appropriate and effective dispute resolution mechanisms.

I. The current situation of disputes between parties regarding capital reduction

In recent years, together with the rapid increase in the number and scale of enterprises, legal issues arising during corporate organization and governance have become increasingly complex. One of the prominent issues is disputes between parties regarding capital reduction, arising when an enterprise implements or intends to implement a reduction of charter capital without fully ensuring the lawful rights and interests of related parties.

In practice, disputes between parties regarding capital reduction commonly arise within internal corporate relationships, particularly between shareholders and the company, among shareholders themselves, or between capital-contributing members and business owners. The main causes stem from capital reduction decisions that are not approved by the proper authority, failure to comply with procedures and formalities prescribed by law or the company’s Charter, leading to infringement of property rights, voting rights, and economic interests of related parties.

In addition, in many cases, disputes between parties regarding capital reduction also arise from enterprises abusing capital reduction as a means to conceal weak financial conditions, evade payment obligations to creditors, or alter the ownership structure in a manner unfavorable to certain shareholders or capital-contributing members. Such acts not only cause direct damage to related parties but also reduce transparency and security in business operations.

II. What are disputes between parties regarding capital reduction?

1. Concept of disputes between parties regarding capital reduction

Disputes between parties regarding capital reduction are understood as conflicts or disagreements over rights and obligations arising among related parties within an enterprise (such as shareholders, capital-contributing members, owners, the company, creditors, etc.) in relation to the enterprise’s implementation or non-implementation of charter capital reduction.

Such a type of dispute usually revolves around issues such as the legality of the capital reduction decision, the procedures and formalities for capital reduction, the scope and legal consequences of such reduction, as well as ensuring the financial rights and management rights of related parties. In essence, it is a form of internal corporate dispute, which may be associated with civil disputes or business and commercial disputes under procedural law.

2. Circumstances leading to disputes between parties regarding capital reduction

In practice, disputes between parties regarding capital reduction often arise from several typical circumstances as follows:

• First, the enterprise decides on capital reduction without proper authority or without approval from the competent body as prescribed by law and the company’s Charter (for example, without approval from the General Meeting of Shareholders in a joint-stock company).
• Second, the capital reduction does not comply with legal procedures and formalities, such as failing to meet conditions regarding the period of operation, failing to notify creditors, or failing to fully settle financial obligations to creditors and employees before reducing capital.
• Third, the capital reduction directly affects the lawful rights and interests of shareholders or capital-contributing members, such as reducing ownership ratios, voting rights, or the value of contributed capital without their consent.
• Fourth, the enterprise abuses capital reduction to evade financial obligations, conceal losses, or transfer benefits to certain parties, thereby causing damage to minority shareholders or creditors.

3. Methods of resolving disputes between parties regarding capital reduction

When disputes between parties regarding capital reduction arise, the parties may apply various dispute resolution methods depending on the nature and severity of the dispute.

First of all, the parties should prioritize negotiation and internal mediation by reviewing the capital reduction decision, comparing it with legal regulations and the company’s Charter in order to reach consensus and minimize prolonged conflict.

Where negotiation does not produce results, the parties may request competent authorities such as the Court or Commercial Arbitration to resolve the dispute in accordance with the law. 

In addition, strengthening internal governance, ensuring financial transparency, and strictly complying with legal regulations on capital reduction are also fundamental solutions to prevent and minimize disputes between parties regarding capital reduction in practice.

III. Legal provisions related to disputes between parties regarding capital reduction

1. Relevant legal provisions when resolving disputes between parties regarding capital reduction

Currently, the relevant legal provisions for resolving disputes between parties regarding capital reduction include:

The Law on Enterprise 2020, as amended in 2025:

• Clause 5, Article 112 provides cases where a joint-stock company may reduce its charter capital.
• Clause 3, Article 68 provides cases applicable to multi-member limited liability companies.
• Clause 3, Article 87 provides cases where a single-member limited liability company may reduce its charter capital.

The Commercial Law 2005:

Article 317 provides forms of dispute resolution including:

• Negotiation between the parties;
• Mediation between the parties conducted by an agency, organization, or individual agreed upon by the parties as the mediation intermediary;
• Resolution by Arbitration or Court. Procedures for resolving commercial disputes through Arbitration or Court shall be conducted in accordance with arbitration or court procedures prescribed by law.

Accordingly, when disputes related to capital reduction arise, the parties must rely simultaneously on the Law on Enterprise 2020, as amended in 2025, to determine the legality of the capital reduction decision, and on the Commercial Law 2005 to select the appropriate dispute resolution method, thereby ensuring that dispute resolution is implemented lawfully, fairly, and effectively.

2. Who has the authority to resolve disputes between parties regarding capital reduction?

According to Article 317 of the Commercial Law 2005 regulating forms of dispute resolution, the competent authorities for resolving disputes between parties regarding capital reduction include:

• Mediator: Mediation between the parties conducted by an agency, organization, or individual agreed upon by the parties as an intermediary.
• Commercial Arbitration: Pursuant to Clause 1, Article 5 of the Law on Commercial Arbitration 2010, disputes shall be resolved by Arbitration if the parties have an arbitration agreement. The arbitration agreement may be established before or after the dispute arises.
• Court: Pursuant to Clauses 3 and 4, Article 30 of the Civil Procedure Code 2015, disputes involving persons who are not yet company members but have transactions relating to the transfer of contributed capital with the company or company members; disputes between the company and its members; disputes between the company and managers in limited liability companies or members of the Board of Directors, directors, or general directors in joint-stock companies; disputes among company members related to establishment and operation; etc., are business and commercial disputes falling under the jurisdiction of the Court.

Accordingly, depending on the nature of disputes between parties regarding capital reduction, as well as the existence or absence of a dispute resolution agreement, the parties may choose mediation, commercial arbitration, or the Court to protect their lawful rights and interests. 

3. What are the consequences if disputes between parties regarding capital reduction cannot be resolved?

If disputes between parties regarding capital reduction are not resolved promptly and effectively, the legal and practical consequences may be very serious. 

First, the enterprise’s operations may be suspended, management decisions may not be implemented, directly affecting business efficiency and the enterprise’s reputation in the market.

In addition, prolonged disputes may lead to the capital reduction decision being declared invalid, requiring the enterprise to restore the original charter capital level or compensate affected shareholders, capital-contributing members, or creditors for damages. In serious cases, unresolved disputes may also result in legal liability for enterprise managers and may even lead to dissolution or bankruptcy of the enterprise in accordance with the law.

IV. Questions related to disputes between parties regarding capital reduction

1. What documents need to be presented when disputes between parties regarding capital reduction arise?

When disputes between parties regarding capital reduction arise, important documents that should be provided include:

• The company’s Charter and amended or supplemented versions (if any);
• Decisions and resolutions of the General Meeting of Shareholders/Members’ Council/Owner regarding capital reduction;
• Meeting minutes, list of attending shareholders or members, and voting records;
• Financial statements and documents proving the status of charter capital before and after capital reduction;
• Contracts and agreements related to contributed capital portions or shares;
• Documents proving infringed rights and interests (if any).

These documents are important bases for determining the legality of the capital reduction and clarifying the responsibilities of the parties in the dispute.

2. Can disputes between parties regarding capital reduction be resolved through arbitration?

Disputes between parties regarding capital reduction may be resolved through Commercial Arbitration if the parties have a valid arbitration agreement established before or after the dispute arises in accordance with Clause 1, Article 5 of the Law on Commercial Arbitration 2010. Arbitration is often chosen in corporate disputes due to its advantages in flexibility, confidentiality, and speedy resolution.

However, if no arbitration agreement exists, or the dispute involves parties who are not bound by such agreement, Arbitration will not have jurisdiction.

3. Which method is most suitable for effectively resolving disputes between parties regarding capital reduction?

The choice of dispute resolution method for disputes between parties regarding capital reduction should be based on:

• The complexity of the dispute;
• The long-term cooperative relationship between the parties;
• The dispute value and the need for confidentiality.

Among these, negotiation and mediation are often prioritized to maintain internal corporate relationships. Commercial Arbitration is suitable for disputes involving high professional expertise and confidentiality requirements. The Court is the final method, ensuring enforceability and legal effect when disputes cannot be resolved by other methods.

4. When one party files a lawsuit regarding disputes between parties about capital reduction, what should they prepare?

When initiating legal proceedings before the Court or Arbitration regarding disputes between parties about capital reduction, the claimant should prepare:

• A statement of claim or request for dispute resolution in the legally prescribed form;
• Documents proving the legal standing of the disputing party;
• Evidence proving that lawful rights and interests have been infringed due to the capital reduction;
• Documents related to negotiation and mediation processes (if any);
• Receipts proving payment of court fees, charges, or arbitration fees as prescribed.

5. What methods are available to prevent disputes between parties regarding capital reduction?

To minimize disputes between parties regarding capital reduction, enterprises should:

• Strictly comply with legal regulations and the company’s Charter regarding conditions, authority, and procedures for capital reduction;
• Ensure financial transparency, especially regarding charter capital status and obligations to creditors;
• Guarantee participation rights, voting rights, and benefits of shareholders and capital-contributing members;
• Establish effective internal governance and conflict resolution mechanisms;
• Seek legal consultation before deciding on capital reduction.

V. Are you looking for a reputable lawyer to resolve issues related to disputes between parties regarding capital reduction?

Disputes between parties regarding capital reduction are complex disputes requiring deep understanding of corporate law, procedural law, and governance practice. Working with a reputable and experienced lawyer will help you accurately assess legal risks, choose the most appropriate resolution strategy, and maximize the protection of your lawful rights and interests.

The above information is for reference purposes only. Should you require detailed consultation regarding your specific case, please contact NPLaw Firm for immediate advice.