The role of charter capital in a joint stock company

Charter capital in joint stock companies and its legal implications Charter capital in a joint stock company refers to the total value of assets committed or contributed by shareholders and plays a crucial role in establishing their rights and obligations within the company. Pursuant to the Law on Enterprise 2020, charter capital is divided into shares, with no minimum capital requirement (except for conditional business sectors). Shareholders are entitled to voting rights, dividends, pre-emptive rights to purchase newly issued shares, and the freedom to transfer shares (subject to certain restrictions). They are also obligated to fully contribute the committed capital within 90 days. The charter capital may be increased or decreased through share issuance or repurchase, subject to shareholder approval and registration with the competent authority. It is a main determinant of shareholder power within the company and distinguishes itself from loans or owner’s capital in other business forms.

Charter capital in joint stock companies and its legal implications

Charter capital in a joint stock company refers to the total value of assets committed or contributed by shareholders and plays a crucial role in establishing their rights and obligations within the company. Pursuant to the Law on Enterprise 2020, charter capital is divided into shares, with no minimum capital requirement (except for conditional business sectors). Shareholders are entitled to voting rights, dividends, pre-emptive rights to purchase newly issued shares, and the freedom to transfer shares (subject to certain restrictions). They are also obligated to fully contribute the committed capital within 90 days. The charter capital may be increased or decreased through share issuance or repurchase, subject to shareholder approval and registration with the competent authority. It is a main determinant of shareholder power within the company and distinguishes itself from loans or owner’s capital in other business forms.

I. Understanding charter capital in joint stock companies

Charter capital in joint stock companies is a central concept in the structure of a joint stock company. According to Clause 34, Article 4 of the Law on Enterprise 2020, charter capital refers to the total value of assets that shareholders have committed or already contributed within a specified duration, as recorded in the company’s charter. In joint stock companies, charter capital is divided into equal parts known as shares, and those who own shares are called shareholders. Holding shares forms the legal basis for establishing the rights and obligations of shareholders, including voting rights, the right to receive dividends, and the right to share in the company’s assets upon dissolution.

II. Legal provisions governing charter capital in joint stock companies

1. What is charter capital?

Charter capital is the amount of capital that shareholders commit to contribute or have contributed within the stipulated time frame, as recorded in the company charter. It forms the financial basis for the company’s business operations and limits shareholders’ liability to the extent of contributed capital. For joint stock companies, Clause 1, Article 111 of the Law on Enterprise 2020 provides:

A joint stock company is an enterprise in which charter capital is divided into equal portions called shares.

2. Is there a minimum charter capital requirement?

The Law on Enterprise 2020 does not stipulate a minimum charter capital for joint stock companies, except where conditional business sectors, as governed by the Law on Investment and relevant specialized regulations. Thus, enterprises have the right to determine a suitable level of charter capital that aligns with their operational scale and business objectives.

3. What are the rights and obligations of shareholders contributing charter capital?

According to Articles 115 and 119 of the Law on Enterprise 2020, shareholders who contribute to the charter capital are entitled to the following main rights:

Attend, discuss, and vote at the General Meeting of Shareholders;
Receive dividends in proportion to their shareholding;
Obtain pre-emptive rights to purchase newly issued shares;
Freely transfer their shares (except in cases restricted by law or the company’s charter).

In terms of obligations, shareholders are required to fully pay for the subscribed shares within 90 days from the date of issuance of the enterprise registration certificate, in accordance with Article 113.

III. Questions on charter capital in joint stock companies

1. Can charter capital be transferred?

Shareholders have the right to transfer their shares to others, except in the case of common shares held by founding shareholders within the first three years from the company's establishment, as prescribed in Article 120 of the Law on Enterprise 2020. The transfer is executed through a contract and recorded in the shareholder register.

2. How does charter capital ownership affect decision-making in the company?

The proportion of shares held by a shareholder directly determines their voting power at the General Meeting of Shareholders. A shareholder or group of shareholders holding at least 5% of the total voting shares may request an extraordinary meeting of the General Meeting of Shareholders (as per Article 115). A resolution is adopted if the number of affirmative votes meets the threshold set out in the company’s charter or by law (typically 51% or more).

3. How does charter capital differ from other types of capital?

Charter Capital: Capital contributed by shareholders upon company formation.
Owner’s Contributed Capital: Applicable to limited liability companies or private enterprises.
Investment Capital of owners: Found in state-owned enterprises.
Loan Capital: Capital borrowed from external individuals or organizations.

4. Can charter capital in joint stock companies be adjusted?

Charter capital may be increased or decreased at the company’s request, under the following circumstances:

The company issues additional shares to increase charter capital.
Upon the resolution of the General Meeting of Shareholders, the company may return part of the contributed capital to shareholders in proportion to their shareholding, provided it has operated for over two years since registration and can fully settle its debts and liabilities afterward.
The company redeems issued shares at the shareholders’ request or as per company resolution under Articles 132 and 133.
If shareholders fail to fully pay the subscribed shares on time as required under Article 113.

The company must promptly register any changes to its charter capital within 10 days of such change. In the case of capital reduction, the company must commit to fully paying all debts and other financial obligations thereafter.

5. What are the procedures for registering and changing charter capital?

The process includes:

1. Convening the General Meeting of Shareholders to pass a resolution on the capital change;

2. Submitting an application for charter capital change to the Business Registration Authority within 10 days from the date of change (Article 30);

3. The authority has three working days from receipt of the application to assess its validity and issue a new enterprise registration certificate;

4. Receiving the updated certificate reflecting the new charter capital amount.

IV. Legal advisory services on charter capital

To ensure compliance with legal requirements and avoid potential risks when handling matters related to charter capital, seeking support from professional legal consulting services is highly recommended. NPLaw offers comprehensive legal services, including contract drafting, legal advice, and assistance with relevant procedures. This professional support helps save time and ensures that transactions are successfully and lawfully executed.