What is investment capital withdrawal? Legal regulations and risks enterprises should be aware of

In the context of increasingly complex business operations, investment capital withdrawal has become a concerning issue that poses significant legal and financial risks. Accordingly, properly identifying its nature, understanding the relevant legal regulations, and recognizing the mechanisms for handling such conduct are critically important. The following article provides a comprehensive analysis of the legal aspects surrounding such an issue.

I. Current situation relating to investment capital withdrawal

In recent years, investment capital withdrawal within enterprises has shown a growing trend, with increasingly sophisticated and difficult-to-control methods. Such conduct is commonly conducted through internal transfer pricing, non-transparent contractual arrangements, or abuse of managerial authority to transfer assets out of the enterprise.

Notably, investment capital withdrawal does not only occur in private enterprises but may also arise in joint-stock companies and companies with multiple capital contributors, particularly where internal control mechanisms remain weak. In many cases, minority shareholders or external investors face difficulties in timely detecting and preventing such conduct.

Such a situation results in numerous serious consequences, including loss of corporate assets, reduction in share value, adverse impacts on the rights and interests of shareholders and creditors, and even prolonged legal disputes. Thus, early identification and the establishment of effective control mechanisms against investment capital withdrawal have become urgent requirements in modern corporate governance.

II. Concept of investment capital withdrawal

1. What is investment capital withdrawal?

Investment capital withdrawal refers to an act whereby an investor unlawfully withdraws contributed capital or equivalent asset value from an enterprise through indirect transactions that effectively reduce the company’s actual capital without following the lawful procedures for capital reduction prescribed by law.

The nature of such conduct lies in the violation of the principle of capital preservation and is commonly performed through forms such as transferring assets out of the company, entering into transactions not conducted at market prices, or exploiting internal relationships to withdraw corporate assets.

Pursuant to Clause 2 Article 119 of the Law on Enterprise 2020 (as amended and supplemented in 2025), shareholders are prohibited from withdrawing contributed capital from the company in any form, except for lawful cases such as share transfers or charter capital reduction conducted in accordance with legal regulations.

Investment capital withdrawal constitutes unlawful capital withdrawal, carries significant legal risks, and may result in compensation obligations or other legal liabilities for the individuals involved.

2. Which parties may commit investment capital withdrawal within an enterprise?

Investment capital withdrawal within an enterprise may be committed by various parties; however, the most common are shareholders and enterprise managers.

Pursuant to Clause 2 Article 119 of the Law on Enterprise 2020 (as amended and supplemented in 2025), shareholders are prohibited from withdrawing capital contributed through ordinary shares in any form, except where such shares are repurchased by the company or another party. Thus, if shareholders intentionally withdraw capital unlawfully (for example, by withdrawing money or transferring assets out of the enterprise under another designation), such shareholders are deemed direct perpetrators of investment capital withdrawal and shall take joint liability for the company’s debts and asset obligations within the scope of the value unlawfully withdrawn.

In addition, enterprise managers (such as members of the Board of Directors, Directors, or General Directors) may also commit investment capital withdrawal by abusing their positions to appropriate or unlawfully use company assets. Such conduct not only breaches managerial duties but may also result in civil, administrative, or criminal liability depending on the severity of the violation.

3. What are the common purposes behind investment capital withdrawal?

In practice, investment capital withdrawal is often conducted for non-transparent purposes contrary to the interests of the enterprise. Common purposes include:

• Misappropriation of corporate assets: Transferring corporate assets or cash flows out of the enterprise for personal benefit or the benefit of affiliated interest groups.
• Maximization of personal interests: Abusing managerial positions to execute transactions benefiting related parties (such as affiliated companies or relatives).
• Concealment of poor financial conditions: Conducting internal transactions to distort financial statements and mislead shareholders or investors.
• Asset dissipation to evade obligations: Withdrawing assets before the enterprise incurs debt repayment obligations or faces potential legal proceedings.
• Preparation for divestment or transfer transactions: Artificially reducing the actual value of the enterprise to facilitate buybacks at lower prices or generate illicit gains in transfer transactions.

III. Legal regulations relating to investment capital withdrawal

1. Which acts are considered investment capital withdrawal within an enterprise?

Investment capital withdrawal refers to acts that unlawfully reduce the value of contributed capital in an enterprise without complying with legally prescribed procedures for capital reduction.

Pursuant to Clause 2 Article 119 of the Law on Enterprise 2020 (as amended and supplemented in 2025), shareholders are prohibited from withdrawing contributed capital from the company in any form. Accordingly, the following acts are commonly considered investment capital withdrawal:

• Direct withdrawal of contributed money or assets from the company without lawful procedures (such as share transfer or capital reduction).
• Establishment of sham transactions (fictitious contracts or non-genuine sale transactions) to transfer corporate assets externally.
• Transfer of assets or profits to individuals or related parties not conducted at market prices or without lawful grounds.
• Abuse of managerial authority to appropriate or use company assets for personal purposes.
• Unlawful payments, advances, or internal loans intended to extract funds from the enterprise.

2. Through which forms can investment capital withdrawal be implemented?

Investment capital withdrawal is generally not conducted openly but instead implemented through indirect and sophisticated methods intended to conceal the unlawful nature of the capital withdrawal. Common forms include:

• Sham transactions (fictitious contracts): Executing purchase or service agreements that are non-genuine or disproportionate in value to transfer funds out of the company.
• Transfer pricing and non-market transactions: Selling company assets to related parties at abnormally low prices or purchasing assets at inflated prices to siphon funds.
• Unlawful internal loans or advances: Using the reason of loans or advances to transfer funds to shareholders, managers, or related parties without genuine repayment capability.
• Unlawful distribution of benefits: Paying fictitious remuneration, bonuses, or dividends, or distributing profits before legal conditions are satisfied.
• Abuse of managerial authority to appropriate assets: Enterprise managers directly using company funds or assets for personal purposes.
• Transfer of assets to affiliated companies: Conducting transactions with related enterprises to shift capital value externally.

3. How may investment capital withdrawal be handled?

investment capital withdrawal constitutes unlawful conduct and, depending on its nature and severity, may be subject to various sanctions:

• Civil Liability: Pursuant to Article 360 of the Civil Code 2015, parties breaching obligations must compensate for all damages incurred. In addition, under Clause 1 Article 166 of the Law on Enterprise 2020 (as amended and supplemented in 2025), enterprise managers must return benefits obtained from violations and take personal liability for damages caused to the company.
• Administrative Sanctions: Where the conduct does not yet warrant criminal prosecution, violating individuals or organizations may be subject to monetary fines, remedial measures, and obligations to repay unlawfully withdrawn funds in accordance with regulations governing sanctions in the fields of accounting, investment, and enterprise management.
• Criminal Liability: Depending on the specific conduct, offenders may be prosecuted under provisions of the Criminal Code 2015 (as amended and supplemented in 2017 and 2025), including:
• Article 174: Fraudulent appropriation of property
• Article 175: Abuse of trust to appropriate property
• Article 353: Embezzlement of property (applicable to persons holding positions or powers)

IV. Questions relating to investment capital withdrawal

1. Do shareholders or capital-contributing members have the right to request an inspection when suspecting investment capital withdrawal?

Enterprise law permits shareholders and capital-contributing members to exercise inspection and supervisory rights when signs of violations arise. Specifically:

• For joint-stock companies: Pursuant to Clause 2 Article 115 of the Law on Enterprise 2020 (as amended and supplemented in 2025), shareholders or groups of shareholders meeting the statutory ownership ratio are entitled to examine and inspect accounting books, financial documents, and company reports.
• For limited liability companies: Pursuant to Articles 49 and 56 of the Law on Enterprise 2020 (as amended and supplemented in 2025), members have the right to inspect accounting records, company files, and management and operational activities.
• Right to request intervention: Shareholders and members may also request the convening of meetings, require the Supervisory Board (if any) to conduct inspections, or initiate lawsuits against managers under Article 166 of the Law on Enterprise 2020 (as amended and supplemented in 2025) where harmful conduct is discovered.

2. Upon discovering investment capital withdrawal, may minority shareholders initiate lawsuits to claim compensation for damages?

Minority shareholders fully possess the right to initiate legal proceedings to protect both the company’s interests and their own lawful interests.

• Legal basis: Pursuant to Clause 1 Article 166 of the Law on Enterprise 2020 (as amended and supplemented in 2025), shareholders or groups of shareholders meeting the statutory ownership ratio may initiate lawsuits on behalf of the company against managers who breach obligations and cause damage to the company.
• Conditions for exercising the right to sue: Shareholders must demonstrate violations of the duties of honesty, prudence, and loyalty of managers under Article 165 of the Law on Enterprise 2020 (as amended and supplemented in 2025), together with actual damages incurred.
• Scope of claims: Shareholders may request compensation for damages, recovery of misappropriated assets, or return of benefits unlawfully obtained through investment capital withdrawal.

3. Does investment capital withdrawal affect the rights and interests of creditors?

Investment capital withdrawal directly affects the enterprise’s solvency and the lawful rights and interests of creditors.

• Reduction of the enterprise’s solvency: Asset dissipation weakens the company’s financial resources, resulting in risks of non-performance or incomplete performance of debt repayment obligations under Article 274 of the Civil Code 2015.
• Infringement upon creditors’ rights: When assets are withdrawn from the enterprise, creditors may suffer losses due to their inability to recover debts, thereby leading to disputes.
• Creditors’ right to seek protection: Creditors have the right to initiate lawsuits demanding payment, seek compensation for damages, or request the application of provisional emergency measures in accordance with procedural law.
• Risk of legal liability: Individuals committing investment capital withdrawal may be compelled to return assets, compensate for damages, or even take criminal prosecution if serious consequences occur.

4. May enterprises request the freezing of assets belonging to persons committing investment capital withdrawal?

Pursuant to Articles 111 and 114 of the Civil Procedure Code 2015 (as amended and supplemented in 2025), during the course of dispute resolution, courts may apply provisional emergency measures, including freezing bank accounts or seizing assets of obligated parties in order to ensure proper resolution and enforcement of judgments.

Such measures may be applied where there are grounds to believe that, without freezing, assets could be dissipated or concealed, thereby causing difficulties in judgment enforcement.

Therefore, upon discovering investment capital withdrawal, enterprises or shareholders have the right to request courts to apply asset-freezing measures to secure asset recovery and compensation for damages.

5. Must persons committing investment capital withdrawal return the misappropriated assets?

Pursuant to Clause 2 Article 119 of the Law on Enterprises 2020 (as amended and supplemented in 2025), shareholders are prohibited from withdrawing contributed capital; where capital is unlawfully withdrawn, such shareholders must bear joint liability for the company’s asset obligations and resulting damages.

In addition, under Clause 1 Article 166 of the Law on Enterprise 2020 (as amended and supplemented in 2025), company managers who breach obligations must return benefits unlawfully obtained and compensate for damages caused to the company.

Furthermore, based on Article 360 of the Civil Code 2015, parties breaching obligations must compensate for all damages arising from their conduct.

Accordingly, individuals committing investment capital withdrawal are obligated not only to return the misappropriated assets but also to compensate for all resulting damages.

V. Why should you seek legal advice from NPLaw regarding investment capital withdrawal?

Investment capital withdrawal is a complex issue often involving multiple parties, financial transactions, and serious disputes. The involvement of legal counsel enables enterprises and shareholders to promptly control risks and protect their lawful interests. NPLaw offers the following outstanding advantages:

• Accurate assessment and identification of violations: Lawyers analyze transactions, cash flows, and internal records to identify signs of investment capital withdrawal.
• Strategic legal solutions: Providing suitable approaches such as demanding return of assets, initiating lawsuits, or requesting intervention from competent authorities.
• Comprehensive preparation of legal documents: Assisting in preparing evidence and legal filings to ensure legal validity and effectiveness when dealing with courts or regulatory authorities.
• Representation in dispute resolution: Participating in negotiations and litigation to safeguard the lawful rights and interests of enterprises and shareholders.
• Future risk prevention: Reviewing and improving internal regulations and financial control mechanisms to minimize recurrence of investment capital withdrawal.

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