Part 1. Some notes on the right to withdraw contributed capital out of an enterprise and the practices of related dispute resolution

Right to withdraw the contributed capital

With the aim of seeking profits, individuals and organizations often mutually contribute capital to set up an enterprise and then conduct business activities. The capital contributed by members constitutes the charter capital of the enterprise associated with the enterprise’s existence until dissolution or bankruptcy. Having invested money, assets and intelligence in the enterprise, individuals and organizations are especially concerned about their right to withdraw their contributed capital out of the enterprise as desired.

In part 1 of this subject, BLawyers Vietnam would like to present some notes on the rights and methods of withdrawing capital in businesses under the laws of Vietnam.

1. Conditions and methods of withdrawing capital out of the enterprise

In principle, Vietnamese business law limits the right to withdraw contributed capital by capital-contributing organizations and individuals. For the purpose of securing an enterprise’s liability over the debt and other property obligations, capital-contributing members are only entitled to capital withdrawal in certain cases and specific methods as prescribed by law.

Subject to the type of enterprise, the right to withdraw capital by capital-contributing organizations and individuals is different under the law as follows:

a. Single-Member Limited Liability Company

A single-member limited liability company (“LLC”) is an enterprise owned by only one organization or individual that contributes 100% of the charter capital.

The owner of the single-member LLC is allowed to withdraw capital in the following forms:

(i) Transferring a part or all of the company’s charter capital to another organization(s) or individual(s). In this case, the company’s charter capital shall not be reduced. Depending on whether the charter capital is transferred in whole or in part, the company has to either change or not change the type of enterprise.

(ii) The company returns a part of the contributed capital to its owner, providing that the company has operated for at least 02 consecutive years as of the enterprise’s establishment and that the full payment of all debts and other property liabilities is secured after the refund of contributed capital to the owner. In this case, the company’s charter capital will be reduced by a portion corresponding to the returned capital.

b. Multiple-Member LLC

A multiple-member LLC is an enterprise that has 02 – 50 members that may be organizations or individuals. Capital-contributing members of the multiple-member LLC are not allowed to withdraw their contributed capital by any method other than methods specified by the law, including:

(i) Requesting the company to repurchase contributed capital. Accordingly, such request can only be made if that member has voted to oppose the Board of Members’s resolution or decision on the following issues:

  • Amendments and supplementation to the company’s charter regarding the rights and obligations of members and the Board of Members;
  • Re-organization of the company; or
  • Other issues as prescribed by the company’s charter.

In this case, the company’s charter capital shall be reduced.

(ii) Transferring a part or all of the contributed capital in accordance with the law. In principle, the capital intended to be transferred must be offered in advance to remaining members of the company corresponding to their current ownership ratio. If those members fail to purchase or fully purchase within 30 days from the offering date, the capital is allowed to be transferred to others. In this case, the company’s charter capital shall be unchanged.

(iii) The company returns a portion of contributed capital to all members corresponding to their capital ownership proportion in the company’s charter capital; accordingly, the same conditions as applicable to the single-member LLC mentioned above are required. In this case, the company’s charter capital shall be reduced.

Note: The refund of a part of the contributed capital shall be made to all members, not to or at the separate request of a certain member.

(iv) In addition, there are some cases where organizations and individuals are considered to “withdraw capital” and are no longer capital-contributing members of the company as follows:

  • Using contributed capital to pay debt. Accordingly, the beneficiary may become a member of the company if accepted by the Board of Members or may offer to sell or transfer the contribution capital.
  • Giving away all of his/her contributed capital as a gift to another person. If the beneficiary is not a lawful heir of a donating member by Vietnamese law and then is not accepted by the Board of Members to become a new member of the company, the capital of the beneficiary shall be acquired by the company or transferred according to the law.
  • Inheriting contributed capital from a capital-contributing member but with no desire to become a new member of the company; then such capital portion will be repurchased by the company or transferred according to the law.
c. Joint Stock Company

Organizations and individuals that own capital (known as shares) in a joint stock company are called shareholders. Similar to a multiple-member LLC, shareholders of a joint stock company can only withdraw capital out of the company in the following forms:

(i) Shares re-purchased by the company. By law, shareholders who have voted to disapprove the resolution on reorganization of the company or change of shareholders’ rights and obligations in the company’s charter are entitled to request the company to re-purchase their shares. The company is also entitled to decide at their discretion to re-purchase up to 30% of the total ordinary shares.

(ii) Shares re-purchased by others parties: Shareholders transfer shares in accordance with the law.

(iii) A part of contributed capital returned by the company to all shareholders corresponding to their share ownership proportion under the decision of the General Meeting of Shareholders. Accordingly, the same conditions as applicable to a single-member LLC or a multiple-member LLC mentioned above are required.

(iv) Donating all or part of shares to other organizations and individuals; using shares to pay debts. Accordingly, the beneficiaries will become a shareholder of the company.

If the shareholder withdraws share capital contrary to the law, that shareholder and persons with related interests in the company shall be jointly liable for the company’s debts and other property liabilities corresponding to the value of the shares withdrawn and the actual damage caused by this action.

d. Partnership

A partnership must have at least two individuals as partnership members/ general partners and may have other individuals and/or organizations as capital contributors. The partnership members are responsible for company liabilities with all of their assets. Capital-contributing members are responsible for company debt within the amount of capital they have committed to contribute.

General partners have the right to withdraw capital from the partnership if approved by the Board of Members. In this case, general partners must notify in writing the request to withdraw capital no later than 06 months before the capital withdrawal date; capital can only be withdrawn at the end of the fiscal year and when the financial statement of that fiscal year has been approved.

Within 02 years from the date of capital withdrawal, general partners must still be jointly responsible with all of his or her assets for the company’s debts incurred before the date of capital withdrawal.

In addition, a general partner can also withdraw capital by transferring part or all of his or her capital contribution in the company to another person if approved by the remaining general partners.

Withdrawal of capital by capital-contributing members is carried out in the form of transferring the capital contribution to another person. Capital-contributing members are free to transfer their capital contributions to others.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.

Date: 20 February 2024

Writer: Trinh Nguyen

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