Charter capital – the total value of assets contributed or committed to contribute by members when establishing a limited liability company or partnership; the total par value of shares sold or registered for purchase when establishing a business for a joint-stock company. Increasing charter capital is the process of restructuring the company’s charter capital. LSX Lawfirm will give you an article about: “Reasons to increase the company’s charter capital in Vietnam”, as follows:
Legal grounds
Law on enterprises 2020
Reasons to increase the company’s charter capital in Vietnam
Charter capital the total value of assets contributed or committed to contribute by members when establishing a limited liability company or partnership; the total par value of shares sold or registered for purchase upon business establishment, for a joint-stock company.
Increasing the company’s charter capital is the process of restructuring the company’s charter capital. Increasing the company’s charter capital can be because the owner invests capital in business development or calls for investment capital.
The purpose of increasing charter capital is to help the company increase its financial capacity and open up many development opportunities in business activities. Moreover, increasing the company’s charter capital confirms the company’s sustainable development. Thereby creating trust of shareholders, establishing trust with partners.
What does a bank increase its charter capital for?
The increase in charter capital will be the driving force for banks to continue to regain market share in the coming time; at the same time, contributing to strengthening financial capacity, helping banks increase medium-long-term capital sources to expand business activities when the ratio of using short-term capital for medium-long-term loans tightened according to the roadmap presented in Circular 08/2020/TT-NHNN of the State Bank of Vietnam – SBV.
The increased capital used by the bank to supplement the scale of operating capital, serving the needs of business expansion, in which investment and development of digital technology to improve the bank’s competitiveness.
The increase in charter capital is an important milestone in the development plan and orientation of the bank in order to improve financial potential and strengthen capital adequacy, creating a premise for comprehensive investment in facilities, system, technology, maintain and improve the operational efficiency of the bank; at the same time diversifying products and services to better meet the needs of customers across the country.
What is the effect of increasing charter capital?
Increasing the company’s charter capital is an activity the company regularly performs when it wants to expand the scale of its business operations and increase the bank’s loan limit. Besides the positive side of this activity, the company needs to understand and anticipate the risks before implementing.
The benefits of raising capital can include:
- Increase business capital, investment;
- Increase bank loan limit;
- Then increase the stability and development of the company;
- Increase the trust of the company in the partners, creditors;
- Contributing to ensuring legal safety in business investment activities, market expansion
- Limit the takeover of some members/shareholders in the company.
Risks of raising capital:
- Increases the company’s ability to take responsibility for assets/materials in the performance of obligations and debts to partners and creditors;
- Increases the annual license fee payment of the company because the license fee is based on the company’s charter rate.
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When increasing charter capital, it must be notified to the business registration agency, it is necessary to prepare documents for implementation, including the following contents:
- Minutes of the meeting of the implementation of the change of charter capital.
- Notice of change of business registration information.
- Authorization/referral documents of the applicant.
- List of shareholders/members after making changes.
- The decision of changing the charter capital level.
- The dossier processed within 3 working days from the date of receiving the complete and valid dossier.
Enterprises will be able to increase charter capital in the following cases:
- When receiving capital contributions from new members.
- When increasing the capital contribution from members.
- In the case of an increase in the amount of capital contributed from a member, the additional capital contributiondistributed to the members based on an equivalent proportion of the contributed capital of each member in the charter capital. of the enterprise.
- All members can transfer their right to contribute capital to others based on the provisions of Article 53 of this Law. When a member has an objection to the decision to increase the charter capital, it may not be necessary to contribute more capital.
- In this case, the additional capital contributed from that member distributed to other members based on proportionately compared to the contributed capital of each member in the charter capital of the enterprise if such members do not have other agreements.
Related questions
Members or shareholders are responsible for contributing capital within 90 days after being granted business registration (maximum as prescribed by law).
However, the time commitment to contribute may be shorter; depends on the agreement of the members and shareholders in the company’s charter. That is, shareholders, members before the establishment of the company, it is good to contribute capital; otherwise that’s okay as there is a maximum of 90 days to make arrangements. So what if the registered charter capital is not fully contributed? For example, a joint stock company must reduce the charter capital of a joint stock company or negotiate to maintain the ratio with the amount of contributed capital.
Firstly, a cooperative is a collective economic organization with the nature of a social organization; The State has created many favorable conditions for development. Among them, there are great incentives and are noticed by many businesses. For example, tax exemption or reduction; allocated to land with “golden” position.
Second, according to the provisions of Article 34, the percentage of votes for important issues is 75% or more; the voting rate on unimportant issues is over 50%. In other words; percentage veto on important issues of a cooperative 49%. If another member holds more than 49%; that the member is a business; then it will create a situation where that enterprise is entitled to the State’s incentives and does not operate in accordance with the initial will of the State when establishing the cooperative.
Third, cooperatives are established by at least 7 members. If the charter capital of a cooperative is 100%, each person must contribute at least 14%. Regulation no more than 20% to accommodate this.
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