Joint stock companies and forms of charter capital increase

During the production and business process, capital always plays a very important role – a premise condition that allows companies to implement their plans. The larger the size of the business, the higher the demand for the capital of the companies. In principle, companies can mobilize business capital through 02 basic forms: loan capital and the owner’s contributed capital (in the form of charter capital of the company). Based on the legal provisions on enterprises, each type of company will have its own forms of increasing charter capital by its characteristics. To provide readers with an overview of legal regulations related to the above methods of capital mobilization, this article will mention the forms of charter capital increase in joint stock companies – the type of companies with the most diverse form of capital increase and not limited to the number of owners.

The charter capital of a joint-stock company is understood as the total par value of shares of all kinds sold (usually the most common par value of each share is 10,000 VND). Charter capital at the time of registration for the establishment of a joint-stock company is the total par value of shares of all kinds that have been registered for purchase and recorded in the Charter. The charter capital of a joint-stock company may be changed during its operation, depending on the level of development as well as business activities of the company, but must ensure compliance with the laws.

In accordance with the law on enterprises, the charter capital increase of a joint-stock company is the competence of the general meeting of shareholders and depending on the actual situation, the joint-stock company may choose to increase its charter capital in one of the following forms:

Firstly, offering new shares to existing shareholders

An offering of shares to existing shareholders is a case where the company increases the number of new shares and sells all of them to all current owners of the company (existing shareholders) in proportion to their ownership. Accordingly, the number of shareholders of the company remains the same but still increases the charter capital.

The offering of shares to existing shareholders in a company that is not a public company must be carried out in accordance with the order prescribed in the enterprise law, particularly the time limit for notifying shareholders, the content and form of the notification, direction of handling in case the shares offered for sale are not registered to buy out,..

Secondly, offering new shares to the public

Public offering of shares is a form of external capital raising and is only applicable to companies that meet the conditions to become public companies. The public offering of new shares must meet the conditions and procedures specified in Law on Securities.

Thirdly, private placement of shares

In addition to offering shares to the public, private placement of shares is also a form of external capital raising but with small scale applying for joint-stock companies that are not public companies. The target buyer who can buy shares is usually a professional stock investor, and there are usually fewer than a hundred investors. The process of conducting a private placement of shares is specified in the enterprise law and must be properly implemented by the companies during the implementation process.

Fourthly, payment of dividends in shares

Unlike the three above-mentioned forms, the charter capital increase through the form of dividend payment in shares can only be applied in cases where the joint-stock company does business profitably and has completed/ensured the fulfillment of financial obligations when due, such as paying taxes in full, setting up the necessary reserve funds, paying off debts, etc. When choosing this form, a joint-stock company does not have to carry out procedures for offering new shares, but it should be noted that if a joint-stock company is a public company, it is necessary to carry out a number of procedures for notification and approval in accordance with Law on Securities before finalizing the list of shareholders to receive dividends in shares.

After completing the capital increase through the above forms, a joint-stock company must register information about the new charter capital at the competent authority, specifically carry out procedures for increasing charter capital corresponding to the total par value of shares used to pay dividends/shares (new issuance) purchased within 10 days from the date of completion of the payment of dividends/offerings. In addition, companies also need to update new information about shareholders in the shareholders’ book to ensure their interests as well as compliance with the law and the company’s charter.

To ensure that the capital increase of a joint stock company complies with the law and avoids possible legal risks, companies should carefully study the relevant legal provisions before deciding to apply the appropriate form of capital increase.

Src: PLF