Circular No. 11/2000/TT-BTC guiding financial management regulations for joint-stock securities companies and limited liability securities companies.

CIRCULAR

Guidelines on financial management for

Joint Stock Securities Companies and Limited Liability Securities Companies

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Pursuant to the Enterprise Law adopted by the Fifth Session of the Tenth National Assembly on June 12, 1999;

Pursuant to the Prime Minister's Decision No. 853/1997/CT-TTg dated October 11, 1997 on combating smuggling under new circumstances;

Pursuant to Decree No. 48/1998/NĐ-CP dated July 11, 1998 of the Government on securities and the securities market;

The Ministry of Finance issues guidelines on financial management for joint stock securities companies and limited liability securities companies as follows:

PART I

GENERAL PROVISIONS

1. These Circulars only guide the financial management regime for joint stock securities companies and limited liability securities companies (hereinafter referred to as securities companies) legally established in Vietnam, which have been granted licenses by the State Securities Commission to conduct one or more types of securities business.

2. Securities companies are liable for their capital and assets, the results of their operations, and have obligations towards the State Budget and the responsibility to preserve the capital of shareholders and contributing members.

3. Securities companies are subject to financial management by state financial authorities, and are responsible for implementing the financial management regulations stipulated in these Circulars and related legal documents. Accounting entries and final financial reports must be prepared according to current accounting regimes.

Chapter II

SPECIFIC PROVISIONS

I. SOURCES OF CAPITAL FOR SECURITIES COMPANIES

1. Registered Capital: This is the amount of capital contributed by all members and recorded in the Company's Charter. The registered capital of a securities company includes:

1.1. State-owned Capital Contribution

- State-owned capital contributed by state enterprises through purchasing shares of joint stock securities companies or contributing capital to limited liability securities companies. This capital may be in the form of money, land use rights, land rental fees, or the value of other assets.

- Retained earnings from state enterprises' capital contributions that are kept to increase the registered capital of the securities company (if applicable).

- Accumulated reserves of the securities company formed by setting up supplementary registered capital reserve funds corresponding to the proportion of state enterprise capital contributions in the securities company.

1.2. Non-State-owned Capital Contributions:

- Capital contributions by members to limited liability securities companies, and share contributions by shareholders to joint stock securities companies.

- Accumulated reserves of the securities company formed by setting up supplementary registered capital reserve funds corresponding to the proportion of non-state enterprise capital contributions in the securities company.

- Retained earnings from non-state enterprise capital contributions kept to increase the registered capital of the securities company (if applicable).

2. Raised Capital of Securities Companies Includes:

- Raising capital through issuing shares (except for limited liability securities companies)

- Raising capital through issuing bonds

- Borrowing from domestic and foreign organizations

- Accepting joint venture capital contributions and other forms.

3. Other Sources of Capital (Capital formed during the settlement process, entrusted investment capital, received aid capital, etc.)

4. Funds and profits formed during the profit distribution process.

The formation, raising, management, and utilization of capital sources for securities companies must comply with current state regulations for joint stock companies and limited liability companies, as well as regulations on securities trading activities.

II. CAPITAL PRESERVATION FOR SECURITIES COMPANIES

Securities companies must independently preserve their capital, ensure safety for participating capital contributors, guarantee liquidity during operations, and enhance the efficiency of capital usage. Capital preservation for securities companies is implemented through the following methods:

1. Establishing mandatory reserve funds as stipulated in Section IV, Clause 3, Chapter II of this Circular.

2. Provisions deducted as expenses

a. Provision for reduction in value of securities calculated separately for each type of security as follows:

- Securities companies must establish separate provisions for each type of reduced-value security and consolidate them as the basis for accounting entries in the company's operating costs.

- Reduction in value provisions are included in the company's operating costs of the reporting year to anticipate potential losses in the following year, providing the company with financial resources to offset potential losses in the following year to preserve business capital.

- Securities companies must reverse reduction in value provisions into company income. Reversal of previously established provisions and establishment of new provisions are conducted at the time of closing the accounting books to prepare the annual financial report.

b. Provisions for payment risks, at a rate of 0.1% of the total payment value.

3. Purchasing insurance for assets and other necessary insurances for the operation of securities companies.

III. MANAGEMENT OF REVENUE AND EXPENSES FOR SECURITIES COMPANIES

1. Revenue of securities companies includes the following items:

a. Revenue from business activities:

- Brokerage commission fees from securities transactions.

- Profits from securities trading.

- Portfolio management fees.

- Fees from underwriting issuance activities.

- Investment advisory fees for securities.

- Securities deposit fees.

- Securities transaction fees.

- Dividends and interest received from securities owned by the company.

b. Revenue from financial activities including: interest income and other revenues from financial activities.

c. Revenue from other activities

- Rental income from assets.

- Penalties, recovered debts written off, reversals of provisions made in previous years but not used or fully utilized, proceeds from liquidation, sale of assets, and other revenues.

2. Expenses of securities companies

a. Securities trading expenses:

- Fees for securities trading center members (for securities companies that are members of the Securities Trading Center).

- Listing and registration fees for securities (for securities companies issuing listed securities on the Securities Trading Center).

- Share and bond custody fees.

- Securities trading fees.

- Underwriting issuance agency fees.

- Re-listing fees for shares and bonds.

- Withdrawal fees for shares and bonds.

- Transfer fees for shares and bonds.

- Deposit fees for shares and bonds.

- Fees for using the Securities Trading Center's equipment system.

- Postage fees, maintenance and repair of fixed assets, purchase of labor tools, travel expenses, loading and transportation costs, operational costs for cash management, inspection and audit costs

- Advertising, marketing, promotional, reception, ceremonial, transaction, external relations costs, conference costs, and other costs implemented according to regulations: not exceeding 7% of total costs in the first two years of establishment, and not more than 5% of total costs from the third year onwards

- Depreciation costs of fixed assets

- Material and tool costs

- External service costs

- Wages and wage-like allowances according to current regulations and as determined by the Board of Directors

- Contributions made according to state regulations such as social insurance, health insurance, trade union fees.

b. Financial activity costs

- Interest payment on loans

- Interest payment on bonds

- Costs of leasing assets used in business operations

- Other expenses.

c. Payment of taxes, fees, and charges as prescribed by law.

d. Other legitimate and reasonable costs

- Provisions for costs as stipulated in Section II, Chapter II of this Circular.

- Costs to collect penalties according to established regulations

- Severance pay costs for employees as prescribed

- Professional training costs

- Uniform and occupational safety costs

- Meal allowance costs, not exceeding the minimum wage set by the State for civil servants

- Liquidation and sale costs of assets

- Asset insurance and other necessary insurances

- Annual membership fee payments to associations that the securities company participates in

- Other costs.

3. Securities companies shall not include the following items in their cost accounts:

- Losses compensated by the Government or by the party causing the loss or by insurance agencies;

- Penalties for administrative violations, environmental violations, overdue loan penalties, financial system violation penalties, and other penalties;

- Overseas travel costs exceeding the limit set by the Board of Directors;

- Costs from welfare and reward funds;

- Regular and extraordinary hardship allowances, charitable donations;

- Support contributions to organizations, social groups, and other agencies, except for educational support contributions such as contributions to the Education Fund and assistance to disabled students;

- Construction investment and fixed asset procurement costs.

- Expenses covered by other funding sources.

IV. DISTRIBUTION OF PROFITS AND ESTABLISHMENT OF FUNDS

The profit of a securities company is defined as the difference between Total Revenue (-) Total Expenses (including statutory taxes). Profit also includes profits from previous years discovered in the current year and deducts losses as specified under current regulations determined in the annual settlement.

After paying corporate income tax according to the Law, the realized profit of a securities company in the year is distributed in the following order:

1. Deduct administrative fines for tax violations, business registration violations, overdue loan penalties, accounting and statistical system violation penalties, economic contract violation penalties (after offsetting revenue from penalties against penalties incurred), legitimate costs deductible when determining the corporate income tax payable;

2. Deduct pre-tax losses not included in the profit before corporate income tax;

3. After deducting the above amounts, the remaining profit (considered as 100%) is distributed as follows:

- Establish a supplementary capital reserve fund at 5% of net profit annually. This fund will be established until it equals 10% of the securities company's registered capital.

- Establish a mandatory reserve fund at 5%. This fund will be established until it equals 10% of the securities company's registered capital;

- Distribute dividends to shareholders of a joint-stock securities company (or distribute profits to limited liability securities companies) based on the amount of capital contributed by shareholders or contributing members;

- Establish other funds.

V. PURPOSES OF FUNDS

1. Supplementary Capital Reserve Fund: Used to increase registered capital, expand business activities.

2. Mandatory Reserve Fund: Used to ensure the security of the securities company, handle unforeseen events.

Securities companies may not use these funds to pay dividends.

3. Other funds: Used according to the Board of Directors' regulations in accordance with the annual resolutions of the Shareholders' Meeting.

Chapter III

ACCOUNTING - STATISTICAL REPORTING - AUDITING

1. The fiscal year of a securities company begins on January 1 and ends on December 31 each year.

2. Securities companies are responsible for accounting entries and financial reporting in accordance with the current accounting and statistical regulations of the State.

3. Annually, securities companies must conduct an audit of their financial reports. The audit is carried out by an independent auditing firm after approval by the State Securities Commission.

4. Securities companies are responsible for preparing and submitting financial reports to the Ministry of Finance, tax authorities, and the State Securities Commission on a quarterly and annual basis. Quarterly reports must be submitted no later than 15 days after the end of the quarter; annual reports must be submitted no later than 45 days after the end of the year.

a. The annual report of a securities company includes the following documents:

- Annual operation report

- Financial statements including:

+ Balance sheet

+ Income statement

+ Cash flow statement

+ Notes to the financial statements

+ Statement of sources and uses of funds

+ Report on the establishment and use of funds, distribution of dividends.

b. Quarterly reports include the following documents:

- Balance sheet

- Income statement

- Cash flow statement

- Statement of sources and uses of funds.

5. At the end of the fiscal year, within 45 days, securities companies must publicly disclose their finances. Annual financial reports must be confirmed by an independent auditor.

6. Depending on specific circumstances, the Ministry of Finance will coordinate with relevant agencies to review the annual financial settlement of securities companies if deemed necessary.

Chapter IV

IMPLEMENTATION

This Circular takes effect from the date of signature. During implementation, any issues should be promptly reported to the Ministry of Finance for consideration and resolution.