Circular No. 19/2003/TT-BTC guiding the adjustment of registered capital increase and decrease and management of treasury shares in joint-stock companies

CIRCULAR

Guidelines for Increasing and Decreasing Registered Capital and Managing Treasury Shares in Joint Stock Companies

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Based on the Enterprise Law and guiding documents implementing the Law;

Based on state regulatory documents governing securities transactions and the securities market;

The Ministry of Finance provides guidance on certain financial issues related to increasing and decreasing registered capital and managing (buying, selling, using) treasury shares in joint stock companies as follows:

I- GENERAL PROVISIONS

1. The Circular applies to joint stock companies established and operating under the Enterprise Law.

For financial, credit, insurance, and securities organizations operating in the form of joint stock companies, adjustments to increase or decrease registered capital and the purchase, sale, and use of treasury shares shall be carried out in accordance with the provisions of specialized regulatory documents.

2. In this Circular, the following terms are understood as follows:

a. Shareholders' capital at a point in time: Determined by the net equity capital minus the balance of incentive funds, welfare funds, and joint venture capital at that time;

b. Treasury shares: Shares of the company itself that have been issued and repurchased by the company from legitimate sources according to the provisions of this Circular;

c. Corporate management personnel: Are the subjects specified in Clause 12, Article 3 of the Enterprise Law;

d. Convertible bonds into shares: Bonds issued by the company that can be converted into share capital contributions in the company according to conditions and times set forth in the convertible bond issuance plan approved by the General Meeting of Shareholders;

đ. Dividend payment in shares: The act of a joint stock company using accumulated post-tax profits (including state tax incentives and reductions) to supplement registered capital while simultaneously increasing shareholdings for shareholders in proportion to their ownership of shares in the enterprise;

3. Activities involving the purchase, sale of treasury shares, and issuance of new shares to raise capital are not considered financial business activities of joint stock companies. Any increases due to the purchase and sale of treasury shares or the issue price of additional new shares exceeding par value must be recorded in the surplus capital account, not in the company's financial income. No corporate income tax or value-added tax shall be levied on these surpluses.

If the selling price of treasury shares is lower than the purchase price, or if the selling price of newly issued shares is lower than par value, the resulting decrease cannot be recorded as expenses and cannot be offset with pre-tax profits but must be offset with surplus capital. If surplus capital is insufficient, it must be offset with post-tax profits and other funds of the company.

II- ADJUSTMENTS TO INCREASE OR DECREASE REGISTERED CAPITAL

Adjustments to increase or decrease registered capital must comply with current laws. Prior to implementing such adjustments, joint stock companies must settle taxes and audit financial statements according to current state regulations. The Board of Directors must develop plans to adjust registered capital for approval by the General Meeting of Shareholders in accordance with the following provisions:

A. ADJUSTMENTS TO INCREASE REGISTERED CAPITAL:

1. The registered capital of a joint stock company may be increased in the following cases:

a. Issuing new shares to raise additional capital in accordance with the law, including restructuring debt through converting debt into share capital contributions upon agreement between the enterprise and creditors.

b. Converting issued bonds into shares: An increase in registered capital can only be implemented when all conditions for bond conversion into shares as stipulated by law and the bond issuance plan are met.

c. Implementing dividend payments in shares.

d. Issuing new shares to implement mergers of parts or all of another enterprise into the company.

đ. Transferring surplus capital to supplement registered capital.

2. The transfer of surplus capital to supplement registered capital of a joint stock company (as provided in subpoint đ of point 1, section A, part II) must comply with the following conditions:

a. Regarding the difference between the selling price and the purchase cost of treasury shares, the company may use the entire difference to increase registered capital. If treasury shares have not been fully sold, the company may only use the difference between surplus capital and the total purchase cost of unsold treasury shares to supplement registered capital. If the total purchase cost of unsold treasury shares equals or exceeds surplus capital, the company cannot adjust registered capital using this source.

b. Regarding the difference between the selling price and par value of shares issued for investment projects, the joint stock company may only use it to supplement registered capital three years after the completion and operation of the project.

Regarding the difference between the selling price and par value of shares issued for debt restructuring and business capital supplementation, the joint stock company may only use it to supplement registered capital one year after the end of the issuance period.

c. The surplus sources mentioned in subpoints a and b of point 2 shall be distributed to shareholders in the form of shares in proportion to each shareholder's shareholding ratio.

3. The number of additional shares expected to be issued in the cases provided in subpoints c and đ of point 1, section A, part II of this Circular is determined by the formula:

4. The company may not use price differences from self-assessment of assets (when there is no government directive) to increase registered capital.

B. ADJUSTMENTS TO DECREASE REGISTERED CAPITAL:

The registered capital of a joint stock company may be decreased in the following cases:

1. Decreasing registered capital when the company's capital needs decrease due to changes in business operations, reorganization on a smaller scale, or being compelled to cancel treasury shares.

Adjustments to decrease registered capital and payments to shareholders shall be carried out in the following forms:

a. The company purchases and cancels a quantity of treasury shares corresponding to the amount of capital expected to be reduced according to the plan approved by the Shareholders' Meeting, or cancels the required number of treasury shares. Under this method, the company does not have to return money to shareholders.

b. The company recovers and cancels a certain number of shares from shareholders with a total par value corresponding to the reduction in registered capital. Under this method:

- Each shareholder in the company will be recovered a number of shares in proportion to the ratio between the expected capital reduction and the total amount of registered capital of the company at the time before adjustment.

- The company must pay to shareholders an amount calculated according to the following formula:

Amount to be paid to each shareholder (=) Number of shares recovered from each shareholder (X) Par value of share.

c. Adjusting the par value of shares without changing the number of shares. Under this method, the company recovers shares from shareholders and reissues new shares with the adjusted lower par value. The company must pay to shareholders an amount according to the following formula:

Amount to be paid to each shareholder (=) Number of shares of each shareholder (X) Difference between old par value and new par value.

For coal-fired thermal power plants where the enterprise holds 100% of the registered capital and uses 100% of its own capital to invest in the project approved by the competent authority, E is determined as 100%;. Combined form:

Depending on specific circumstances, the joint-stock company may combine the above methods to implement the reduction in registered capital.

2. Reduction of registered capital when the company incurs losses for three consecutive years and has accumulated losses equal to or more than 50% of the capital of shareholders but has not lost the ability to repay maturing debts.

The method of reducing registered capital shall be implemented according to the provisions of paragraph b or paragraph c point 1 section B part II of this Circular. The joint-stock company does not repay money to shareholders.

III- TREASURY SHARES

1. A joint-stock company may repurchase no more than 30% of the total number of ordinary shares issued, a portion or all other types of shares issued as stipulated in Article 65 of the Enterprise Law. A joint-stock company may only use shareholders' funds to repurchase treasury shares in the following cases:

a. Repurchasing shares at the request of shareholders, as stipulated in Article 64 of the Enterprise Law.

b. Repurchasing shares to temporarily reduce the number of circulating shares, increase the post-tax profit margin per share, and increase corporate reserves.

c. Repurchasing shares to sell to employees (including the management board) at a preferential price or reward employees with shares according to the resolution of the Shareholders' Meeting.

Using treasury shares as bonus shares must ensure payment sources from welfare and incentive funds.

The selling price of treasury shares to employees must be lower than the market price at the time of sale, but must not be lower than the purchase price of the treasury shares.

d. Repurchasing shares to adjust the reduction in registered capital according to the resolution of the Shareholders' Meeting.

đ. Repurchasing shares for other purposes, but the use must comply with the provisions of the Enterprise Law, the Company's Charter and Bylaws, and the resolution of the Shareholders' Meeting.

2. Conditions for implementing the plan to repurchase treasury shares:

a. The company has a plan approved by the Shareholders' Meeting for the case of repurchasing over 10% of the total issued shares; or approved by the Board of Directors for the case of repurchasing under 10% of the total issued shares.

b. The company has financial capacity to ensure sufficient payment of all debts and financial obligations of the enterprise.

3. A joint-stock company is not allowed to repurchase treasury shares in the following cases:

a. The company is currently operating at a loss.

b. The company is processing securities issuance procedures to raise additional capital.

c. The company has overdue payable debts.

d. Total overdue receivables exceed 10% of the total capital of shareholders.

đ. The joint-stock company has not met the requirements for increasing registered capital and statutory capital as prescribed by current laws.

e. Using borrowed funds and occupied funds from financial institutions, credit organizations, legal entities, and individuals to repurchase treasury shares.

4. The company is not allowed to repurchase shares from the following entities to become treasury shares:

a. Corporate managers and related parties who are spouses, parents, adoptive parents, mothers, adoptive mothers, children, adopted children, siblings of corporate managers (except in cases of repurchase as provided for in Article 64 of the Enterprise Law).

b. Shareholders who transfer shares subject to conditions as prescribed by law and the company's charter.

c. Controlling shareholders, except in cases where the enterprise is permitted to repurchase state-owned shares.

5. A joint-stock company decides independently on the sale of treasury shares in accordance with current laws.

In the event that treasury shares have been purchased but the company does not use them within three years and the shareholders' capital is less than the registered capital, the joint-stock company must cancel the treasury shares and simultaneously reduce the company's registered capital.

6. The purchase and sale of treasury shares by listed joint-stock companies must also comply with the procedures prescribed in legal documents on securities transactions.

7. Management and accounting of treasury shares:

a. Treasury shares belong to the common ownership of the company and are excluded from dividend distribution (cash dividends and stock dividends).

b. The value of treasury shares on the Balance Sheet is reflected as a reduction in the owner's equity of the enterprise in business operations.

c. Costs for purchasing and selling treasury shares are accounted for as follows:

- Purchase cost: Recorded in the cost of treasury shares.

- Sale cost: Recorded as a deduction from the proceeds from the sale of treasury shares.

d. The Shareholders' Meeting decides on maintaining, using, or cancelling treasury shares, and simultaneously implements a reduction in registered capital corresponding to the number of cancelled treasury shares.

VI- IMPLEMENTATION PROVISIONS

This Circular takes effect fifteen days after its publication in the Official Gazette.

During implementation, if there are difficulties, please promptly reflect them to the Ministry of Finance for research and amendment.