Circular No. 25/2007/TT-BTC guides the financial handling when converting state-owned enterprises into limited liability companies with one member.

CIRCULAR

Guidelines for Financial Treatment when Converting State-Owned Enterprises to Limited Liability Companies with One Member thành công ty trách nhiệm hữu hạn một thành viên ||| to become a limited liability company with a single member

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Pursuant to Decree No. 77/2003/NĐ-CP dated July 1, 2003 of the Government on the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Decree No. 95/2006/NĐ-CP dated September 8, 2006 of the Government on converting state-owned enterprises to limited liability companies with one member, the Ministry of Finance hereby issues guidelines for financial treatment when converting state-owned enterprises to limited liability companies with one member as follows:

Chapter I. SCOPE AND APPLICABLE OBJECTS

Article 1. These guidelines apply to the financial treatment of state-owned enterprises specified in Clause 1, Article 2 of Decree No. 95/2006/NĐ-CP dated September 8, 2006 of the Government, which convert to limited liability companies with one member operating under the Law on Enterprises.

Article 2. The objects that convert to limited liability companies (referred to collectively as LLCs) must meet the conditions stipulated in Article 6 of Decree No. 95/2006/NĐ-CP dated September 8, 2006 of the Government and be approved by the competent authority to convert according to the provisions of Article 8 of Decree No. 95/2006/NĐ-CP dated September 8, 2006 of the Government, including:

- Independent state-owned enterprises;

- State-owned enterprises that are parent companies in a parent-subsidiary model; parent companies of economic groups established by the Prime Minister's decision;

- Independent accounting units of state-owned holding companies;

- Dependent accounting units of state-owned holding companies permitted by the Prime Minister;

Chapter II. PROVISIONS ON FINANCIAL TREATMENT WHEN CONVERTING STATE-OWNED ENTERPRISES TO LIMITED LIABILITY COMPANIES

Article 1. After receiving the notification from the competent authority regarding the plan to convert state-owned enterprises to LLCs, the state-owned enterprise shall be responsible for inventorying assets, sources of capital, and existing funds, preparing a financial report of the company at the end of the year or quarter closest to the date of receipt of the notification to record in the conversion decision. Specifically:

1.1 Inventory and determine the quantity of current assets at the enterprise (including fixed assets and long-term investments, current assets and short-term investments, leased, rented, borrowed, held in custody, and deposited assets), compare with accounting records to identify excess, shortage, assets under management and use; assets not under management and use; clarify the cause, responsibility of those involved, and propose measures to handle excess, shortage; assets not under management and use. Evaluate the current status and classify assets needed for use, unused assets, and assets awaiting liquidation to recommend measures for handling each type of asset.

1.2 Inventory and reconcile receivables, payables, sources of capital, funds, bank account balances, etc., evaluate and classify debts according to current regulations:

a. For receivables: Clearly identify recoverable receivables, difficult-to-collect receivables, and unrecoverable receivables. Analyze the causes, determine individual and collective responsibility for each difficult-to-collect and unrecoverable receivable, and propose measures to handle them.

b. For payables: Prepare a list of creditors and identify each payable. Analyze clearly overdue payables, principal, interest, and payables without a debtor. Determine individual and collective responsibility for each overdue payable and propose solutions to handle them.

Article 2. Based on the results of inventory, classification of assets, capital, and financial report data, the company shall develop a financial treatment plan (included in the conversion plan) to report to the competent authority for approval. After the conversion plan (including the financial treatment plan) is approved, the company shall proactively implement financial treatment according to the following regulations:

2.1 Regarding assets:

a. Unused assets and assets awaiting liquidation: The company may sell or liquidate according to current regulations applicable to state-owned enterprises. The difference between the proceeds from selling or liquidating and the remaining value of the asset and liquidation costs shall be recorded as income for the company.

b. Leased, borrowed, held in custody, and deposited assets: Depending on the need, the company shall negotiate with the lessor, lender, custodian, or depositor to continue to inherit or liquidate contracts before conversion.

c. Assets formed from reward and welfare funds serving the collective interests of employees in the company: State-owned enterprises shall transfer these assets to the LLC for management and use to serve the collective workforce in the company. In cases where assets formed from reward and welfare funds serve production and business activities, the LLC shall continue to manage and use them, deduct depreciation to repay the reward and welfare funds.

d. Asset discrepancies: The enterprise must clearly identify the reasons for excess or shortage and handle them as follows:

- For excess assets if the cause and owner cannot be identified: The enterprise shall record an increase in the owner's equity corresponding to the actual value of the excess assets.

- For shortages, losses, and damages: The enterprise must clearly identify the cause, responsibility of individuals and collect compensation according to the law. The difference between the remaining value of the asset in the accounting books and the compensation paid by the responsible individuals, organizations, or insurance companies (if any) shall be covered by the financial reserve fund; if insufficient, it shall be recorded in the profit and loss statement. If recording this difference as a loss in the profit and loss statement results in a loss for the enterprise, the owner's equity can be reduced up to the amount of the loss.

2.2 Regarding receivables and payables:

a. For receivables: The LLC shall be responsible for accepting the receivables of the enterprise, recovering due receivables, and managing receivables according to current national regulations.

For debts that are unlikely to be recovered (including debts specified in Circular No. 13/2006/TT-BTC dated February 27, 2006, issued by the Ministry of Finance, guiding the system for setting aside provisions for inventory write-downs, financial investment losses, difficult-to-collect debts, and product warranty), the company shall use the provision for difficult-to-collect receivables and the financial reserve fund to offset after deducting the compensation from related individuals or groups. If the provision for difficult-to-collect receivables and the financial reserve fund are insufficient to cover the shortfall, the difference will be recorded in the business results. If the company incurs a loss due to recording this shortfall in its production and business results, the owner's equity may be reduced by the maximum amount equal to the company's loss. The procedures and processes for handling debts that are unlikely to be recovered shall be carried out according to Circular No. 13/2006/TT-BTC dated February 27, 2006, issued by the Ministry of Finance.

b. For debts payable: A limited liability company has the responsibility to succeed and settle debts payable to creditors as committed, including tax debts and budgetary debts, employee debts, and debts due.

For debts payable but without a debtor, the company shall record an increase in owner's equity.

2. 3 Provisions for inventory write-downs, provisions for financial investment losses, provisions for difficult-to-collect receivables, financial reserve funds, provisions for unemployment benefits, after being processed to offset asset losses and unrecoverable receivables, if there is still a balance remaining, the enterprise may transfer the balance to the limited liability company for continued use.

3. The official conversion date of a state-owned company into a limited liability company is the date when the company receives the business registration certificate as a limited liability company.

3. 1 Within thirty days from the date of receiving the business registration certificate as a limited liability company, the company must prepare a financial statement at the official conversion date to submit for approval by the competent authority. After the competent authority approves, this financial statement will serve as the basis for transferring to the limited liability company. The financial statement at the official conversion date must be audited according to current regulations. In the financial statement, the company needs to clearly state the issues resolved regarding assets, finances, debts, and explain in detail the treatment of asset losses and unrecoverable receivables recorded in the production and business results; excess assets and non-payable debts recorded as an increase in owner's equity. For cases where enterprises converting are subsidiaries under dependent accounting of state-owned corporations, the representative of the enterprise's owner is responsible for deciding on the determination of inventory, capital, debts, and financial issues according to the regulations applicable to dependent enterprises being converted. Strictly prohibit any actions exploiting the authority of the enterprise's owner representative to handle common financial issues for the entire state-owned corporation during the conversion of dependent subsidiaries.

3. 2 Approval authority for the financial statements of the company at the official conversion date:

a. Representative of the owner or Head of the agency authorized

b. Minister, Head of an agency equivalent to a ministry for state-owned companies under central ministries and sectors.

c. Chairman of the People's Committee of provinces and centrally-administered cities for state-owned companies established by the People's Committees of provinces and centrally-administered cities.

d. Head of political organizations or political-social organizations for enterprises managed by political organizations or political-social organizations.

e. Board of Directors or General Director of State Corporations (if the Corporation does not have a Board of Directors) for independent accounting subsidiaries and dependent subsidiaries of State Corporations.

4. The actual owner's equity of the limited liability company at the official conversion date is determined based on the approved financial statement at the official conversion date by the competent authority, including the balances of the following accounts: Account 411 - Business Capital Source, Account 411 - Investment Construction Capital Source, and Account 414 - Development Fund.

The registered capital of the limited liability company is determined according to Article 11 of Decree No. 95/2006/NĐ-CP of the Government, not less than 30 billion VND for independent state-owned companies or dependent accounting units of State Corporations, parent companies, and 500 billion VND for parent companies.

For industries and businesses where the law requires a statutory capital, the registered capital of the limited liability company must not be lower than the statutory capital.

In the case of additional capital for the limited liability company, it must clearly specify the required additional capital and the commitment period. The owner of the limited liability company is responsible for investing the full registered capital for the company according to the agreed time frame. If the owner fails to contribute the committed capital fully and on time, they will bear responsibility according to Clause 1 of Article 65 of the Enterprise Law 2005.

5. The state-owned company transfers all assets, capital, funds, debts, and the approved financial statement along with related documents to the limited liability company at the conversion date. The handover between the state-owned company and the limited liability company must be documented in a signed agreement between the representatives of the owners of both companies as stipulated in Article 3 of Decree No. 95/2006/NĐ-CP of the Government, serving as the basis for management, monitoring, inspection, and supervision.

Unneeded, stagnant, or pending liquidation assets identified in the conversion plan, which have not been fully resolved, can be transferred to the limited liability company for continued resolution.

All assets of the enterprise when implementing the conversion must be valued.

6. Conversion costs:

6. 1 Conversion costs are expenses related to the conversion of a state-owned company into a limited liability company from the date the company is decided to convert until the handover between the state-owned company and the limited liability company. Conversion costs include:

- Costs for domestic training on converting to a limited liability company. - Costs for inventory, classification, determination of the current status of assets, capital, debts...

- Costs for developing conversion plans, drafting the charter of organization and operation of the limited liability company.

- Other costs related to the conversion to a limited liability company.

6.2 The costs related to the conversion of the company must be supported by valid and reasonable documentation according to the regulations of the State, signed off and approved by the General Director (Director) of the converting company, who will bear responsibility for them. Conversion implementation costs shall be recorded as a reduction in the equity of the limited liability company. Specific expenditure levels are determined by the representative of the company's owner based on the principles of thrift and efficiency, commensurate with the scale of the converting company. For companies converting with a registered capital from VND 30 billion to under VND 50 billion, the maximum allowable expenditure is not more than VND 30 million, while for companies converting with a registered capital of VND 50 billion or more, the allowable expenditure is not more than VND 50 million.

7. Ministries, agencies at the level of ministries, government agencies, provincial People's Committees, Management Councils of State-owned Corporations, political organizations, and political-social organizations authorized as representatives of owners of state-owned enterprises have the responsibility to manage state capital, capital of political organizations, and political-social organizations in accordance with current regulations.

Chapter III. IMPLEMENTATION.

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

Enterprises of political organizations and political-social organizations currently operating under the Law on State-Owned Enterprises, when converting to a limited liability company, shall apply financial handling procedures as stipulated in this Circular.

This Circular replaces Circular No. 26/2002/TT-BTC dated March 22, 2002, and Circular No. 48/2006/TT-BTC dated June 6, 2006, issued by the Ministry of Finance, guiding the financial treatment when converting state-owned enterprises and enterprises of political organizations and political-social organizations into single-member limited liability companies. In the course of implementation, if there are any difficulties, ministries, sectors, localities, and enterprises are requested to promptly report to the Ministry of Finance for research and guidance on resolution.