FORMS OF CAPITAL MOBILIZATION OF JOINT STOCK COMPANY CAN APP

Legal grounds: Law on Enterprise 2020.

1. Overview of Joint Stock Company

A Joint Stock Company is a type of enterprise established based on the capital mobilization of at least 3 shareholders and there is no regulation on the maximum number of members. In which, the charter capital of the company will be divided into many parts of equal value. Individuals or organizations when contributing capital to the company will register to buy shares and are called shareholders. Shareholders are only responsible for the debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise. Shareholders have the right to freely transfer their shares to others unless the transfer is restricted. A Joint Stock Company has the right to issue shares, bonds, and other securities of the company. A Joint Stock Company has a legal person status. (Article 111 of the Law on Enterprise 2020).

2. Forms of capital mobilization of Joint Stock Companies

A Joint Stock company is the most preeminent type of enterprise to mobilize capital if the enterprise wants to develop and expand on a large scale. Not only including equity, shareholders but the capital of Joint Stock Companies is also flexible and diversified. Joint Stock Companies are allowed to issue shares, stocks, and bonds, which are easy to exchange and transfer. The forms of capital mobilization of a Joint Stock Company include:

2.1. Raising capital from initial capital mobilization

In a Joint Stock Company, the founding shareholders are the ones who lay the first bricks to build the company, so when established, the company's capital source is the contributed capital of the founding shareholders. The law stipulates that founding shareholders must jointly register to buy at least 20% of the total number of ordinary shares that are entitled to be offered for sale when registering for business establishment (clause 2 Article 120 of the Law on Enterprise 2020). Thus, at a minimum, shareholders must jointly hold 20% of the shares intended to be issued, and the remaining shares will be issued to raise enough charter capital. The full mobilization of the initial capital mobilization will help businesses stand firmer when participating in the market and not depend on outsiders.

2.2. Raising capital from the share offering

Offering shares is a typical mechanism of a Joint Stock Company. Share offering means the company increasing the number of shares it is entitled to offer and selling those shares in the course of its operations to increase its charter capital. The result of the share offering will increase the charter capital of the company in case the company is operating.

According to the provisions of Article 123 of the Law on Enterprises 2020. Offering for sale of shares is carried out in the following forms:

- Offering shares to existing shareholders: This is the case in which the company increases the number of shares it is entitled to offer and sells all of those shares to all shareholders according to their existing shares in the company. This method of raising capital does not increase the number of shareholders of the company but still increases the charter capital. This is a form of raising capital from within the company.

- Private placement of shares: It is a form of raising capital from outside the company but with a separate nature, for Joint Stock Companies that are not public companies.

- Offering shares to the public. Public offering of shares, offering for sale of shares of listed and public Joint Stock Companies shall comply with the provisions of the law on securities. This form is a form of raising capital from outside widely, this form of capital raising both increases the charter capital and also increases the number of shareholders of the company.

2.3. Issuance of bonds

- Joint Stock Companies may issue bonds, convertible bonds, and other types of bonds if they satisfy some conditions of the law and the company's charter (clause 3 Article 111 of the Law on Enterprise 2020).

- A bond is a certificate of obligation by the issuer to pay the bondholder for a specified amount, for a specified time, and with a specified yield. Buyers of the company's bonds may be individuals, businesses, or governments. Bondholders are considered creditors of the company.

- Convertible bonds are bonds that can be converted into shares at a predetermined time in the future. This type of bond is characterized by paying a certain interest rate, can be issued at a low cost, and can be converted into the capital in the future.

2.4. Mobilizing capital from bank credit

Bank credit is a loan with many different interest rates and loan terms, a form of credit that has been very popular for a long time because of its flexibility and ease of access, solving financial problems immediately when the company has a need. However, when accessing capital from bank credit, the Company must ensure a healthy and stable financial situation, have a feasible capital use plan and collateral for such loans.

ADK & Co Vietnam Lawyers Law Firm