Where an investor wants to leave but there is no outside buyer, the company itself can repurchase their shares to reduce capital. This article sets out the conditions, limits and procedure of the share-buyback mechanism used for exit — distinct from the treasury-share topic viewed from governance and market trading (EXP-2487): here the buyback is a structured exit tool inside an unlisted foreign-invested enterprise.
The company repurchasing shares: legal basis and the two buyback doors
The Law on Enterprises 59/2020/QH14 opens two buyback doors. The first is buyback at a shareholder’s request under Article 133: a shareholder voting against a resolution on company reorganisation or on changing shareholder rights and obligations in the charter may require the company to repurchase their shares. The second is buyback by company decision under Article 134: the company decides to repurchase no more than 30 percent of total ordinary shares sold, and all or part of redeemable preference shares sold. For a multi-member limited liability company, the corresponding mechanism is the company repurchasing a member’s capital portion in the cases in Article 52, such as a member’s request after voting against a decision in the statutory categories. Repurchased shares become treasury shares: carrying no voting rights and no dividends, and if not resold within the statutory period they must be cancelled with a corresponding charter-capital reduction — the step that turns a buyback into a substantive capital reduction.
Conditions, price and payment source
The running condition of every buyback is payment capacity: immediately after paying the full buyback amount, the company must still ensure payment of all debts and other property obligations — the condition written into Article 134 of the Law on Enterprises for company-decision buybacks. On authority, a buyback whose total value reaches the statutory threshold must be decided by the general meeting of shareholders, while smaller cases may be decided by the board where the charter allows. On price, a dissenting shareholder’s requested buyback uses market price or the charter’s valuation principles; a company-decision buyback price is set by the deciding body within the law and charter framework. For a foreign investor exiting through a buyback, price needs independent valuation: a price far below real value may be examined by the tax authority through a capital-transfer lens, and the price portion exceeding the investor’s contributed capital is taxable income to be handled before remittance abroad.
Procedure and the file points to lock down
The full sequence comprises: a buyback resolution stating quantity, price or pricing principle, payment source and timeline; executing the buyback transaction and paying the investor through the investment capital account; updating the shareholder register or member list; registering the charter-capital reduction with the business registration authority within the statutory period from completion of cancellation of the repurchased shares or expiry of the resale period; and amending the investment registration certificate where the investor and charter capital are project contents. Three file points are often missed: the resolution omits the mechanism if the company cannot resell the treasury shares; the parties forget to recompute ownership ratios and voting rights of remaining shareholders after the transaction, which change mechanically after a buyback; and the seller’s tax handling is left until after the money has moved. A successful exit buyback is one where the corporate, tax and foreign-exchange workstreams close their files on one unified timeline.
Frequently Asked Questions
Can the company repurchase shares?
Yes. A joint stock company may repurchase issued shares at a shareholder’s request in the statutory cases in Article 133 of the Law on Enterprises 59/2020/QH14, or by the company’s decision under Article 134; a limited liability company repurchases a member’s capital portion in the cases in Article 52 of that law. Repurchased shares become treasury shares, and charter capital falls correspondingly if the company cancels them or fails to resell within the statutory period.
Conditions?
Core conditions: after payment the company still ensures payment of all debts and other property obligations; the total shares repurchased by company decision must not exceed 30 percent of total ordinary shares sold, under Article 134 of the Law on Enterprises; the buyback is approved by the general meeting of shareholders or the board depending on the statutory value threshold; and the payment source is lawful, from undistributed after-tax profit and permitted funds.
Price?
The price for a dissenting shareholder’s requested buyback is set at market price or by the valuation principles in the charter; the price for a company-decision buyback is set by the general meeting or the board within the statutory framework. The parties should appoint an independent valuer and write the mechanism for handling price disagreement into the buyback resolution itself, because price disputes are the commonest bottleneck.
Procedure?
The sequence: a resolution approving the buyback; the company notifies and executes the buyback and pays the shareholder; registration of the corresponding charter-capital reduction within the statutory period if the repurchased shares are cancelled or not reissued in time; updating the shareholder register and amending the investment registration certificate if project-related; and handling the investor’s tax on the buyback price portion exceeding contributed capital. The tax file must be complete before remittance through the capital account.