The general meeting votes to double charter capital, but minority shareholders cannot afford to subscribe — after the issue, their stake halves without them doing anything wrong. Is this lawful dilution, or a pretext to squeeze minorities out?
Capital increase procedure
- Law on Enterprises 59/2020/QH14 (amended by Law 76/2025/QH15, effective 01/7/2025): a JSC increases capital by share offering (Articles 123, 126); an LLC under Article 68. The increase resolution belongs to the GMS/Members’ Council at charter-majority voting ratios.
- The key safeguard: Article 129 — on a new offering, existing shareholders enjoy pre-emptive rights pro rata. The company must notify and allow reasonable time to exercise. Skipping this step voids the procedure from the start.
Calculating dilution
Simple formula: new ratio = shares held / total shares after the issue. Example: you hold 30% (3,000/10,000); the company issues 10,000 more and you subscribe none — your ratio becomes 3,000/20,000 = 15%. Dilution is the arithmetic consequence of not exercising pre-emptive rights, and is not unlawful per se.
When is it unlawful?
An increase becomes a squeeze-out tool when: pre-emptive rights are not notified; notice periods are impractically short; the issue price is abnormally low to crush minority value; or voting procedure was flawed. Shareholders may then petition the court to cancel the resolution under Article 151 — within 90 days of receiving the resolution or meeting minutes.
FAQs
Is increasing capital to dilute minorities legal? The increase and resulting dilution are lawful if procedure is correct and pre-emptive rights respected; unlawful only with procedural flaws or squeeze-out intent.
Pre-emptive rights when increasing capital? Existing shareholders may subscribe pro rata (Article 129); the company must give full notice and reasonable time.
If not contributing more, how much will I be diluted? Shares held divided by post-issue total shares — e.g., 3,000/10,000 (30%) becomes 3,000/20,000 (15%).
Sue to cancel the capital increase resolution? Yes, under Article 151 within 90 days of receipt, where the resolution breached procedure, law or charter.
