Recently, one of our individual clients asked whether shareholders of a joint stock company can choose to dissolve the enterprise to directly receive the assets that the joint stock company owns (including a number of shares in another enterprise) without having to conduct asset liquidation/asset sale transactions in the usual way?

In fact, it is entirely possible that a business cannot liquidate its assets when carrying out dissolution procedures (for example, it cannot find a buyer, the buyer offers a price too low compared to the value of the assets, etc.), leading to the inability to sell the assets. We believe that it is feasible for individual shareholders to choose to directly receive the assets of a joint stock company when carrying out the dissolution of the business based on the following legal grounds:

1. Point g, Clause 1, Article 115 of the Enterprise Law 2020 stipulates that common shareholders have the right to “When the company is dissolved or bankrupt, receive a portion of the remaining assets corresponding to the percentage of shares owned in the company.“;
2. Clause 6, Article 208 of the Enterprise Law 2020 stipulates: “After paying the costs of dissolving the business and debts, the remainder is divided among the private business owner, members, shareholders or company owners according to the ratio of capital contribution and shares owned.”. If considered together with the provisions of Point g, Clause 1, Article 115 of the Enterprise Law 2020 above, we believe that there is a basis to understand that shareholders are divided “remaining assets” of the enterprise after completing the payment of enterprise dissolution costs and debts;
3. The Enterprise Law 2020 stipulates the conditions for dissolution of enterprises including “ensure payment of all debts and other property obligations and not in the process of dispute resolution at Court or Arbitration”. Clause 4, Article 209 of the Enterprise Law 2020 stipulates that “The legal representative of the enterprise shall submit the enterprise dissolution dossier to the Business Registration Authority within 05 working days from the date of payment of all debts of the enterprise.”. Accordingly, it can be understood that the liquidation of all assets of the dissolved enterprise is not a mandatory condition that must be completed before the dissolution of the enterprise is completed, but the enterprise only needs to prepare a report on the liquidation of enterprise assets to submit to the Business Registration Authority.
4. According to the provisions of Clause 1 and Clause 2, Article 6 of Circular 119/2020/TT-BTC issued by the Ministry of Finance on December 31, 12, the dissolution event leading to the transfer of ownership of securities centrally registered at the Vietnam Securities Depository and Clearing Corporation between related entities (which can be understood as between the dissolved enterprise and shareholders or capital contributors of the dissolved enterprise) is determined to be a transaction that is not of a buying and selling nature and is allowed to be carried out outside the securities trading system. Therefore, we believe that the choice of an individual shareholder to directly receive ownership of shares in another enterprise (also a type of security) from the joint stock company itself after the decision on the dissolution of the enterprise is in accordance with the above guidance of the Ministry of Finance.

We have referred to some additional documents guiding the handling of assets when dissolving an enterprise from the General Department of Taxation (Official Dispatch No. 1922/TCT-CS dated June 03, 06) and the Ho Chi Minh City Tax Department (Official Dispatch No. 2010/CT-TTHT dated April 2790, 18). In the above documents, the tax authority has provided the following guidance:In case at the time of dissolution, the Company has not liquidated all assets and must transfer these assets to capital contributors corresponding to the amount of capital contributed to the Company, when handing over the assets, the Company must issue an invoice to calculate VAT and corporate income tax as if selling assets to customers, the taxable price is the price of the same type of asset on the market at the time of handover.

From the above analysis, we understand that the transfer of assets owned by the dissolved company to its shareholders is completely feasible in practice. However, we believe that the important issue that the parties involved need to pay attention to when implementing is how to reasonably determine (in accordance with market practices, meeting the requirements of shareholders and being able to explain to the tax authority) the value of the assets to calculate the applicable tax when transferring assets from the dissolved company to shareholders.

Phung Anh Tuan

Managing Attorney

• December 7, 22