Conditions for Offering Shares to Convert an LLC into a Joint-Stock Company

How are the conditions for offering shares regulated in order to convert a limited liability company into a joint-stock company? What does the offering dossier comprise?

1. Can a limited liability company be converted into a joint-stock company?

Under Clause 2, Article 202 of the Law on Enterprises 2020, a limited liability company may be converted into a joint-stock company by one of the following methods:

– Conversion into a joint-stock company without mobilizing additional capital contributions from other organizations or individuals, and without selling capital contributions to other organizations or individuals;

– Conversion into a joint-stock company by mobilizing additional capital contributions from other organizations or individuals;

– Conversion into a joint-stock company by selling all or part of the capital contributions to one or more other organizations or individuals;

– A combination of the above methods and other methods.

Accordingly, a limited liability company may be converted into a joint-stock company by the methods prescribed above.

2. What conditions must be satisfied for an initial public offering of shares to convert a limited liability company into a joint-stock company?

Under Article 15 of Decree 155/2020/ND-CP, the conditions for an initial public offering of shares to convert a limited liability company into a joint-stock company include:

– Having a plan for conversion of the limited liability company into a joint-stock company approved by the Members’ Council or the company owner.

– Having an issuance plan approved by the Members’ Council or the company owner; having a plan for the use of proceeds from the offering (except where the initial public offering of shares is to become a public company through a change in ownership structure without increasing the issuer’s charter capital) approved by the Members’ Council or the company owner.

– The contributing members or the company owner must commit to jointly holding at least 20% of the issuer’s charter capital for at least 01 year from the closing date of the offering.

– The offering of shares complies with the regulations on foreign ownership ratios in public companies as prescribed by law.

– Having an agreement between the member whose contributed capital is offered and the issuer on the offering plan and offering price in the case of offering the member’s capital contribution.

– The contributed charter capital at the time of offering registration must be VND 30 billion or more as recorded in the accounting books;

– Business operations for 02 consecutive years immediately preceding the year of offering registration must be profitable, and there must be no accumulated losses up to the year of offering registration;

– At least 15% of the issuer’s voting shares must be sold to at least 100 investors who are not major shareholders; where the issuer’s charter capital is VND 1,000 billion or more, the minimum ratio is 10% of the issuer’s voting shares;

– The issuer must not be under criminal prosecution or have been convicted of one of the crimes of infringing upon the economic management order whose criminal record has not been expunged;

– Having a securities company advising on the public offering registration dossier, except where the issuer is a securities company;

– Having a commitment to, and actually carrying out, listing or registration of share trading on the securities trading system after the offering closes;

– The issuer must open a blocked account to receive the share subscription payments of the offering.

3. What does the registration dossier for an initial public offering of shares to convert a limited liability company into a joint-stock company comprise?

Under Article 16 of Decree 155/2020/ND-CP, the dossier for a limited liability company converting into a joint-stock company to register an initial public offering of shares includes:

– A decision of the Members’ Council or the company owner approving the plan for conversion of the limited liability company into a joint-stock company, in which:

+ The conversion plan must clearly state the method of enterprise type conversion: conversion with additional capital mobilization, without additional capital mobilization, or a combined method of additional capital mobilization and sale of the member’s or company owner’s contributed capital;

+ The conversion plan must clearly state the projected charter capital structure of the company after conversion, including: the number of shares of the member/company owner, the number of shares offered to the public (including: the number of shares offered to mobilize additional capital for the issuer, the number of shares sold by the member/company owner from their contributed capital), and the number of shares offered to other subjects (if any).

– A decision of the Members’ Council or the company owner approving the issuance plan, approving the plan for the use of proceeds from the offering (except where the offering is in the form of an initial public offering of shares to become a public company through a change in ownership structure without increasing the issuer’s charter capital) and approving the listing or registration of share trading on the securities trading system, in which:

+ The issuance plan must clearly state: the offering price or the principle for determining the offering price (except where the offering is in the form prescribed at Point b, Clause 1, Article 10 of this Decree), and the number of shares offered. The offering price is the price approved by the Members’ Council or the company owner or determined based on the price determination principle approved by the Members’ Council or the company owner;

+ The plan for the use of capital is the plan for the use of the additional capital mobilized for the issuer. Where the offering aims to mobilize capital for a project, the plan for the use of capital must include content on the plan to cover the projected capital shortfall from the offering for project implementation;

+ Where the offering combines the mobilization of additional capital for the issuer with the offering of capital owned by the member or company owner, the issuance plan must clearly state the priority principle for share allocation.

– A written commitment on shareholding by the contributing member or the company owner.

– A decision of the Members’ Council or the company owner approving the plan to ensure that the offering of shares complies with the regulations on foreign ownership ratios.

– A written agreement between the member whose contributed capital is offered and the company on the offering plan and offering price (if any).

– A decision of the Members’ Council or the company owner approving the public offering registration dossier. For public offerings of shares by a credit institution, the dossier must include the State Bank of Vietnam’s written approval of the proposed charter capital increase and transfer under the law on credit institutions. For public offerings of shares by an insurance business organization, the dossier must include the Ministry of Finance’s written approval of the charter capital increase and transfer under the law on insurance business.

– The charter of the issuer;

– A written commitment to satisfy Points d and e, Clause 1, Article 15 of this Decree;

– A bank or foreign bank branch’s written confirmation of the opening of a blocked account to receive the share subscription payments of the offering;

– The offering registration form;

– The prospectus;

– Financial statements;

– The consultancy contract for the public offering registration dossier with a securities company, except where the issuer is a securities company.

– An underwriting commitment (if any).

– A written commitment of the Board of Directors to implement listing or registration of share trading on the securities trading system.

Thus, your company may carry out the conversion from a limited liability company to a joint-stock company by the methods mentioned above. In addition, your company may conduct an initial public offering of shares if it satisfies the conditions and prepares all dossier components listed above.