Raising new capital after a capital reduction is a common corporate financing activity for joint-stock companies. However, it can only be conducted effectively and securely when it fully complies with the applicable legal framework.
I. The current landscape of raising new capital after a capital reduction
In practice, companies raise new capital after a capital reduction through various methods, including increasing charter capital, issuing additional shares, admitting new capital-contributing investors, or obtaining investments from strategic investors. Although these financing methods are generally permitted by law, many enterprises have difficulties in identifying the applicable legal conditions, procedures, and compliance requirements, thereby increasing the risk of violating corporate regulations.
Inconsistent legal awareness among enterprises, along with insufficient attention to legal advice before and after a capital reduction, has prevented effective control over post-reduction capital-raising activities. In many cases, enterprises focus primarily on securing additional funding without adequately assessing the legal risks that may arise.
II. What is raising new capital after a capital reduction?
1. The importance of raising new capital after a capital reduction
Raising new capital after a capital reduction plays a critical role in promoting the company's financial resources following a restructuring process. It enables the enterprise to overcome capital shortages, maintain its business operations, and establish a solid foundation for future expansion.
In addition, raising new capital after a capital reduction helps improve the company's financial structure, enhance transparency, and strengthen its credibility among investors, business partners, and financial institutions. When conducted in compliance with applicable laws, it may also create opportunities to attract strategic investors, improve corporate governance, and enhance market competitiveness.
2. Main considerations when raising new capital after a capital reduction
When raising new capital after a capital reduction, an enterprise should pay particular attention to the following legal and practical considerations:
- First, the company must ensure that the previous capital reduction was lawfully implemented and that all statutory procedures, corporate formalities, and financial obligations required under applicable laws and the company's Charter have been fully completed.
- Second, the capital-raising process must comply with the decision-making authority of the company's internal governing bodies (the General Meeting of Shareholders, the Board of Directors, or the owner, as applicable), as well as all legal requirements governing the form of capital contribution, ownership ratios, and share issuance.
- Third, the company must provide transparent disclosure regarding its financial condition, the purpose of the capital raising, and the rights and obligations of investors in order to safeguard the lawful interests of all stakeholders and minimize the potential for disputes.
III. Legal regulations governing raising new capital after a capital reduction
1. Legal provisions to consider when raising new capital after a capital reduction
Any capital raising conducted by a joint-stock company following a capital reduction must comply with the provisions of the Law on Enterprise 2020, as amended in 2025, together with its implementing regulations. Specifically:
- Issuance of shares
Pursuant to Clause 1, Article 121 of the Law on Enterprise 2020, a share certificate is a certificate issued by a joint-stock company, an accounting book-entry, or electronic data confirming ownership of one or more shares of that company. Furthermore, Article 114 of the Law on Enterprise 2020 provides for the following categories of shares:
- Ordinary Shares: A joint-stock company may issue ordinary shares to raise capital from shareholders. Investors purchasing such shares become shareholders of the company.
- Preference Shares: Preference shares confer specific preferential rights compared with ordinary shares, such as entitlement to a higher dividend.
- Issuance of bonds
- Pursuant to Clause 3, Article 4 of the Law on Securities 2019, a bond is a type of security evidencing the lawful rights and interests of its holder with respect to a portion of the debt owed by the issuing organization.
- A joint-stock company may issue bonds to raise capital from investors. Bonds constitute a borrowing instrument under which the company is obligated to pay periodic interest. In other words, when a company, government, or organization requires funding, it may issue bonds to borrow money from the public or institutional investors. Bond purchasers effectively become creditors of the issuer.
- Pursuant to Clause 1, Article 128 of the Law on Enterprise 2020, a joint-stock company that is not a public company may conduct a private placement of bonds in accordance with the Law on Enterprise and other applicable laws. Private placements by public companies, other organizations, and public bond offerings are governed by securities legislation.
- Bank credit financing
- Raising capital through bank financing remains one of the most common funding methods used by enterprises generally, including joint-stock companies.
- Through such a method, a company may obtain short-term, medium-term, or long-term loans to satisfy its operational and business financing needs.
- Capital raising through share offerings
Clause 2, Article 123 of the Law on Enterprises 2020 provides for three methods of offering shares:
- Offering shares to existing shareholders;
- Private placement of shares;
- Public offering of shares.
A share offering enables the company to increase the number of issued shares or the classes of shares available for issuance, thereby increasing its charter capital.
- Capital raising from investment funds: A joint-stock company may also cooperate with investment funds or professional investors to raise capital. Under such arrangements, the company may share both profits and investment risks with its investment partners.
- Procedures for raising capital
- If the capital raising results in changes to the contents of the Enterprise Registration Certificate as prescribed in Clause 1, Article 30 of the Law on Enterprise 2020, as amended in 2025, the company must register the relevant amendments with the provincial Business Registration Authority.
- If changes involve founding shareholders or foreign-investor shareholders of a joint-stock company (except for listed companies), the company must notify the Business Registration Authority under Clause 1, Article 31 of the Law on Enterprise 2020, as amended in 2025.
2. Common violations relating to raising new capital after a capital reduction
In practice, common violations involving capital raising after a capital reduction include:
- Raising new capital before completing the statutory procedures for the capital reduction;
- Implementing a capital-raising plan without approval from the company's competent internal authority;
- Failing to register changes to charter capital within the statutory deadline with the competent state authority.
Furthermore, raising new capital for the purpose of concealing a company's lack of financial transparency, evading financial obligations owed to creditors, or restructuring ownership in a manner detrimental to shareholders or capital contributors may also constitute violations of law. Depending on the nature and severity of the misconduct, such acts may lead to civil liability, administrative sanctions, or even criminal liability.
IV. Questions regarding raising new capital after a capital reduction
1. Can a company easily raise new capital after a capital reduction? Why or why not?
In practice, a company cannot always raise new capital easily after a capital reduction. A reduction in charter capital may cause investors, business partners, or credit institutions to question the company's financial capacity, operational performance, and overall financial stability.
However, if the capital reduction is implemented as part of a legitimate corporate restructuring, to eliminate unnecessary capital, or to rectify insufficient capital contributions, and is implemented in full compliance with applicable laws with transparent disclosure of its purpose, the company may still successfully raise new capital, provided that it presents a viable business plan and gains the confidence of potential investors.
2. Who will be liable if the company's new capital raising after a capital reduction is improper?
The company's managers, including the Board of Directors, the Chairperson of the company, and the Director/General Director shall take liability for an improper capital-raising following a capital reduction primarily, depending on the company's organizational structure.
If the capital raising violates applicable laws, the company's Charter, or causes damage to the company, its shareholders, capital contributors, or third parties, the company's managers may take civil liability and, in serious cases, administrative or criminal liability. In addition, the company itself remains liable for any obligations arising from an unlawful capital-raising transaction.
3. What procedures should be followed to ensure a successful capital raising after a capital reduction?
To ensure that new capital is raised lawfully and effectively following a capital reduction, a company should complete the following steps:
- Review the legal status of its charter capital after completing the capital reduction procedures;
- Develop a clear capital-raising plan, identifying the appropriate financing method (such as capital contributions, share issuance, or borrowing);
- Obtain approval for the capital-raising plan from the competent internal governing body (such as the Members' Council or the General Meeting of Shareholders);
- Make the required disclosures and register any amendments to the enterprise registration information in accordance with applicable laws;
- Ensure that the capital-raising process does not infringe upon the lawful rights and interests of shareholders, capital contributors, or creditors.
4. What challenges may arise when a company raises new capital after reducing its capital?
A company may encounter a number of challenges when raising new capital after a capital reduction, including:
- Reduced investor confidence due to the company's history of reducing its charter capital;
- Pressure to demonstrate its ability to recover and achieve sustainable growth following the restructuring;
- Restrictions on available financing methods arising from applicable laws or the company's Charter;
- The risk of disputes among shareholders or capital contributors regarding ownership percentages and related rights.
5. What can a company do to minimize risks when raising new capital after a capital reduction?
To minimize legal and commercial risks associated with raising new capital after a capital reduction, a company should:
- Conduct both the capital reduction and the subsequent capital raising transparently and in full compliance with applicable laws;
- Carefully prepare comprehensive legal documents, financial records, and a persuasive business plan;
- Proactively communicate the rationale for the capital reduction and the company's development strategy for the next stage of its operations;
- Establish a robust corporate governance framework that adequately protects investors' rights and interests;
- Seek advice from legal counsel and financial professionals before implementing the capital-raising transaction.
V. Are you looking for a legal expert to assist with raising new capital after a capital reduction?
Raising new capital after a capital reduction is not merely a financial matter; it also involves significant legal risks if a company does not fully understand the applicable legal framework and procedural requirements. Even a minor error in the decision-making process, the execution of agreements, or the registration of changes to enterprise information may result in disputes, administrative sanctions, or serious reputational damage.
With the support of experienced lawyers and legal professionals, your company will receive comprehensive legal assistance, from assessing the legality of the proposed capital reduction, developing an appropriate capital-raising strategy, drafting legal documentation and transaction agreements, to representing the company before competent authorities and safeguarding its lawful rights and interests. This comprehensive legal support is an effective solution for minimizing risks, optimizing capital resources, and promoting sustainable growth throughout the corporate restructuring process.
The information provided above is for reference purposes only. Should you require detailed legal advice tailored to your specific circumstances, please contact NPLaw Firm for prompt professional assistance.
