Adjustment of par value of shares, acquisition, recovery and conversion of bonds, stock issuance are the circumstances under which joint stock companies are permitted to increase or decrease their charter capital.
Joint stock companies may increase their charter capital in the following cases:
" New shares are issued to raise additional capital as prescribed by law;
" Issued bonds are converted into shares. This case applies only when the company has already ensured the conditions by which the bonds are converted into shares and the options to issue converted bonds;
" The company pays dividends by shares;
" New shares are issued to implement a partial or full merger of another business with the joint stock company;
" Surplus capital is added to the charter capital in accordance with law.
Joint stock companies need to understand that the use of price differences arising from the revaluation of assets when there is no policy to increase the charter capital is forbidden.
However, joint stock companies may reduce their charter capital under the following methods:
" The company estimates the amount of capital to be reduced. Then the company will proceed to purchase and dispose the amount of treasury shares with a par value corresponding to the amount of capital expected to be reduced based on the method approved by the general meeting of shareholders, or dispose the treasury shares required to be disposed.
" The company revokes and disposes a number of shares of the shareholders with the par value corresponding to the reduced charter capital. Under this method, the company must pay each shareholder an amount of money equivalent to the number of revoked shares of each shareholder multiplied by the par value of shares. The number of shares to be revoked from each shareholder is determined by having the number of shares owned by the shareholder multiplied by the amount of charter capital expected to be decreased.
" The company can adjust the par value of shares without changing the number of shares by revoking share certificates and issuing new share certificates with the par value adjusted lower. To apply this method, the company must pay its shareholders an amount of money equal to the number of shares of each shareholder times the difference between the old and new par values.
In case the company makes losses for three consecutive years, has accumulated losses amounting to 50 per cent or more of the shareholders' capital, and has yet to lose the ability to pay its due debts, the company can apply the methods of revocation and disposal of a number of shares or adjust the par value of shares without having to repay the shareholders.
PLF – LAW FIRM