Loss of business – Members of LLC can withdraw capital?

A two-member limited liability company may reduce its charter capital, but must comply with certain conditions to ensure the interests of its creditors.

Legal grounds:

• Enterprise Law 2020.

We get the following questions:

My friend and I contribute capital to open a LLC. He manages the entire company operations. After 1 year, it occurs confliction, so I want to get my money back, but he just promise without paying. Now he say our company is at loss, there is no money to pay back to me. So can I get my money back?

In a two-member limited liability company, the contributed capital of the members will form the charter capital of the company.

In principle, a two-member limited liability company has the right to increase or decrease its charter capital to meet its business demands. However, because the company must use charter capital to be responsible for its financial obligations, it is often difficult for members to withdraw capital from the company as it may affect the interests of company’s creditors.

Pursuant to Clause 2, Article 50 of the Enterprise Law 2020 as follows:

Article 50. Obligations of company members

2. The contributed capital may not be withdrawn from the company in any form, except for the cases specified in Articles 51, 52, 53 and 68 of this Law.

According to the above provisions, members of the company are only allowed to withdraw contributed capital from the company in the following cases:

1. Members vote against the resolution of the Members’ Council

In this case, the member has the right to request the company to buy back his/her contributed capital as prescribed in Article 51 of the Enterprise Law 2020 if the member votes against the following issues:

1. Amending and supplementing contents in the company’s charter related to the rights and obligations of members and the Members’ Council;
2. Reorganization of the company;
3. Other cases as prescribed in the company’s charter.

Note:

• The company is only entitled to payment for the redemption of contributed capital if after fully paying the redeemed contributed capital the company still fully pays all debts and other property obligations.
• If the company fails to pay the contributed capital, that member has the right to freely transfer his/her contributed capital to another member or a person who is not a member of the company.

2. Members withdraw capital by transferring capital to others

Pursuant to Article 52 of the Enterprise Law 2020, a company member can transfer his/her contributed capital to another person to withdraw capital from the company by:

1. Offer to sell contributed capital to the remaining members in proportion to their capital contribution in the company with the same offering conditions;
2. Transfer to a non-member if the remaining members of the company do not buy or do not buy all within 30 days from the date of offering. In this case, it should be noted: The transferring to a person who is not a member of the company must ensure the same conditions as the offering to the remaining members.

3. A member who donates capital contribution to another person but the recipient cannot be a member of the company

Pursuant to Clauses 4 and 6, Article 53 of the Law on Enterprises in 2020:

Company members can donate their capital contribution to others. If this person is not accepted by the Members’ Council to become a new member of the company, then:

• The company buys back such contributed capital;
• Or the recipient has the right to transfer the contributed capital to another person.

4. Members use contributed capital to pay debts

Pursuant to Clause 7, Article 53 of the Enterprise Law 2020, members can use their contributed capital to pay debts to other individuals and organizations. This can also be considered as a method of withdrawing contributed capital from the company.

5. The company actively returns the contributed capital to members

Pursuant to Clause 3, Article 68 of the Law on Enterprises 2020, the company may return a portion of the contributed capital to members according to their proportion of contributed capital in the company’s charter capital.

Note:

• In this case, the company will only refund part of the contributed capital, but not the entire contributed capital;
• The company will only refund to members if it has operated continuously for 02 years or more from the date of registration of business establishment;
• The company must ensure to pay all debts and other property obligations after it has refunded to the members.