A Comprehensive Guide to Capital Contribution in Business Establishment

 

 

1. A Comprehensive Guide to Capital Contribution in Business Establishment

When it comes to business establishment, capital contribution is an obligatory step that investors must adhere to, as mandated by the law. The Enterprise Law of 2020, in Clause 18, Article 4, defines capital contribution as the act of contributing assets to establish or augment a company's charter capital. In this article, Vo Consultants will delve into the intricacies of "assets contributed as capital when establishing a business."

2. Eligible Assets for Capital Contribution

According to Article 1, Article 34 of the 2020 Law on Enterprises, the following assets are considered eligible for capital contribution:

• Vietnamese Dong
• Freely Convertible Foreign Currencies
• Gold
• Land Use Rights
• Intellectual Property Rights
• Technology and Technical Know-How
• Other Valuable Assets in Vietnamese Dong

The inclusion of "other property" in the list signifies the flexibility of asset types that can be used for capital contribution. In practice, investors often contribute assets such as production lines, vehicles, and construction equipment.

However, it's essential to note that the assets contributed must meet two criteria:

• The asset's value must be ascertainable in Vietnamese Dong.
• The contributor must possess legal ownership or lawful use rights of the asset.

3. Transferring Ownership of Contributed Assets

The process of transferring ownership of contributed assets differs based on whether the assets have registered ownership rights or not.

For assets with registered ownership rights (e.g., land use rights, vehicles, intellectual property rights), the Enterprise Law of 2022 stipulates that "the capital contributor must follow the necessary legal procedures to transfer ownership or land use rights to the company, exempt from registration fees."

For assets without registered ownership, such as Vietnam Dong, freely convertible foreign currencies, gold, and production lines, the law requires the capital contributor to physically hand over the assets. Unlike registered assets, transferable accounts must confirm the transfer of assets contributed as capital by maintaining a comprehensive "Receipt of Delivery and Receipt of Assets Contributed as Capital," as specified by law.

In all cases, the capital contribution is only deemed complete once the legal ownership of the assets contributed as capital is transferred to the company.

4. Valuation of Contributed Assets

Per Article 36 of the Enterprise Law of 2020, assets contributed as capital, which are not in Vietnamese Dong, freely convertible foreign currencies, or gold, must be valued and expressed in Vietnamese Dong. This valuation is determined through the consensus of founding members and shareholders or, in the case of a price appraisal organization, with approval from more than 50% of the members or founding shareholders.

Should the assets' valuation exceed their actual value at the time of capital contribution, the contributors are obligated to make an additional contribution equal to the discrepancy between the determined and actual values. The contributors are also jointly responsible for any damages resulting from intentional overvaluation.

5. Time Limit for Capital Contribution

As stated in Article 47 of the Enterprise Law of 2020, members are required to contribute capital to the company within 90 days of receiving the Certificate of Business Registration. During this period, members have rights and obligations in proportion to their committed capital contribution ratio. If a member wishes to contribute an asset different from their commitment, it must be approved by more than 50% of the remaining members.

After the stipulated time for capital contribution, if there are still members who have not contributed or have not fully contributed as committed, the following actions are taken:

• Members who have not met their capital commitment are automatically removed from the company.
• Members who have not fully contributed their committed capital retain rights proportionate to their contributed capital.
• The uncontributed capital shares are offered for sale as per the Members' Council's resolutions.

In the event of members not contributing capital or meeting the full commitment, the company must amend the charter capital and the capital contribution ratio of members within 30 days. Members who haven't met their commitment are financially responsible for any obligations incurred by the company before the change in charter capital.

6. Administrative Sanctions in Capital Contribution

Administrative sanctions in capital contribution activities encompass two key issues:

• Time of Capital Contribution
• Incorrect Valuation of Contributed Assets

Penalties, as outlined in Clause 3, Article 46 of Decree 122/2021/ND-CP, can range from VND 30,000,000 to VND 50,000,000 for the following acts:

a) Neglecting the procedures for capital adjustment or changing founding members or shareholders, as required by the business registration office when the time limit for capital contribution has elapsed. This applies when members or shareholders fail to meet their capital commitments.

b) Intentionally misrepresenting the value of assets contributed as capital.

7. Remedial Measures

Remedial measures for violations regarding the capital contribution deadline, as specified in Point b, Clause 5, Article 46 of Decree No. 122/2021/ND-CP, include forcing the execution of procedures for capital adjustment or member/founding partner changes.

For violations related to the incorrect valuation of assets contributed as capital, the Enterprise Law of 2020 mandates that contributors, owners, Members' Council members (for limited liability companies and partnerships), and Board of Directors members (for joint-stock companies) jointly contribute an additional amount equal to the difference between the assessed value and the actual value of the assets contributed as capital. They are also collectively responsible for any damages resulting from intentionally inflating the valuation of assets contributed as capital beyond their actual worth.

In summary, understanding the rules and regulations surrounding capital contribution is crucial for successful business establishment in Vietnam. Adhering to these guidelines not only ensures compliance with the law but also contributes to the smooth and lawful operation of your business.

8. Why should professionals use ACC Law Firm's capital Service?