Building Success: Understanding Capital Contribution to Establish a Company

In the dynamic landscape of Vietnamese business, the time limit for capital contribution plays a crucial role in the establishment of enterprises. Understanding these timelines and the intricacies of contributing capital is vital for both local and foreign investors looking to thrive in this burgeoning economy. So, what does dissolving a limited company mean? ACC Group will address your question.

1. Time Limit for Capital Contribution

Setting the Foundation: Limited Liability Company (LLC) and Joint-Stock Company

The timeframe for capital contribution varies based on the type of enterprise. For Limited Liability Companies, including Multi-Member and Single-Member entities, investors commit to contributing capital within 90 days of approval from Vietnamese authorities. Similarly, for Joint-Stock Companies, full payment for registered shares must occur within 90 days of company registration. It's crucial to note that regardless of business type, the time required for asset transport and ownership transfer procedures is not included in this timeframe.

Foreign-invested enterprises align with these timelines as stated on the Investment Registration Certificate. Failure to meet capital contribution deadlines may result in administrative penalties, emphasizing the importance of strategic financial planning for investors.

2. Assets Intended for Capital Contribution

Building the Foundation: Lawful Ownership and Asset Variety

Investors must contribute capital with assets under their lawful ownership. These assets encompass Vietnamese Dong (VND), convertible foreign currencies, gold, intellectual property rights, technology, and other convertible assets. While VND and foreign currencies are popular choices due to their flexibility, machinery and equipment can also be contributed, especially in production projects requiring import procedures.

The transfer of ownership for registered assets is a straightforward process, exempt from registration fees. For assets without ownership registration requirements, a written submission to the company suffices.

3. Direct Investment Capital Account

Securing the Foundation: Importance of DICA

As per the Enterprise Law 2020 and Vietnam's Foreign Exchange Regulations, capital contribution in VND or convertible foreign currency to a new foreign-invested enterprise must be facilitated through a Direct Investment Account (DICA). This account, opened in the name of the foreign-owned company, is a mandatory conduit for capital transactions and profit transfers abroad. Compliance with DICA regulations is essential to avoid complications in the investment process.

4. Q&A

1. What is a capital contribution, and why is it required to establish a company?

   A capital contribution refers to the financial investment made by the founders or shareholders of a company to fund its initial operations and provide the necessary capital for growth. It is required to establish a company because it helps cover startup costs, working capital needs, and ensures that the company has sufficient funds to operate and meet its financial obligations.

2. What are the different types of capital contributions that can be made when establishing a company?

   There are several types of capital contributions when establishing a company:

   • Cash Capital: This involves contributing money to the company, which can be used for various purposes, including purchasing assets, covering operating expenses, and funding growth.
   • Property Capital: Shareholders may contribute tangible assets, such as real estate, equipment, or inventory, to the company in exchange for equity.
   • Intellectual Property Capital: Contributions in the form of intellectual property, patents, trademarks, or copyrights can be made.
   • Services or Sweat Equity: In some cases, individuals may contribute their skills, time, or expertise to the company instead of monetary or tangible assets, often referred to as "sweat equity."

3. How is the value of capital contributions determined, and what factors should be considered?

   The value of capital contributions is typically determined through negotiations among the founders or shareholders. Several factors should be considered when determining the value of contributions:

   • Market Value: The fair market value of assets or services being contributed.
   • Ownership Percentage: The desired ownership or equity stake that each contributor will receive in exchange for their contribution.
   • Business Valuation: In cases where contributions significantly affect the company's valuation, a professional business valuation may be necessary.
   • Legal and Tax Implications: Consult with legal and tax professionals to understand the legal and tax consequences of various contribution methods.

4. Can capital contributions be made at different times after the company is established?

   Yes, capital contributions can be made at different times after the company is established. This is often referred to as "additional capital injections." Shareholders may choose to contribute additional funds or assets to the company to support its growth, finance specific projects, or address financial challenges. The terms and conditions for making additional contributions should be documented in the company's operating agreement or shareholder agreement to ensure clarity and fairness among the shareholders.

It's important to consult with legal and financial professionals when determining capital contributions and structuring the ownership of the company, as the process can have legal, tax, and financial implications that vary by jurisdiction and business structure.