In the process of company establishment, capital contribution is a pivotal issue. In practice, business activities are invariably associated with capital. Capital is the initial and decisive factor; without capital, production and business operations cannot be conducted. Therefore, capital contribution agreements constitute a necessary transaction and attract significant attention from individuals and organizations when establishing an enterprise.

I. Essential matters to consider when entering into a capital contribution agreement

A company may only be established and commence operations when its members contribute assets to form the company’s charter capital, and such capital contribution to enterprises is based on the execution of a capital contribution agreement.

Capital contributions may take the form of assets in kind, cash, valuable papers, or property rights, such as land use rights, houses, construction works, goods, and other assets.

In order to meet our Clients’ needs for information and understanding regarding capital contribution agreements, Ngoc Phu Law Company Limited hereby provides the following information:

1. What is a contract?

Pursuant to Article 385 of the Civil Code 2015: A contract is an agreement between the parties on the establishment, modification, or termination of civil rights and obligations.

2. What is capital contribution?

In common understanding, capital contribution refers to the act of an individual contributing or pooling money or assets into a particular business venture with the expectation of obtaining benefits therefrom. From a legal perspective, a capital contributor transfers ownership of his or her assets to the company in exchange for interests arising from such contribution.

Clause 18, Article 4 of the Law on Enterprise 2020 provides:

  • Capital contribution means the contribution of assets to form the charter capital of a company, including capital contribution for company establishment or additional contribution to the charter capital of an existing company.

Clause 1, Article 34 of the Law on Enterprise 2020 stipulates:

  • Assets contributed as capital include Vietnam Dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technology, technical know-how, and other assets that can be valued in Vietnam Dong.

3. What is a capital contribution agreement?

When assets are contributed to a company by a member or shareholder, ownership of such assets is transferred from that member or shareholder to the company. This transfer of ownership may be effected through the execution of a capital contribution agreement.

A contract is an agreement between individuals and/or organizations regarding their respective rights and obligations in contributing assets for the purpose of establishing a company or increasing the charter capital of an already established company.

From an economic perspective, a capital contribution agreement plays a significant role as a mechanism through which individuals and organizations create the company’s assets, thereby ensuring the implementation of business activities in line with the company’s registered objectives and protecting the interests of creditors in the event of the company’s bankruptcy.

From a legal perspective, this constitutes a legal act serving as the basis for terminating the ownership rights of the capital contributor over the contributed assets, simultaneously establishing the company’s ownership over such assets, and giving rise to the ownership rights of the capital contributor over the contributed capital portion in proportion to other capital contributions, or the ownership of shares held by the contributor or shareholder in the company.

4. Transfer of ownership of contributed assets

Members of limited liability companies, partnerships, and shareholders of joint stock companies are required to transfer ownership of contributed assets to the company in accordance with the following provisions:

For assets subject to ownership registration or land use rights, the capital contributor must carry out procedures for transfer of ownership or land use rights to the company in accordance with the law. The transfer of ownership or land use rights for contributed assets is exempt from registration fee.

For assets not subject to ownership registration, capital contribution shall be effected through the handover of the contributed assets, evidenced by a written handover record, unless the contribution is made via an account.

The asset handover record must include the following principal contents:

  • The name and head office address of the company;
  • Full name, contact address, legal identification number of the individual contributor, or the legal identification number of the organization contributor;
  • Type and quantity of contributed assets; total value of the contributed assets and the proportion of such value in the company’s charter capital;
  • Date of handover; signatures of the capital contributor or their authorized representative and the legal representative of the company.

A capital contribution shall only be deemed fully completed when lawful ownership of the contributed assets has been transferred to the company.

Assets used for business activities by a private enterprise owner are not required to undergo ownership transfer procedures to the enterprise.

All payments related to all activities of purchase, sale, or transfer of shares and capital contributions, receipt of dividends, and remittance of profits abroad by foreign investors must be conducted through accounts in accordance with regulations on foreign exchange management, except for cases of payment in assets or other non-cash forms.

II. Essential contents of a capital contribution agreement

A capital contribution agreement should include the following provisions:

  • Information on the contracting parties;
  • Subject matter of the agreement;
  • Method and deadline for capital contribution;
  • Rights and obligations of the parties;
  • Profit distribution;
  • Effectiveness of the agreement;
  • Dispute resolution;
  • Other provisions as agreed upon by the parties.

III. Cases in which capital contribution agreements are applied

1. Capital contribution for establishment of a multi-member limited liability company

Members must contribute fully and correctly the committed type of assets within 90 days from the date of issuance of the Enterprise Registration Certificate, excluding the time required for transportation, importation of contributed assets, and completion of administrative procedures for ownership transfer.

Upon expiration of the 90-day period from the date of issuance of the Enterprise Registration Certificate, if any member fails to contribute or fully contribute the committed capital, the following consequences apply:

  • A member who fails to contribute capital as committed shall automatically cease to be a member of the company;
  • A member who fails to fully contribute capital shall have rights corresponding only to the portion actually contributed;
  • The unpaid capital portion shall be offered for sale in accordance with resolutions or decisions of the Members’ Council.

In such cases, the company must register changes to its charter capital and capital contribution ratios within 30 days from the final deadline for full capital contribution.

2. Capital contribution for establishment of a single-member limited liability company

The company owner must contribute fully and correctly the committed assets within 90 days from the date of issuance of the Enterprise Registration Certificate, excluding the time required for transportation, importation, and administrative procedures for ownership transfer.

If the charter capital is not fully contributed within the prescribed time limit, the owner must register an adjustment of the charter capital to the amount actually contributed within 30 days from the final deadline for full contribution of the charter capital. In this case, the owner shall bear liability corresponding to the committed capital for the company’s financial obligations arising prior to the date of registration of the adjusted charter capital.

3. Capital contribution for establishment of a joint stock company

Shareholders must fully pay for the registered shares within 90 days from the date of issuance of the Enterprise Registration Certificate, unless a shorter period is stipulated in the company charter or the share subscription agreement. Where capital contribution is made in assets, the time required for transportation, importation, and completion of ownership transfer procedures shall not be included in this period. The Board of Directors is responsible for supervising and urging shareholders to make full and timely payment for subscribed shares.

From the date of issuance of the Enterprise Registration Certificate until the final deadline for full payment of the subscribed shares, the voting rights of shareholders shall be determined based on the number of common shares subscribed, unless otherwise provided in the company charter.

The above information provides investors with a clearer understanding of capital contribution agreements under current law. NPLaw is a reputable law firm specializing in legal consultancy, contract drafting, and procedures related to capital contribution for company establishment. For further details, please contact us using the information below for dedicated guidance: