In practice, the law has recently undergone certain changes concerning the legal capital requirement for real estate enterprises. Initially, legal capital served as a minimum capital threshold for enterprises engaged in real estate business. However, in practice, limiting such a capital has been viewed as a barrier to the growth and maintenance of this business type. To better understand legal capital, let’s explore it together with NPLaw.
I. Understanding on the legal capital of real estate enterprises
Under Clause 7, Article 4 of the Law on Enterprise, legal capital is defined as the minimum capital amount prescribed by law for the establishment of an enterprise.
Thus, legal capital essentially represents the minimum financial capacity required by law, compelling enterprises to meet such a condition to be permitted to operate in certain conditional business sectors. In the real estate sector, regulations on legal capital function as a mechanism to ensure financial capacity, enabling enterprises to operate rationally and transparently.
II. Legal regulations on the legal capital of real estate enterprises
1. What is the legal capital for real estate enterprises?
According to Clause 1, Article 3 of Decree No. 76/2015/ND-CP, enterprises engaging in real estate business were required to have a legal capital of not less than twenty (20) billion dong. However, for Clause 2, Article 4 of Decree 02/2022, the legal capital is replaced by the equity ratio (ownership capital ratio) based on the total capital and scale of land use.
2. Does current law stipulate a specific legal capital amount for real estate enterprises?
Under Clause 2, Article 9 of the Law on Real Estate Business 2023, an enterprise is permitted to conduct real estate business if it meets the following conditions:
- It is not prohibited from engaging in real estate business or subject to suspension or termination under legal provisions;
- Its credit or bond debts do not exceed its owner’s equity;
- Particularly for real estate projects, the owner’s equity must meet the following requirements to be approved:
+ For projects with a land use scale of less than 20 hectares, the owner’s equity must be at least 20% of the total investment capital. It conceptually replaces the fixed legal capital requirement, offering owners greater flexibility and autonomy over financial resources.
+ For projects with a land use scale of 20 hectares or more, the owner’s equity must be at least 15% of the total investment capital.
+ For enterprises investing in multiple real estate projects, the owner’s equity must be sufficient to be allocated proportionally to each project to ensure the financial capability of all projects.
This shows that the law does not have a specific regulation on the minimum capital for real estate business activities, but on the other hand, it creates a more open approach and promotes business activities of enterprises. However, creating open potential for real estate business activities of enterprises must still meet the necessary factors of operating conditions and sufficient factors of equity capital to ensure the operation process takes place more smoothly.
III. Questions on the legal capital of real estate enterprises
1. Although the legal capital requirement for real estate enterprises has been abolished, must these enterprises still demonstrate financial capacity when registering for business?
According to Point c, Clause 2, Article 9 of the Law on Real Estate Business 2023 and Clause 2, Article 4 of Decree No. 02/2022/ND-CP, project investors must ensure minimum capital based on total investment capital and project scale.
Specifically:
- For projects under 20 hectares, investors must prove financial capacity equal to at least 20% of the total investment capital.
- For projects 20 hectares or more, the owner’s equity must be not less than 15% of the total investment capital.
Thus, ensuring financial capacity remains a crucial factor in operating within the real estate market.
2. Does the legal capital of a real estate enterprise affect its scope of business activities?
Previously, the fixed legal capital requirement of twenty (20) billion dong was considered a barrier to market entry for real estate businesses with large capital demands. It prevented individuals and small business households from entering and growing in this market and also hindered the broader development of the real estate sector.
However, giving advantageous conditions on the minimum capital requirement has made it easier for small and medium-sized enterprises to participate in the market, thereby fostering economic and social development.
3. Do regulations on the legal capital of real estate enterprises change over time? What are the new points under current law compared to previous regulations?
Regulations on legal capital in real estate business have evolved through different stages, replacing the specific fixed figure with a minimum equity ratio of 15% or 20%, depending on the project’s scale and total investment capital.
A notable new point is the abolition of the legal capital requirement in Clause 1, Article 3 of Decree No. 76/2015/ND-CP, which was replaced by Clause 2, Article 4 of Decree No. 02/2022/ND-CP. This change has created more favorable conditions for enterprises in the market.
Therefore, in practice, legal capital is no longer confined to a specific fixed figure but is broadly expressed through equity ratios relative to project scale. This reform has encouraged participation and motivated the long-term development of the real estate economy.
IV. Legal consultancy services related to the legal capital of real estate enterprises
To better understand, suitable consultancy services include:
- Consultancy on financial conditions;
- Consultancy on investment capital;
- Consultancy on participating in real estate business, including procedures and processes;
- Consultancy on business operations for real estate projects.
Although regulations on legal capital in the real estate sector have undergone significant changes, having a thorough understanding of the legal provisions related to real estate business and investor financial capacity is essential to ensure sustainable business operations.
Through the above information, NPLaw aims to provide clients with a more comprehensive and in-depth perspective on this issue. If you still face challenges, our experienced team of lawyers will offer the most detailed and professional legal advice.
