I. Understanding on raising capital contributions
1. What is raising capital contributions?
Raising capital contributions is the process by which an enterprise calls for and attracts funds from individuals and organizations to increase its financial resources for business activities, product development, scaling up, or implementing investment projects. Participants in raising capital contributions may include shareholders, company members, or outside investors.
2. Current demand for raising capital contributions
The demand for raising capital contributions is rapidly increasing, especially in the context of economic shifts and fierce competition. Enterprises need to raise capital to expand production, develop products, undertake large projects, and ensure sustainable growth. Raising capital contributions helps enterprises secure stable financial resources, reduce debt pressure, and attract investors. Additionally, favorable legal policies and an attractive investment environment facilitate effective capital raising.
II. Legal regulations on raising capital contributions
1. Legal regulations on raising capital contributions in limited liability companies (LLCs)
For multi-member Limited Liability Companies:
They can raise capital through the following methods:
- Increasing charter capital:
Pursuant to Article 68 of the Law on Enterprise 2020, a multi-member Limited Liability Company may increase its charter capital in the following cases:
+ By increasing members’ capital contributions.
+ By accepting capital contributions from new members.
- Issuing bonds:
According to Article 46 of the Law on Enterprise 2020, although multi-member Limited Liability Companies are not permitted to issue shares, they may issue corporate bonds to flexibly raise capital.
For single-member Limited Liability Companies:
They can raise capital by increasing charter capital through either of the following methods under Article 87 of the Law on Enterprise 2020:
- The owner invests additional capital into the company.
- Raising additional capital contributions from others.
However, if the company increases charter capital by raising contributions from others, the owner must convert the company type. Conversion from a single-member Limited Liability Company to a multi-member Limited Liability Company or a joint-stock company must comply with legal provisions.
2. Legal regulations on raising capital contributions in partnerships
A partnership may increase operating capital through two capital mobilization methods: increasing charter capital and borrowing.
- Increasing charter capital:
According to Clause 1, Article 186 of the Law on Enterprise 2020, the company may require existing members to contribute additional capital or allow new investors to contribute capital and become members. However, this requires written consent of all general partners. The company must also notify the business registration agency and announce the increase on the National Business Registration Portal.
- Borrowing from banks, credit institutions, or domestic and foreign organizations and individuals:
A partnership may raise capital by borrowing, but it must comply with legal provisions and the company charter. Under Point e, Clause 3, Article 182 of the Law on Enterprise 2020, decisions on borrowing or raising capital by other means, or lending amounts equal to or exceeding 50% of the company’s charter capital, require member approval unless the charter stipulates a higher ratio.
3. Legal regulations on raising capital contributions in joint-stock companies
Several methods of capital raising for joint-stock companies include:
- Issuing shares:
Under Clause 1, Article 121 of the Law on Enterprise 2020, shares are certificates issued by the joint-stock company, book entries, or electronic data confirming ownership of one or more shares in the company. According to Article 114:
+ Ordinary shares: Companies may issue ordinary shares to raise capital from shareholders, who then become company shareholders.
+ Preference shares: These confer certain benefits over ordinary shares, such as higher dividends.
- Issuing bonds:
Under Clause 3, Article 4 of the Law on Securities 2019, bonds are securities certifying the legal rights and interests of bondholders over a portion of the debt of the issuing organization. A joint-stock company may issue bonds to raise funds from investors, essentially a form of borrowing with periodic interest payments.
- Raising capital through bank credit:
This is a common practice for both general enterprises and joint-stock companies, allowing them to obtain short, medium, or long-term loans to meet business needs.
- Raising capital by offering shares:
Article 123, Clause 2 of the Law on Enterprise 2020 provides three forms of share offering:
+ Offering shares to existing shareholders.
+ Private placement of shares.
+ Public offering of shares.
- Raising capital from investment funds:
A joint-stock company may cooperate with investment funds or professional investors to raise capital, sharing profits and risks with partners.
III. Questions related to raising capital contributions
1. When raising capital in a joint-stock company, must the company complete any procedures?
Capital raising results in a change in the company’s charter capital. Under Clause 1, Article 30 of the Law on Enterprise 2020, the company must implement procedures to register changes to the business registration certificate.
2. What must a single-member Limited Liability Company do to raise capital?
According to Article 87 of the Law on Enterprises 2020, a single-member Limited Liability Company may increase charter capital by the owner contributing additional capital or by raising contributions from others. The owner decides the method and amount of the increase.
If the increase is through raising capital from others, the company must change its form to a multi-member Limited Liability Company or a joint-stock company.
3. What are the dossier components for raising capital in a Limited Liability Company?
Under Clause 1, Article 52 of Decree No. 01/2021/ND-CP, for Limited Liability Companies registering to change charter capital, the company must submit a dossier to the Business Registration Office where its head office is located. The dossier includes:
- Notice of changes in business registration content signed by the legal representative.
- Resolution or decision of the owner (for single-member Limited Liability Companies); resolution, decision, and minutes of the Members’ Council meeting (for multi-member Limited Liability Companies).
- Written approval from the investment registration agency for capital contributions or share purchases by foreign investors or foreign-invested organizations, if required under the Law on Investment.
4. Is there a limit on the number of investors when raising capital in a joint-stock company?
Point a, Clause 3, Article 9 of the Law on Investment 2020 states:
- Market access conditions for foreign investors under the List of sectors and industries restricted to foreign investors include: The ratio of charter capital ownership by foreign investors in economic organizations.
Thus, there are legal limits on the number and ownership ratio of investors when raising capital in joint-stock companies. Under Clauses 7, 8, and 9, Article 17 of Decree No. 31/2020/ND-CP, market access conditions (including ownership ratios) are implemented per international investment treaties. Restrictions on foreign ownership ratios under these treaties apply under Clause 10 of the same Article.
IV. Legal consultancy services related to raising capital contributions
The above is comprehensive information provided by NPLaw to assist clients regarding raising capital contributions. If you have any related questions or other legal concerns, please contact NPLaw for direct advice and solutions from our team of lawyers.
