The transfer of investment capital is a crucial step in the investment process, enabling investors to restructure their investment portfolios, increase profits, or change financial strategies. However, the transfer of capital is not merely a transfer of asset ownership but must comply with strict legal regulations to ensure the legality of the transaction and protect the rights and interests of the involved parties.
In this article, NPLAW analyzes important legal issues that investors should be aware of when conducting investment capital transfers.
I. Current demand for investment capital transfers
In the context of a rapidly evolving and developing economy, the need for investment capital transfers has become increasingly important and common. Investors, businesses, and investment funds constantly seek opportunities to optimize their investment portfolios—from restructuring assets and increasing profits to entering new business fields. The transfer of investment capital has also become an effective tool for implementing significant strategic changes.
II. Legal provisions on investment capital transfers
1. What is an investment capital transfer?
An investment capital transfer is the process of transferring ownership and management of capital from one party to another. Typically, a capital transfer occurs when a shareholder or related party wishes to transfer their ownership capital in a business to a third party.
Currently, the law does not define the term “investment capital transfer.” It can be understood as the process of transferring ownership of a capital contribution or investment asset from one individual or organization to another. This may include selling shares or contributed capital in a company or transferring ownership of assets related to a specific investment project.
There are two forms of capital transfer that individuals or organizations can choose from:
- Transfer of contributed capital
- Transfer of ownership of capital-contributed assets
2. Conditions for investment capital transfers
According to the Law on Enterprise 2020 and Decree No. 01/2021/ND-CP, the conditions for capital contribution transfer are as follows:
- Single-member Limited Liability Company (LLC): The company owner is free to transfer all or part of the charter capital to another organization.
- Multi-member LLC: The transferring member must first offer their capital contribution to other existing members in proportion to their current capital contributions and under the same conditions. Only if the other members decline to purchase within 30 days, the transferring member may transfer the contribution to a non-member. In such cases, approval from the Members’ Council is required.
- Joint Stock Company: Shareholders have the right to freely transfer their shares to others, except for the ordinary shares held by founding shareholders, which may only be transferred to non-founding shareholders with the approval of the General Meeting of Shareholders within three years from the company’s establishment; the company charter may also impose specific restrictions on share transfers.
- Partnership: General partners are not allowed to transfer their capital contributions to others without the unanimous consent of all other general partners.
3. Can Vietnamese traders transfer investment capital to foreign investors?
Traders in Vietnam may transfer investment capital to foreign investors, provided they comply with the regulations of Vietnamese law.
According to Clause 2, Article 24 of the Law on Investment 2020, foreign investors contributing capital, and purchasing shares or capital contributions in economic organizations must satisfy the following conditions:
- Market access conditions for foreign investors as stipulated in Article 9 of the Law;
- National defense and security conditions;
- Conditions under the Land Law regarding the receipt of land use rights, especially in border areas, coastal communes, wards, and townships.
III. Questions on investment capital transfers
1. Does the owner of a single-member limited liability company have the right to transfer their capital to another person to withdraw from the company?
According to Article 77 of the Law on Enterprises 2020, regarding the transfer of capital contributions by the owner of a single-member limited liability company, the owner may only withdraw capital by transferring all or part of the charter capital to another organization or individual. Therefore, the owner has the right to transfer their entire capital to another person to withdraw from the company.
2. In what cases can a member of a multi-member limited liability company not transfer their entire capital contribution to another person?
According to Clause 1, Article 52 of the Law on Enterprises 2020, a member may not transfer all of their capital contribution in the following cases specified in Clause 4, Article 51, and Clauses 6 and 7, Article 53 of the Law:
- Where the company cannot repurchase the contributed capital requested for redemption under Clause 3 of this Article, the member may freely transfer their capital to another member or a non-member.
- When the member gifts all or part of their capital to another person.
- When the member uses their capital contribution to settle debts.
3. Can investment capital be transferred in the form of land use rights?
Investment capital may be transferred in the form of land use rights in certain cases. However, this must comply with the specific conditions and legal provisions of the Land Law and the Law on Real Estate Business.
4. Must payment for investment capital transfers between a foreign non-resident investor and a resident investor be made through the foreign investor’s direct investment capital account?
According to Article 10 of Circular 06/2019/TT-NHNN, the payment for the transfer of shares or capital contributions in an enterprise with direct foreign investment between a non-resident investor and a resident investor must be conducted through a direct investment capital account. The valuation and payment for capital or project transfers between residents and non-residents or between residents must be made in Vietnamese Dong.
5. Does the transfer of foreign investment capital to a foreign investor terminate the validity of the Investment Registration Certificate?
According to Point d, Clause 1, Article 64 of the Law on Investment 2020, the certificate's validity is terminated if the investor transfers all foreign investment capital to another foreign investor.
Therefore, it is necessary to determine whether the transfer involves the entire capital or just a portion. If only a portion is transferred, the Investment Registration Certificate remains valid.
6. Can investment capital formed from debt-to-equity conversion by the Vietnam Debt and Asset Trading Corporation be transferred via agreement?
According to Clause 3, Article 11 of the Financial Regulations of the Vietnam Debt and Asset Trading Corporation (DATC) issued with Circular No. 62/2021/TT-BTC, the transfer of investment capital formed from debt-to-equity conversion may be executed through:
- Public auction (standard or block bidding);
- Competitive offering;
- Agreement method;
- Transfer of shares through the trading system of the Stock Exchange
Accordingly, DATC is permitted to transfer investment capital formed from debt-to-equity conversion via agreement.
However, the agreement method may only be used if the competitive offering is unsuccessful or if not all shares are transferred through the offering.
IV. Legal consulting services on investment capital transfers
The above content provides detailed information from NPLAW to assist clients in matters related to investment capital transfers. If you have any questions regarding the above or other legal matters, please contact NPLAW directly for consultation and guidance.
