Legal regulations on capital contributions of establishing enterprises

In an era of economic uncertainty, many enterprises have suspended operations or even dissolved. However, there are still individuals and organizations that recognize economic growth opportunities and collaborate to establish and develop enterprises. When cooperating together, individuals and organizations must contribute capital to form a new enterprise.

I. Current status of capital contributions of establishing enterprises

Nowaday, enterprises are established in various forms. Accordingly, not only individuals or organizations set up their enterprises independently, but there are also enterprises founded through joint capital contributions from multiple individuals and organizations. However, capital contributions of establishing enterprises sometimes face the following issues:

- Failure to contribute the full committed capital or failure to contribute as agreed. Accordingly, if member(s) do not contribute capital as committed, certain cases may require to change the enterprise registration type. 

- Capital contributions are not always made in cash. Some members contribute assets such as real estate instead of money, so asset valuation is a crucial process. Currently, there are various asset valuation methods, and contributing members will need to value them based on the consensus principle or have them valued by a valuation organization.

II. Understanding capital contributions of establishing enterprises

1. What is a capital contribution of establishing an enterprise?

Pursuant to Clause 18, Article 4 of the Law on Enterprise 2020, capital contribution is an act of contributing assets to form the company’s charter capital, including contributing capital to establish a new enterprise or adding to the charter capital of an established enterprise.

Thus, the capital contribution of establishing an enterprise refers to individuals or organizations contributing agreed-upon assets fully and correctly when registering to establish an enterprise.

2. Forms of the capital contribution of establishing an enterprise

When organizations and individuals jointly contribute capital to establish an enterprise, contributed assets are not necessarily required to be cash. They can include other asset types, as specified in Clause 1, Article 34 of the Law on Enterprise 2020, as follows:

- Vietnamese Dong, freely convertible foreign currencies, gold;

- Land use rights;

- Intellectual property rights, technology, technical know-how;

- Other assets that can be valued in Vietnamese Dong.

For assets that require the ownership transfer, individuals or organizations contributing capital in such assets must complete the ownership transfer process to the company.

III. Legal regulations on capital contributions for enterprise establishments

1. Procedures for contributing the charter capital to establish an enterprise

Pursuant to Article 35 of the Law on Enterprise 2020 regarding the transfer of ownership of contributed assets, the procedures for contributing capital to establish an enterprise are as follows:

For contributed assets that do not require the ownership transfer, the law requires that the delivery and receipt of contributed assets be documented in a written record. Once a member has fully contributed previously committed capital, the enterprise will officially recognize their membership status.

For contributed assets that require the ownership transfer, the following steps must be taken:

- Signing notarized or certified contract(s) for the transfer of asset ownership;

- Physically handing over the asset;

- Submitting the registration documents for ownership transfer, declaring taxes, and paying any applicable fees. However, capital contributions involving land use rights are exempt from registration fees;

- Officially recognizing the contributor as the company member.
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2. Important considerations for capital contributions of establishing enterprises

When contributing capital to establish an enterprise, it is essential to consider the following points to ensure compliance with the Law on Enterprise 2020:

- Regarding contributed assets: Assets used for capital contributions are regulated under Article 34 of the Law on Enterprise 2020. Only individuals or organizations that are the legal owners or have legal use rights over assets may use them for capital contributions.

If contributed assets are not Vietnamese Dong, freely convertible foreign currency, or gold, it must be appraised for valuation.

- Capital contribution deadline: The law specifies different deadlines for capital contributions based on the type of enterprise registration.

- Issuance of the capital contribution certificate: The enterprise must issue the certificate to members who have fully contributed their committed capital. If a member has fulfilled their commitment but does not receive the certificate, legal fines may apply.

IV. Frequently asked questions about capital contributions for enterprise establishments

1. Can assets, land use rights, or intellectual property be considered capital contributed into establishing enterprises?

For non-cash contributed assets such as land use rights certificates or intellectual property rights, according to the provisions of Clause 1, Article 34 of the Law on Enterprise 2020 which currently regulates contributed assets, it can be seen that the law does not prohibit the above types of assets from being used as contributed assets to establish enterprises.

2. Will there be a fine for failing to fully contribute the charter capital? If so, what are fines? How can such an issue be resolved?

When establishing an enterprise, individuals and organizations commit to a capital contribution based on their financial capacity. The law provides a specific timeframe for them to fulfill such a commitment. However, in cases where members fail to contribute the full amount, the enterprise must register a change in charter capital within the legally prescribed deadline. If complying with this requirement, no fines will be imposed.

If the deadline passes and the enterprise has not registered a change in charter capital, it will be subject to a fine under Point a, Clause 3, Article 46 of Decree 122/2021/ND-CP. The fine ranges from 30,000,000 VND to 50,000,000 VND.

Additionally, the enterprise may also be subject to remedial measures, such as being compelled to register adjustments to its capital or changes to its founding members or shareholders. (As stipulated in point b, clause 5, Article 46 of Decree 122/2021/ND-CP).

3. Can labor be used as a capital contribution of establishing an enterprise? 

Based on Clause 1, Article 34 of the Law on Enterprise 2020, capital contributions can be made in the form of Vietnamese Dong, freely convertible foreign currency, gold, land use rights, intellectual property rights, technology, technical know-how, or other assets that can be valued in Vietnamese Dong. Based on this regulation, labor is not recognized as a type of asset that can be used for capital contribution when establishing an enterprise.

4. Will there be a fine for not issuing the capital contribution certificate to the contributing member? 

Issuing the capital contribution certificate is a mandatory requirement once the contributing member has fully completed the committed capital. The enterprise must provide this certificate as stipulated in Clause 5, Article 47 and Clause 4, Article 178 of the Law on Enterprise 2020.

If the member has fully contributed their capital but the enterprise fails to issue the certificate, the enterprise may face a fine ranging from 30,000,000 VND to 50,000,000 VND, as stated in Point a, Clause 2, Article 52 of Decree 122/2021/ND-CP.

5. Can a person on probation with a suspended sentence contribute capital to establish an enterprise?

Individuals and organizations generally have the right to contribute capital to establish an enterprise. However, the law imposes certain restrictions on specific entities, as outlined in Clause 3, Article 17 of the Law on Enterprise 2020:

- State agencies and armed forces units from using state assets to contribute capital to enterprises for private gain.

- Entities restricted from contributing capital under the Law on Cadres and Civil Servants, the Law on Public Employees, and the Anti-Corruption Law.

Since a person on probation with a suspended sentence is not listed among the restricted entities, they retain the right to contribute capital to establish an enterprise under legal regulations.

V. Should you consult lawyers for capital contributions in enterprise establishments? While contributing capital to establish an enterprise may seem straightforward, various legal issues can arise during the process. Seeking legal consultation can help ensure compliance with the law and mitigate potential risks.

NGOC PHU LAW FIRM has extensive experience in advising and handling procedures related to capital contribution for enterprise establishment, including:

- Receiving consultation requests and assisting with capital contribution procedures;

- Advising and guiding clients in preparing necessary documents for capital contribution;

- Drafting documents and representing clients in working with relevant state authorities;

- Receiving and delivering the final results of the capital contribution process to clients.

The above information aims to clarify legal issues related to capital contributions of establishing enterprises, provided by NPLAW. If you have any further questions, please do not hesitate to contact NPLAW through the following channels: