Before establishing an enterprise, you need to have a certain understanding of the issues surrounding the type of enterprise you are setting up, including the issue of charter capital contributions. So, how does the law regulate charter capital contributions when establishing an enterprise? Dear Clients, let us explore the content of the following article with NPLaw.
I. Concept of charter capital contribution
For some people planning to establish a company, the concept of charter capital or charter capital contribution may still be confusing to them.
1. What is charter capital?
Pursuant to Clause 34, Article 4 of the Law on Enterprises 2020, the charter capital is defined as follows:
In the case of establishing a limited liability company or a partnership, the charter capital is the total value of assets contributed or committed to contribute by the company members or owners when forming the limited liability company or partnership.
In the case of establishing a joint-stock company, the charter capital is the total par value of the shares sold or registered to buy at the time of the company's establishment.
Thus, the charter capital is understood differently depending on the type of company being established.
2. How is charter capital contribution understood?
From the definition of charter capital, we can understand that charter capital contribution is when members bring their assets to invest (contribute) together to form the total assets they have committed to become the owners of the company (in the case of contributing 100% of the charter capital) or co-owners (in the case of not fully contributing the charter capital).
Thus, the capital contribution will create the charter capital, including contributing capital to establish the company or increasing the charter capital of the already established company.
II. Legal regulations regarding charter capital contributions
Charter capital, or the charter capital contribution, is an important procedure when establishing a company. So, how does current law regulate this issue?
1. Form of charter capital contribution
The forms of charter capital contribution are regulated in Article 34 of the Law on Enterprises 2020 and include the following four forms:
2. Contributing capital in cash and gold
Cash or gold are common assets in business, trading, and starting an enterprise... Cash is paper money or coins, issued by the State Bank and circulated in accordance with legal regulations. Individuals can contribute capital through cash or bank account funds via bank transfer.
3. Contributing capital through land use rights and assets attached to the land, intellectual property rights
The form of capital contribution through property rights, such as land use rights and assets attached to the land, and intellectual property rights, only applies to individuals or organizations that are the legal owners or have legal land use rights and assets attached to the land according to the Land Law. The capital contributor must complete the procedures to transfer the ownership of that asset or the land use rights to the company in accordance with the law.
Intellectual property rights are the rights of the owner over intellectual property subjects, including copyright and related rights, trademarks, inventions, industrial designs, geographical indications, etc. The conditions and procedures for contributing intellectual property rights are similar to those for land use rights, meaning that the contributor of intellectual property rights must be the legal owner of the rights and the procedures must be carried out in accordance with the legal regulations governing those rights.
4. Contributing capital through technology and technical know-how
Technical know-how is information accumulated and discovered during the process of research, production, and business that significantly determines the quality and competitiveness of a product or even an entire enterprise. As for technology in general, it refers to the inventions of tools to replace technical machinery in order to achieve higher efficiency in production and business in particular.
Contributing capital through technology and technical know-how is essentially transferring other asset rights to the enterprise, which may include the right to use and the right to dispose of those assets.
5. Contributing capital with other assets valued in Vietnamese Dong
Other forms of capital contribution that can be valued, such as contributions of knowledge, activities, or work, can also be considered as forms of investment in the company. Intellectual labor to create value can be converted into assets. Contributing capital through knowledge or other legal forms must create benefits for the enterprise.
Contributing capital through activities or work is the commitment to perform specific actions that can be valued in monetary terms. When contributing capital through activities or work, one will be jointly responsible for the enterprise's obligations.
6. Charter capital contribution duration
The duration for contributing charter capital is regulated differently by law depending on the type of enterprise the members are investing in. Pursuant to Clause 2, Article 47; Clause 2, Article 75; and Clause 1, Article 113 of the Law on Enterprises 2020, for the types of sole-member limited liability companies, two or more member limited liability companies, and joint-stock companies, the duration for contributing charter capital is 90 days from the date of issuance of the Enterprise Registration Certificate, except in cases where the company's charter or the share purchase registration contract regulates otherwise for joint-stock companies. Within the aforementioned duration, members are responsible for contributing the exact and full amount of capital they had previously committed to.
For a partnership company, pursuant to Clause 1 and Clause 3 of Article 178 of the Law on Enterprises 2020, the law only mentions the obligation to contribute capital fully and on time as committed by the partners. Thus, in the case of establishing a partnership company, the contribution of charter capital is not specifically regulated by law, meaning that the contribution duration of the members depends on the agreement and commitment between them.
III. Answering some questions related to the issue of charter capital contributions
Regarding the issue of charter capital contributions, there are some frequently asked questions as follows:
1. How much of an administrative penalty can an enterprise face for not contributing its charter capital on time and less than the committed amount?
When the duration set by law has passed and the members have not yet contributed the full charter capital, the enterprise must adjust the charter capital and change the members or founding shareholders. Therefore, if the enterprise does not carry out this procedure, it will result in an administrative penalty ranging from 30,000,000 VND to 50,000,000 VND pursuant to Clause 3, Article 46 of Decree 122/2021/ND-CP.
2. Can shareholders contribute fixed assets as charter capital to a joint-stock company? If so, is it necessary to issue an invoice?
In the forms of charter capital contribution, the assets used as contributions are classified only by the form of the asset, regardless of whether they are fixed or non-fixed assets. Assets that can be valued in monetary terms can be used as capital contributions.
Pursuant to Article 3 of Circular 45/2013/TT-BTC, fixed assets are assets that are expected to bring economic benefits in the future from their usage, have a useful life of more than 01 year, and the original value of the asset must be reliably determined and valued at 30,000,000 VND or more. Shareholders only need to fulfill their capital contribution obligations fully as committed and on time according to the law, and they can completely use fixed assets to contribute capital to the joint-stock company.
Pursuant to Clause 7, Article 5 of Circular 219/2013/TT-BTC (amended by Clause 1, Article 3 of Circular 119/2014/TT-BTC), one of the cases exempt from declaring and paying value-added tax is contributing capital to establish an enterprise. Assets contributed capital to the enterprise (regardless of the form of asset) only need to have complete documentation such as the minutes of the production and business capital contribution, joint venture agreements, and asset valuation minutes from the council gathering capital contribution of the capital-contributing parties (or valuation documents from organizations with valuation functions as per legal regulations), along with a dossier on the origin of the assets, and do not require an invoice to be issued.
3. If an investor contributes charter capital incorrectly in terms of asset form, what is the fine?
Pursuant to Article 3 of Circular 09/2015/TT-BTC, if the investor is an enterprise, cash cannot be used to settle transactions for capital contributions or the purchase, sale, and transfer of capital contributions to another enterprise.
Therefore, pursuant to Clause 8 and Clause 10, Article 26 of Decree 88/2019/ND-CP (amended by Clause 15, Article 1 of Decree 143/2021/ND-CP), in cases where the investor is an enterprise that has made incorrect capital contributions in the form mentioned above, they will be fined from 150,000,000 VND to 200,000,000 VND, required to pay the illegal profits obtained from the violation into the state budget, and prohibited from expanding the scope, scale, and area of operations until the violation is surmounted.
Note: The monetary fine applies to administrative violations committed by individuals. In cases where the administrative violation is committed by an organization, the fine will be twice the amount specified for individuals.
4. What should enterprises do to avoid administrative penalties in case the charter capital contributions are insufficient as previously committed?
To avoid being penalized for administrative violations in case of insufficient charter capital contributions as previously committed, the enterprise needs to take the following actions:
1. Enterprises need to understand or seek consultation on regulations regarding the duration of charter capital contributions;
2. When the deadline for charter capital contribution is approaching, the enterprise needs to urge the members to fulfill their capital contribution obligations;
3. In the event that the charter capital cannot be fully contributed as initially committed, the enterprise must implement procedures to reduce the charter capital, change founding members or shareholders.
IV. Should a lawyer be consulted about the charter capital contribution issue? How to contact a lawyer?
Issues related to charter capital contributions play an important role for enterprises. Properly executing legal regulations on capital contribution when establishing an enterprise helps the enterprise initial steps operate smoothly and subsequently reduces legal risks or financial liabilities arising from non-compliance with regulations. Therefore, when addressing these issues, Clients need to seek consultation from units or individuals with expertise in the field of law in general and business law in particular.
Ngoc Phu Limited Liability Law Company (NPLaw) is a reputable law company that currently provides consulting services on charter capital contributions as well as legal issues in the field of enterprise law. If you wish to receive consultation, please contact hotline 0913 449 968 or visit the website nplaw.vn to be guided by our team of experienced lawyers and legal experts on the procedures. With high professional expertise, NPLaw promises to bring quality and reputable legal services to Clients.
