Legal regulations on contributing capital for operating business

In today’s modern business market, capital contribution has become increasingly common, especially for enterprises, individuals, and organizations seeking to expand their scale, achieve growth, or develop new projects without sufficient financial resources. Capital contributions can take various forms and involve different types of assets. So, how does the law regulate capital contributions in operating business? Below, NPLAW presents the relevant legal provisions.

In today’s modern business market, capital contribution has become increasingly common, especially for enterprises, individuals, and organizations seeking to expand their scale, achieve growth, or develop new projects without sufficient financial resources. Capital contributions can take various forms and involve different types of assets. So, how does the law regulate capital contributions in operating business? Below, NPLAW presents the relevant legal provisions.

I. Understanding capital contributions in operating business

1. What is a capital contribution in operating business?

Under Clause 18, Article 4 of the Law on Enterprise 2020, a “capital contribution” refers to an act of contributing assets to form the charter capital of a company, including capital contributed to establish a company or additional contributed to an already established company.

Accordingly, a capital contribution in business can be understood as an act of an investor providing certain assets (cash, gold, or other assets) to engage in business activities through the joint establishment of a company, contributed capital, purchase of shares in a company, or investment via contracts or the implementation of investment projects.

2. Current forms of capital contributions in operating business

Clause 1, Article 134 of the Law on Enterprise 2020 stipulates that assets contributed as capital may include: Vietnamese dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technology, technical know-how, and other assets capable of being valued in Vietnamese dong. Accordingly, individuals and organizations typically contribute capital in one of the following three forms:

Contribution in cash;
Contribution of land use rights and attached assets, and intellectual property rights;
Contribution of technology and technical know-how.

II. Legal provisions on capital contributions in operating business

1. Conditions for capital contributions in operating business

Under the Law on Enterprise 2020:

Entities receiving capital contributions on establishing enterprises: Clause 3, Article 17 stipulates that individuals or organizations may contribute capital to establish companies if they have full legal capacity and are not among those prohibited from contributing capital under the Law on Enterprise or other relevant legal documents.
Entities being allowed to contribute capital for establishing enterprises: All organizations and individuals have the right to contribute capital to establish companies, purchase shares, or purchase capital contributions in partnerships, limited liability companies, and joint stock companies, except for those falling under Clause 3, Article 17 of the Law on Enterprise 2020.
Conditions on contributed assets: Pursuant to Article 34 of the Law on Enterprise 2020, contributed assets may include Vietnamese dong, foreign currencies, gold, land use rights, intellectual property rights, and other assets convertible into Vietnamese dong. Only individuals or organizations holding lawful ownership or use rights over such assets may use them for capital contribution.

2. Procedures for capital contributions in operating business

Step 1: Determining the form and ratio of contribution

Form of contribution: The type of asset to be contributed is required to accurately determine;
The ratio of contribution: The contribution and its ownership ratio in the enterprise or project are necessary to agree together with the aim of determining rights, obligations, profit-sharing arrangements, and risk allocation.

Step 2: Executing a capital contribution contract
When engaging in capital contribution, the parties need to execute the contribution contract obtaining the following specific terms and conditions:

Amount of contribution: the cash or assets committed to contributing by each party;
Ownership ratio: each party’s corresponding benefits and control rights, and share ratio or its percentage in the enterprise;
Profit distribution: Distribution on profits and dividends, and other forms;
Withdrawal conditions: Terms and conditions for transferring, withdrawing, or selling the contributed capital;
Financial responsibilities: Financial obligation commitments if the business encounters difficulties.

Step 3: Fulfilling legal procedures
After signing the contract, it is required to fulfill legal procedures for updating information on capital contribution with competent State authorities:

For Limited Liability Company or Joint Stock Company: The enterprise submits a notification of change in charter capital (if applicable);
For Joint Stock Company: The contributors issue shares or securities appropriate with their contributed capital;
Update of the register of shareholders (for Joint Stock Company) or members (for Limited Liability Company).

Step 4: Paying the capital contribution

After signing the contract and implementing related legal procedures, the parties must pay their capital contribution:

In cash: The parties can transfer to the company’s account. Cash payments must be demonstrated by a receipt or legal transfer document;
In assets: The parties must obtain a transfer contract for assets (if any), documents confirming the value of the assets (such as a certificate of ownership, a sales contract, etc.). In addition, the company will need to implement asset valuation procedures to determine the value of the contributed assets.

Notes:

For assets requiring registration of ownership or land use rights, the contributor must complete the procedures to transfer ownership of the asset or land use rights to the company in accordance with the Law, and such transfers are exempt from registration fees;
For assets not subject to ownership registration, the contribution must be made through the handing minutes unless transferred via bank account.

Step 5: Updating capital contribution information at the tax authority

Declaring taxes for contributed assets (especially real estate);
Adjusting corporate income tax calculations if the capital structure changes.

III. Questions on capital contribution in operating business

1. How to withdraw contributed capital?

Single-member Limited Liability Company:

Single-member Limited Liability Company is an enterprise owned by an organization or individual with 100% capital contribution. The owner is entitled to withdraw its contributed capital in the following ways:

Transferring part or all of the charter capital to another organization or individual. Accordingly, in such a case, the company’s charter capital will not be decreased, and the company shall implement a change in the company structure (the type of business) depending on the transfer if any.
Returning a partial capital to the owner if the company has operated continuously for at least two years and ensures to pay all debts and other asset obligations thereafter.

Multi-member Limited Liability Company:

The contributors (members) are not allowed to withdraw their contributed capital under any forms, except cases provided by the Law:

Requesting the company to redeem contributed capital. It only arises when the contributor has voted against the resolution or decision of the Board of Members on the following issues:
Amending or supplementing the Company Charter’s contents related to the rights and obligations of members and the Board of Members;
Reorganizing the company, and
Other cases as prescribed in the Company Charter.
Transferring part or all of the capital contribution in accordance with the Law. In principle, the capital contribution must be offered first to the remaining members of the company in proportion to their holding ownership. If the members don’t conduct redemption or don't redeem all of the capital within 30 days from the date of offering, the requesting member has the right to transfer it to another person. In such a case, the charter capital of the company remains unchanged;
The company returns a corresponding part of the capital contribution to all members under the same conditions as applied to the Single-member Limited Liability Company as mentioned above. In this case, the charter capital of the company will be reduced.

Joint Stock Company:

Shareholders are only allowed to withdraw their contributed capital in the following forms:

The company redeems shares. Accordingly, shareholders who have voted not to pass a company reorganization or a change in shareholders’ rights and obligations as stipulated in the Company Charter have the right to request the company to redeem their shares. On the other hand, the Company also has the right to redeem no more than 30% of the total number of common shares;
Shares are redeemed by others: Shareholders exercise the right to transfer shares in accordance with the provisions of law;
All shareholders are returned a corresponding part of their capital contribution by the company in proportion to their share ownership ratio based on the decision of the General Meeting of Shareholders, under the same conditions as applied to the Single-member Limited Liability Company or the Multi-member Limited Liability Company as mentioned above;
Donating a part or all of their shares to another individual or organization; or using shares to pay debts. Accordingly, individuals and organizations who are donated or receive debt payment in shares will become shareholders of the company.

2. Can the committed asset in capital contribution be changed?

Under Clause 2, Article 47 of the Law on Enterprise 2020, members must fully contribute the committed assets within 90 days from issuance of the enterprise registration certificate on time. Contributing capital by assets other than the committed ones is only allowed if approved by more than 50% of the remaining members of the company.

3. What to do if an entity contributes capital to a company but does not enjoy a profit? Can it be used in such a case?

It is necessary to review the capital contribution contract or the company's charter to clearly understand contributor’s rights regarding profit sharing. Negotiation and internal settlement is an important step and is often encouraged. Contributors can ask the company or other shareholders/investors to explain why they are not entitled to the profit sharing. If the company has financial problems, solutions can be proposed, such as extending the profit sharing period or sharing profits under other conditions.

If the negotiation is unsuccessful, contributors can file a lawsuit to request the company to fulfill its obligations as committed.

4. Can a registered trademark be contributed as capital?

Clause 1, Article 134 of the Law on Enterprise 2020 stipulates that contributed capital assets are Vietnamese Dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technology, technical know-how, and other assets that can be valued in Vietnamese Dong.

Accordingly, a trademark is an intellectual property owned by an organization or individual and can be used as contributed capital when valued in Vietnamese Dong.

5. Do overseas Vietnamese transferring housing ownership (apartment buildings) for capital contribution have to pay registration fees?

According to Article 4 of the 2014 Law on Registration Fees (amended and supplemented in 2020), registration fees are fees that property owners are requested to pay when transferring ownership of property (including real estate, vehicles, etc.) from one person to another. Housing and its ownership (including apartment buildings) are subject to registration fees when transferring ownership.

Thus, Vietnamese people residing abroad who transfer housing ownership (apartment buildings) to contribute capital for business are subject to registration fees.