Investment capital for establishing a business plays an important role to foreign investors in general and Japanese investors in particular (Hereinafter referred to as “Investors”) who aim to enter the Vietnamese market. Therefore, an adequate knowledge of the statutory provisions on charter capital applicable to all types of businesses is essential to the Investors.
First and foremost, the Vietnamese law on enterprise defines the charter capital as follow: “Charter capital means the total value of assets which the members and owners of a company have contributed or committed to contribute upon establishment of a limited liability company or partnership; or the total par value of shares sold or registered to be purchased at the time of establishment of a joint stock company”[1].
The provisions on charter capital for limited liability companies and joint stock companies are the main subject of this article. These forms of enterprises are frequently favored by the Investors when they choose Vietnam as their investment destination.
1. Assets contributed as capital
According to Article 34 of Law on Enterprise 2020, the Investors can contribute capital by these following assets:
- Vietnam dong, freely convertible foreign currency, gold, intellectual property rights, technology, technical know-how and other assets that can be valued in Vietnam dong.
- Only organizations and individuals that are lawful owners of or have the lawful right to use the assets may use such assets for capital contribution.
2. Time limit for capital contribution
Vietnamese law stipulates the time that the Investors must make capital contributions depending on the type of company. Specifically:
a) Multi-member limited liability company:
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- Members shall make capital contributions to the company sufficiently and with the types of assets as committed upon enterprise establishment registration within 90 days after the grant of the Enterprise Registration Certificate, excluding the time for transportation or import of assets contributed as capital and performance of administrative procedures for asset ownership transfer. Within this time limit, members will have the rights and obligations in proportion to the capital amounts they have committed to contribute. A company member may contribute capital to the company in other assets different from the committed ones if such is consented to by over 50% of the other members[2].
b) Single-member limited liability company:
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- The company owner shall make sufficient capital contribution to the company with the types of assets as committed upon enterprise establishment registration within 90 days after being granted an Enterprise Registration Certificate, excluding the period of transportation and import of such assets and performance of administrative procedures for transfer of asset ownership. Within this time limit, the company owner has rights and obligations in proportion to the committed contributed capital[3].
c) Joint Stock Company:
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- Shareholders shall make full payment for the volume of shares they have registered to purchase within 90 days after the enterprise registration certificate is granted, unless a shorter period is specified in the company charter or share purchase registration contract. In case a shareholder contributes capital in assets, the period of time for transporting and importing and carrying out administrative procedures for transferring the ownership of such assets shall not be counted in the time limit for capital contribution. The Board of Directors shall supervise and urge the full and timely payment for shares registered for purchase by shareholders[4].
3. Consequences of not complying with the capital contribution time limit
a) Multi-member limited liability company:
In case there is a member who has not contributed or has not fully contributed, the consequences for the member and the company are as follows:
To the members[5]:
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- The member who fails to contribute the capital amount as committed will be naturally no longer a member of the company;
- The member who fails to fully contribute the capital amount as committed will have the rights in proportion to the paid-in capital amount;
- The unpaid capital amount of a member shall be offered for sale under a resolution or decision of the Board of Members;
- Members who fail to contribute or fail to fully contribute the capital amount as committed must be liable with their committed capital amounts with regard to the financial obligations of the company arising before the date the company registers the adjustment of charter capital and capital contribution ratios of members.
To the company:
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- In case a member fails to contribute or fails to fully contribute the capital amount as committed, the company shall register the adjustment to the charter capital and capital contribution ratios of the members according to their paid-in capital amounts within 30 days from the last day of the statutory period of capital contribution[6].
b) Single-member limited liability company:
In case of failing to make sufficient contributions to the charter capital within the time limit, the company owner shall register adjustment to the charter capital to be equal to the actually contributed capital, within 30 days from the last day of the statutory period of capital contribution.
In this case, the company owner is liable in proportion to the committed contributed capital amount for the company’s financial obligations arising before the day on which the company registers a change in its charter capital[7].
c) Joint Stock Company:
After the prescribed time limit, if any shareholder has yet paid for or only partially paid for shares registered, the following provisions shall apply:
To the shareholders[8]:
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- Shareholders who have not yet paid for registered shares shall automatically no longer be a shareholder of the company and are not allowed to transfer such right of purchasing shares to another;
- Shareholders have only partially paid for registered shares may vote, receive profits and have other rights in proportion to the paid-up shares; and may not transfer the right of purchasing unpaid shares to another;
- Unpaid shares shall be regarded as unsold shares and may be sold by the Board of Director;
- Shareholders that have not yet paid for or have only partially paid for registered shares must be liable in proportion to the total par value of registered shares for purchase for financial obligations of the company arising before the company registers for adjustment of charter capital.
To the company[9]:
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- The company shall register an adjustment to its charter capital to be equal to the total par value of paid-up shares and a change of founding shareholders within 30 days from the end of the time limit for making full payment for registered shares, unless unpaid shares have been sold within such time limit;
- Members of the Board of Directors and the legal representative must be jointly liable for damage caused by non-compliance with or improper implementation of the regulations.
4. Charter capital and statutory capital
Charter capital is the capital serving business activities of the company, contributed by the Investors and recorded in the Charter of such company. However, pursuant to Vietnamese law, there are a number of conditional business lines which require the charter capital of an enterprise must not be less than the statutory capital. In that case, such enterprise in no event can decrease its charter capital less than the legal capital.
E.g.: Commercial bank must having its charter capital of VND3,000 billion or more, this number for financial company is VND500 billion[10]. Thus, if a foreign investor establishes a business enterprise in industries that require statutiry capital, the investor must ensure that the charter capital of the enterprise is not lower than the legal capital. Some other business lines that require legal capital in Vietnam include securities trading, airline service business, insurance, insurance brokerage, etc.
[1] Law on Enterprise 2020, Article 4.34
[2] Law on Enterprise 2020, Article 47.2
[3] Law on Enterprise 2020, Article 75.2.
[4] Law on Enterprise 2020, Article 113.1.
[5] Law on Enterprise 2020, Article 47.3.
[6] Law on Enterprise 2020, Article 47.4.
[7] Law on Enterprise 2020, Article 75.3.
[8] Law on Enterprise 2020, Article 113.3 and Article 113.4.
[9] Law on Enterprise 2020, Article 113.3.(d) and Article 113.4.
[10] Decree 86/2019/ND-CP dated November 14th, 2019 Prescribing levels of legal capital of credit institutions and foreign bank branches, Article 2.
