Contracts For Capital Contribution To The Company And Some Critical Notes

On January 1, 2021, the Law on Enterprises No. 59/2020/QH14 (“Enterprise Law 2020“) and the Law on Investment No. 61/2020/QH14 (“Investment Law 2020“) officially took effect. The effectiveness of these laws has led to changes in procedures for contributing capital to enterprises. In this article, Lac Duy & Associates sends you some notes when contributing capital and the form of capital contribution contract for reference from 2021 as follows:

Summary of some provisions of the Enterprise Law 2020 on capital contribution:

Clause 18, Article 4 of the Enterprise Law 2020 stipulates: “Capital contribution is the contribution of assets to form the charter capital of the company, including capital contribution to establish a company or additional charter capital of the established company.” Thus, there are 02 (two) forms of capital contribution recognized by Vietnamese law as capital contribution to establish a company or contribute more charter capital of established companies. Accordingly, it is necessary to note some of the following points:

1. According to Clause 5, Article 16 of the Enterprise Law 2020, the law prohibits the under-declaration of charter capital, not contributing sufficient amounts of charter capital as registered; intentionally pricing the contributed assets is not of the right value.

2. According to Clause 3, Article 17 of the Enterprise Law 2020, organizations and individuals have the right to contribute capital, buy shares, buy capital contributions to joint stock companies, limited liability companies, partnerships in accordance with the Law on Enterprises 2020, except for the following cases:

• State agencies and units of the people’s armed forces use state assets contributing capital to enterprises for their own profits;

• Subjects may not contribute capital to enterprises in accordance with the Law on Cadres and Civil Servants, the Law on Officials, the Law on Anti-Corruption

3. According to Clause 4, Article 25 of the Enterprise Law 2020, the contributed capital, the value of contributed capital, the proportion of ownership of contributed capital, the type of assets, the number of assets, the value of each type of capital contribution asset, the duration of capital contribution of each member to a limited liability company,  partnership; the number of shares, type of shares, share ownership ratio, asset type, number of assets, value of each type of capital contributed assets, the duration of capital contribution of each founding shareholder and foreign investor shareholder for the joint stock company should be shown in the list of members of limited liability companies, partnerships, list of founding shareholders and shareholders who are foreign investors for joint stock companies.

4. According to Article 34 of the Enterprise Law 2020, (1) the contributed assets are Vietnamese Dong, convertible foreign currency, gold, land use rights, intellectual property rights, technology, technical know-how, other assets that can be valued in Vietnamese dong, and (2) Only individuals, organizations that are legal owners or have the right to legal use of assets specified in Clause 1, Article 34 of the Enterprise Law 2020 have the right to use such assets to contribute capital in accordance with law.

5. The transfer of ownership of capital-contributing assets and valuation of capital contribution assets shall comply with Articles 35 and 36 of the Enterprise Law 2020.

6. In a limited liability company with two or more members: the capital contribution to establish the company and the issuance of certificates of capital contribution in accordance with Article 47 of the Enterprise Law 2020; the increase and reduction of charter capital shall comply with Article 68 of the Enterprise Law 2020.

7. In a one-member limited liability company, the capital contribution to establishing the company is carried out in accordance with Article 75 of the Enterprise Law 2020.

8. In joint stock companies, the contribution of capital to the company through the form of buying shares is carried out in accordance with Article 112, Article 113, Article 127 and other relevant laws prescribed in Chapter V of the Enterprise Law 2020.

9. In the partnership, the implementation of capital contribution and issuance of certificates of capital contribution shall be carried out in accordance with Article 178 of the Enterprise Law 2020.

10. According to Clause 4, Article 188 of the Enterprise Law 2020, private enterprises are not entitled to contribute capital to establish or buy shares or capital contributions in partnerships, limited liability companies or joint-stock companies.

11. The capital contribution when changing the type of enterprise shall comply with Articles 202, 203, 204 and 205 of the Enterprise Law 2020.

Some notes on capital contribution contracts:

1. Article 117 of the Civil Code No. 91/2015/QH13 (“Civil Code 2015“) stipulates the following:

Article 117. Conditions for validity of civil transactions

1. Civil transactions take effect when the following conditions are sufficient:

a) The subject has civil law capacity and civil act capacity in accordance with established civil transactions;

b) The subject of civil transactions is completely voluntary;

c) The purpose and content of civil transactions do not violate the prohibitions of the law, not contrary to social ethics.

2. The form of civil transaction means the validity of civil transactions in case the law provides. If the capital contribution contract takes an illegal form, it is invalid.”

At the same time, Article 122 of the Civil Code 2015 stipulates: “Civil transactions without one of the conditions specified in Article 117 of this Code are invalid, unless this Code has other provisions”; and in Clause 1, Article 407 of the Civil Code 2015, it stipulates: “The provisions on civil transactions invalid from Articles 123 to 133 of this Code also apply to invalid contracts.”

Therefore, when drafting capital contribution contracts, it is necessary to compare with the provisions of the Enterprise Law 2020, the Civil Code 2015 and other relevant legal documents to ensure the legal validity of the contract.

2. Currently, there is no specific regulation on the content of capital contribution contract. However, readers can refer to the contents commonly included in the contract as provided for in Article 398 of the Civil Code 2015 and the provisions on capital contribution in the Enterprise Law 2020 as mentioned in Section 1 to build a capital contribution contract that can best limit legal risks.

Capital contribution contract form

The above are some notes on capital contribution contracts to the company in accordance with the new provisions of Vietnamese law in 2021. In case there are any questions left or further advice is needed on issues related to foreign trade disputes, you can contact Lac Duy & Associates for timely assistance at:

• Phone: + 84 (28) 3622 1603
• Email: info@lacduy-associates.com or lacduy@lacduy-associates.com

Best regards.