Vietnam: What is the charter capital? How to distinguish between charter capital and legal capital? What do the contributed assets include?
What is the charter capital in Vietnam?
According to the provisions of Clause 4, Article 34 of the Enterprise Law 2020, the specific concept of charter capital is as follows:
34. “charter capital” means the total value of assets that have been contributed or promised by the members/partners/owners when the limited liability company or partnership is established; or the total of nominal values of the sold or subscribed shares when a joint stock company is established.
Accordingly, charter capital is the total value of assets that have been contributed or promised by the members/partners/owners when the limited liability company or partnership is established; or the total of nominal values of the sold or subscribed shares when a joint stock company is established.
Charter capital is an indispensable factor in the capital structure of an enterprise. Charter capital has an important meaning in determining the capital contribution ratio of owners and members in the enterprise. This is a basis for division of profits, rights and obligations among capital contributing members.
At the same time, charter capital also shows the size, capacity and position of the enterprise in the market. Clients and partners will trust and cooperate with enterprises with large charter capital.
Distinguish between charter capital and legal capital in Vietnam
Although charter capital and legal capital are both the initial capital contributed by investors to the enterprise, there are also the following differences between them:
Contents | charter capital | legal capital |
The basis of determination | When establishing a enterprise, it is compulsory to register charter capital Charter capital may increase or decrease during the operation of the enterprise. | Legal capital does not depend on the type of business but is determined by specific business lines. If the company intends to establish with business lines that require legal capital, the contributed capital must be at least equal to the legal capital. |
Capital amount | There are no the regulations on the minimum or maximum charter capital when establishing a enterprise | Legal capital is fixed for each business line. |
Time limit for capital contribution | Contributing sufficient capital from the start of conditional business activities | Contributing caplital within 90 days from the date of registration |
What are the regulations on the charter capital for an enterprise in Vietnam?
According to the Enterprise Law, there is no general charter capital for enterprises. Therefore, it is possible that based on the economic ability of the owner and the purpose of operation, the enterprise will decide on a specific charter capital.
Enterprises will often consider to decide on charter capital on the basis of the following factors:
- Financial capacity of the owner.
- Scope and scale of business activities.
- Actual operating expenses of the enterprise after its establishment;
- Business projects signed with partners
What do the contributed assets in Vietnam include?
Regarding the regulations on assets used to contribute to the enterprise's charter capital, Article 34 of the Enterprise Law 2020 specifically provides as follows:
Contributed assets
1. Contributed assets include VND, convertible foreign currencies, gold, land use right (LUR), intellectual property rights, technologies, technical secrets, other assets that can be converted into VND.
2. Only the individual or organization that has the lawful right to ownership or right to use the asset mentioned in Clause 1 of this Article may contribute it as capital as prescribed by law.
Accordingly, the contributed assets include:
- VND.
- Convertible foreign currencies.
- Gold.
- Land use right.
- Intellectual property rights, technologies, technical secrets.
- Other assets that can be converted into VND.
At the same time, in Article 35 of the Enterprise Law 2020, there are the provisions on transfer of ownership of contributed assets as capital:
Transfer of ownership of contributed assets
1. Transfer of contributed assets by members of a limited liability company, partners of a partnership, shareholders of a joint stock company shall comply with the following regulations:
a) For assets whose ownership have been registered and LURs, the capital contributor shall follow procedures for transfer the ownership of such assets or the LUR to the company as prescribed by law. This transfer is exempt from registration fee;
b) Contribution of assets whose ownership is not registered shall be recorded in writing unless the contribution is made by wire transfer.
2. The record on transfer of contributed assets shall contain the following information:
a) The company’s name and headquarters address;
b) Full name, mailing address, legal document number of the contributor that is an individual; legal document number of the contributor that is an organization;
c) Types and quantities of contributed assets; total value of contributed assets and the ratio of this value to the company’s charter capital;
d) Date of transfer; signatures of the contributor or the contributor’s authorized representative and the company’s legal representative.
3. The contribution is considered complete once the lawful ownership of the assets has been transferred to the company.
4. Procedures for ownership transfer are exempt for assets serving business operation of the sole proprietorship’s owner.
5. Payment for transfer of shares/stakes, receipt of dividends of remittance of profits by foreign investors shall be carried out through accounts in accordance with foreign exchange laws, except for payment in assets and cashless payment.
Thus, members of a limited liability company, partners of a partnership, shareholders of a joint stock company are responsible for transferring ownership of contributed assets to the company.
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