Issue 010923 – Contribution of assets for enterprises establishment

Dear Valued Clients,

Capital contribution is an important step when establishing an enterprise. To acknowledge more about the valid contributed assets as well as the process, methods, and valuation for contributing assets, investors may pay attention to our below guidance.

According to the provisions of Law on Enterprises 2020, capital contribution means the contribution of assets to form the charter capital of the company, including capital contribution to establish a company or additional contribution to the charter capital of an already established company.[1]

1. Assets used for capital contribution 

Assets contributed as capital include assets specified in Article 34 of the Law on Enterprises 2020:

• Contributed assets include VND, convertible foreign currencies, gold, land use rights (LUR), intellectual property rights, technologies, technical secrets, and other assets that can be converted into VND.
• Only the individual or organization that has the lawful right to ownership or right to use the asset mentioned in the above provisions of this Article may contribute it as capital as prescribed by law.

Thus, assets contributed as capital used to establish an enterprise or contribute additionally during the operation of the enterprise, including assets in Vietnam Dong or assets that can be valued in Vietnam Dong.

2. Transfer of ownership of contributed assets

Pursuant to Article 35 of the Law on Enterprises 2020, members of a limited liability company, partners of a partnership, and shareholders of a joint stock company shall comply with the following regulations:

2.1. Regarding assets whose ownership has been registered and LURs 

For assets whose ownership has been registered (for example: cars) and LURs, the capital contributor shall follow procedures for transferring the ownership of such assets or the LUR to the company as prescribed by law. This transfer is exempt from the registration fee.

2.2. Regarding assets whose ownership is not registered

Contribution of assets whose ownership is not registered shall be recorded in writing unless the contribution is made by wire transfer.

The record of transfer of contributed assets shall contain the following information:

• The company’s name and headquarters address;
• Full name, mailing address, legal document number of the contributor that is an individual; legal document number of the contributor that is an organization;
• Types and quantities of contributed assets; total value of contributed assets and the ratio of this value to the company’s charter capital;
• Date of transfer;
• Signatures of the contributor or the contributor’s authorized representative and the company’s legal representative.

Note:

• The contribution is considered complete once the lawful ownership of the assets has been transferred to the company.
• Procedures for ownership transfer are exempt for assets serving the business operation of the sole proprietorship’s owner.
• Payment for transfer of shares/stakes, receipt of dividends, or 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.

3. Valuation of assets contributed as capital

What is considered assets according to the provisions of Article 105 of Civil Code 2015 can be contributed as capital. However, in reality, the assets contributed to the capital must be those that can be measured and tradable in the market.

3.1. Regarding contributed assets that are not VND

Contributed assets that are not VND, convertible foreign currencies or gold shall be valued by members/partners/shareholders or a valuation organization and expressed as VND.[2]

3.2. Regarding assets contributed upon establishment of an enterprise

Assets contributed upon establishment of an enterprise shall be valued by members, partners or founding shareholders by consensus or by a valuation organization. In the latter case, the value of contributed assets must be accepted by more than 50% of the members/partners/founding shareholders.

3.3. Regarding assets contributed during the operation[3]

Assets contributed during the operation shall be valued by the owner or the Board of Members/Partners (for limited liability companies and partnerships) or the Board of Directors (for joint stock companies) and the contributor or by a valuation organization. In the latter case, the value shall be accepted by the contributor and the owner, the Board of Members/Partners/Directors.[4]

3.4. Legal consequences of false valuation of contributed assets 

Pursuant to Article 46.3.b of Decree 122/2021/ND-CP stipulating on penalties for administrative violations against regulations on enterprise establishment, the act of deliberate contribution of assets with false value shall be considered a violation against regulations on enterprise establishment and “A fine ranging from VND 30,000,000 to VND 50,000,000” shall be imposed.

Note: The fine incurred by an individual is 1/2 (half) that incurred by an organization.[5]

According to Article 36 of Law on Enterprises 2020:

• Upon establishment of an enterprise: In case a contributed asset is valued at a value higher than its actual value at contribution time (overvalued), the members/partners/founding shareholders shall jointly contribute an amount equal to the difference and are jointly responsible for the damage caused by the overvaluation.
• During the operation: In case a contributed asset is overvalued, the contributor, the owner and members of the Board of Members/Partners/Director shall jointly contribute an amount equal to the difference and are jointly responsible for the damage caused by the overvaluation.

As always, we hope you find this Legal Article useful and look forward to working with you in the future.

Kind regards,

ENT LAW LLC

The full version of this Legal Article can be found here.

[1] Article 4.18 Law on Enterprises 2020.

[2] Article 36.1 Law on Enterprises 2020.

[3] Article 36.2 Law on Enterprises 2020.

[4] Article 36.3 Law on Enterprises 2020.

[5] Article 4.2 Decree 122/2021/ND-CP.