Issue 020923 – Transfer of contributed capital in multiple-member LLC

Dear Valued Clients,

Transfer of contributed capital in a limited liability company (“LLC”) with multiple members is an act of a company member transferring the ownership of the contributed capital in his/her company to another member or another individual or organization that is not a member, along with the rights and obligations of the owner arising from that contributed capital to that individual or organization.

During the capital transfer process, investors will have many things to look out for. In this article, we seek to shed light on the fundamental aspects of contributed capital transfer, focusing on issues such as the definition of contributed capital, cases of contributed capital transfer, and procedures to carry out the transfer. This knowledge will provide you with a comprehensive overview of the key principles that govern the transfer of contributed capital in a multiple-member LLC.

Below is our article on this issue. As always, we hope you find this article useful and look forward to working with you in the future.

1. Definition of contributed capital and transfer of contributed capital in a multiple-member LLC

According to Article 4.27 of Law on Enterprises 2020, contributed capital means the total value of assets that a member has contributed or promises to contribute to an LLC.

According to the above definition, transfer of contributed capital can be understood as a member owning contributed capital in a multi-member LLC transferring part or all of his/her contributed capital to a member of the company or to individuals and organizations that are not members of the company. This transfer includes the transfer of contributed capital as well as the rights and obligations corresponding to that contributed capital.

2. Cases of transferring contributed capital in a multiple-member LLC

According to Articles 51, 52, and 53 of Law on Enterprises 2020, a member of an LLC with multiple-member has the right to transfer part or all of his/her contributed capital to another person in the following cases:

(1)      A member of the company offers the stake to other members in proportion to their holdings under the same conditions;[1]

(2)      Transfer the stake under the same conditions as those applied to other members mentioned in Point a of this Clause to a non-member if the other members do not purchase or fully purchase the stake within 30 days from the first day of offering;[2]

(3)       A member gives away part or all of his/her stake to another person;[3]

(4)       A member uses that member’s stake to pay the debt.[4]

(5)       Members’ capital contributions are bought back or transferred by the company in the following cases:

• A member is entitled to request the company to repurchase that member’s stake if that member has voted against a resolution or decision of the Board of Members on the following issues:[5]

+ Amendments to regulations of the company’s charter on rights and obligations of members and the Board of Members;

+ Reorganization of the company;

+ Other issues prescribed by the company’s charter.

• The member’s heir does not wish to become a member;[6]
• The beneficiary of the member is not the lawful heir as well as is not approved by the Members’ Council as a member;[7]
• The member that is an organization is dissolved or goes bankrupt.[8]

3. Dossiers for transferring contributed capital in a multiple-member LLC[9]

– A notification of changes to enterprise registration information which is signed by the enterprise’s legal representative (the document is in accordance with Appendix II-1 of Circular 01/2021/TT-BKHDT guiding business registration);

– The list of members of the multi-member LLC or list of general partners of the partnership (the document is in accordance with Appendix I-6 of Circular 01/2021/TT-BKHDT guiding business registration), excluding information about limited partners. Such lists must bear signatures of members/general partners whose stakes are changed; signatures of members/general partners whose stakes are unchanged are optional;

– The transfer contract or documents proving completion of the transfer if stakes are transferred; donation contract if stakes are donated;

– A written approval given by the investment registration authority for capital contribution or purchase of shares/stakes by foreign investors/foreign-invested business entities in case procedures for registration of capital contribution or purchase of shares/stakes must be followed in accordance with the Law on Investment 2020.

– Personal identification documents of the transferee:

+ In case the transferee is a Vietnamese individual: A valid copy of personal documents (a valid Vietnamese citizen identification or identity card or passport;

+ In case the transferee is a foreign individual: The foreign passport or a valid substitute document for the foreign passport;

+ In case the transferee is an organization: A valid copy of the Business Registration Certificate/ Enterprise Registration Certificate/ Establishment Decision or other equivalent document certifying the legal status of the enterprise;

– A valid copy of the personal identification paper of the authorized representative (In case the transferor does not directly carry out the transfer procedures).

– However, according to the provisions of Clause 3, Article 52 of Law on Enterprises 2020, in case the transfer of contributed capital affects the number of members (the number of members is reduced to one), the company must make a notification of a change in the number of capital contributors and execute procedures for converting the type of enterprise into a one-member LLC.

4. Procedures for transferring of contributed capital in a multiple-member LLC

Step 1: Prepare documents

Determine whether the transferee is a Vietnamese (Vietnamese company) or a foreigner (company with foreign elements).

Dossier for transfer of contributed capital (including the documents mentioned in Section 2);

Note: In case the transferee is a foreigner or an enterprise with foreign elements, it is necessary to consider whether that business line allows capital transfer to foreigners as well as the maximum rate allowed for capital transfer.

Step 2: Submit the dossier for transferring contributed capital

Submit the dossier to the Business Registration Office of the Department of Planning and Investment of the province or city where the enterprise’s head office is located.

Note: Within 10 days, the transferee member must fully contribute the committed capital. After that, the new enterprise may make a notification of the change of capital contributors and send it to the Business Registration Office where the enterprise registered for establishment. The late capital contribution, late notification, or failure to notify will be administratively sanctioned by the Department of Planning and Investment.

Step 3: Receive receipt

The Business Registration Office issues the Receipt, checks the validity and accuracy of the documents, and processes the business’s documents.

Step 4: Receive the result of the settlement of the application

Based on the appointment date on the Receipt, the enterprise shall go to the Business Registration Office to receive the results of the application.

5. Some notes when transferring contributed capital in a multi-member LLC

1. Payment of personal income tax (PIT) when transferring contributed capital

Additional income from the transfer of contributed capital is subject to PIT (if the transferor is an individual) or corporate income tax (if the transferor is an organization).

Tax payable = 20% x Taxable income

Within 10 days from the date of completion of the transfer, the individual transferring the contributed capital must submit the PIT declaration to the Tax Department (where the enterprise’s tax is managed).

2. The right to use the contributed capital of the person whose debt is paid by that contributed capital

In case a member uses that member’s stake to pay debt, the beneficiary may:[10]

– Become a member of the company if it is accepted by the Board of Members;

– Offer and sell the stake in accordance with Article 52 of Law on Enterprises 2020.

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.

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[1] Article 52.1.a of Law on Enterprises 2020.

[2] Article 52.1.b of Law on Enterprises 2020.

[3] Article 53.6 of Law on Enterprises 2020.

[4] Article 53.7 of Law on Enterprises 2020.

[5] Article 51.1 of Law on Enterprises 2020.

[6] Article 53.4 Law on Enterprises 2020.

[7] Article 53.4 Law on Enterprises 2020.

[8] Article 53.4 Law on Enterprises 2020.

[9] Article 51 of Decree 01/2021/ND CP.

[10] Article 53.7 Law on Enterprises 2020.