Issue 250925 – Regulations on capital in a partnership company

Dear Valued Clients,

Regulations on capital in a partnership company are one of the important contents that determine the organizational structure, scope of responsibility and rights of members in the company. The Enterprise Law and its implementing documents have set out specific regulations on charter capital, capital contribution obligations, capital contribution deadlines, as well as legal consequences in case members fail to fulfill their commitments.

However, in practice, determining and managing capital in a partnership company can give rise to many complex issues, such as the difference between partnership members and capital-contributing members, unlimited liability of partnership members, or the mechanism for handling when a member withdraws capital or fails to contribute the committed capital. If the regulations are not fully understood, the company and its members may face legal risks and internal disputes.

I. CAPITAL AND ASSETS IN PARTNERSHIP COMPANY

1.1. Sources of capital formation and company assets

The capital of a partnership company is formed from two basic sources: the capital contributed by the partnership members and the capital of the capital-contributing members. Partnership members not only participate in management and operation but also directly bear unlimited responsibility with all of their assets for the company’s obligations; meanwhile, capital-contributing members are only responsible within the scope of their contributed capital. This combination creates the characteristic of the capital of a partnership company: both having a “personal” nature associated with the reputation and unlimited responsibility of the partnership members, and having an “asset” element expressed through the determined capital contribution of the capital-contributing members.

Article 179 of the Enterprise Law 2020 amendments and supplements in 2022, 2025 (“The Enterprise Law”) specifies the elements that make up the assets of a partnership company, in which the capital contribution of the members (both partnership members and capital-contributing members) is the foundation for forming the charter capital. In addition to the initial capital contribution, the company’s assets also include assets created under the company’s name, assets created from business activities on behalf of the company or on behalf of individuals for the benefit of the company, as well as other assets as prescribed by law. Thus, the capital of a partnership company not only reflects the contributions of its members but is also supplemented and developed during the course of business activities, increasing the company’s common assets.

1.2. Capital contribution procedures and timeline

In a partnership company, there are many elements that make up the assets of the partnership company, in which the capital contributions of the members (both partnership members and capital-contributing members) are the foundation for forming the charter capital. In addition to the initial capital contribution, the company’s assets also include assets created by the company (such as gold, land use rights, intellectual property rights or other assets) and the corresponding value in the company’s Charter. After the company is granted a Enterprise Registration Certificate, the members are responsible for contributing the full amount and the correct type of assets as committed.

During the capital contribution process, the law stipulates that members must complete their capital contribution obligations within 15 days, unless the Board of Members stipulates another time limit. In case a member fails to contribute the full amount of capital as committed and on time, the uncontributed capital is considered a debt of that member to the company; in this case, the relevant capital contributor may be expelled from the company according to the decision of the Board of Members.

II. CAPITAL TRANSFER AND CAPITAL MOBILIZATION IN PARTNERSHIP COMPANIES

2.1. Capital transfer in partnership companies

Members of a partnership company include capital-contributing members[1] and partnership members who have the right to transfer their capital contributions to others. The transfer of capital contributions is divided into two cases:

First, for capital-contributing members, they can freely transfer their capital to others as long as it does not affect the structure of the partnership company. Thus, current law does not have any restrictions on the transfer of capital by capital-contributing members; the recipient of the capital contribution transfer can be  partnership members, a capital-contributing members in the company or an individual or organization other than the partnership company.

Second, for partnership members, they can only transfer their capital contributions to a person who is not a member of the company with the consent of the remaining partnership members. This transfer only creates the status of a company member for the transferee if it is agreed by the partnership members[2]; otherwise, it is illegal. This transfer is quite strict, because it breaks the personal connection of the partnership company.

2.2. Capital mobilization in partnership company

A partnership company  is not allowed to issue any type of securities to publicly raise capital from the public[3]. Therefore, when there is a need for capital, a partnership company can raise capital in the following ways: (i) Borrow from domestic and foreign organizations and individuals; (ii) Borrow from banks and credit institutions; (iii) Joint ventures and associations with other individuals and organizations; (iv) Receive aid; (v) Special forms of credit. These forms of capital mobilization increase the company’s operating capital, which can help the company solve capital difficulties in business, but do not increase the company’s charter capital. Compared to joint stock companies and limited liability companies with two members, the ability to raise capital of a partnership company is lower. Therefore, a partnership company is not suitable for businesses that require large capital or diverse business lines, but is only suitable for businesses that require connections mainly based on personal relationships, members’ capital contributions are not large and are not a decisive factor.

In addition, according to Article 186 of the Enterprise Law, one of the important ways for a partnership company to raise more capital is to accept new members[4]. This is a method to help the company increase its financial capacity, but at the same time, it is also associated with many legal constraints and careful consideration from existing members.

The acceptance of new members must be approved by the Board of Members. This stems from the characteristics of a partnership company, not just anyone can join the company, but the person proposed to become a member needs to have consensus, in order to ensure unity in the operation and management of the company. Once approved, the new member is obliged to pay the full amount of capital contribution to the company within 15 days, unless the Board of Members decides on a different deadline. This provision ensures that the charter capital is supplemented in a practical and timely manner, helping the company to improve its financial capacity, not just stopping at a commitment on paper.

From the perspective of capital mobilization, the mechanism for accepting new members shows that the partnership company can be flexible in increasing its charter capital. However, in practice, partnership members often prioritize accepting capital-contributing members over admitting more partnership members, because expanding the number of partnership members means changing the management mechanism and sharing unlimited liability, which requires very careful consideration.

The above article will provide customers with an overview of current legal regulations related to capital in the partnership company under the Enterprise Law, and analyze points to note to ensure that capital contribution, capital management and profit sharing are carried out in accordance with the law and transparently.

Kind regards,

ENT Law LLC

[1] Article 187.1.d of the Enterprise Law stipulates that a capital-contributing members in a partnership company has the right to “Transfer his/her capital contribution in the company to another person;”

[2] Article 180.3 of the Enterprise Law stipulates: “A general partner shall not transfer part or all of his/her capital contribution in the company to another organization or individual without the consent of the remaining general partners.”

[3] Article 177.3 of the Enterprise Law

[4] Clause 1, Article 186 of the Enterprise Law