One of the most concerning aspects that attract investors when investing in an enterprise is the type of assets and the methods of capital contribution. According to the Law on Enterprises, capital contribution is the contribution of assets in forming the charter capital of a company. This includes capital contribution towards establishing a company or additional contribution to the charter capital of an already established company. This article will provide an overview of the assets used for capital contribution, including: types of assets, time, methods and notes when converting assets into contributed capital.
1. Contributed assets
According to Article 34 of the Law on Enterprises, assets contributed as capital are defined as follows:
“Article 34. Contributed assets
- Contributed assets include: VND, convertible foreign currencies, gold, land use right (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 Clause 1 of this Article may contribute it as capital as prescribed by law.”
According to the above regulations, assets used for capital contribution can be Vietnamese dong, freely convertible foreign currency, gold, land use rights, intellectual property rights, etc. Intellectual property rights are used to contribute capital including copyrights, copyright-related rights, industrial property rights (excluding geographical indications), rights to plant varieties, and other intellectual property rights. Additionally, the Law on Enterprises also stipulates that only individuals and organizations that are lawful owners or have lawful use rights to assets contributed as capital can have the right to use such assets to contribute capital via the provisions of the Law on Enterprises.
Thus, the assets used for capital contribution are quite diverse if they can be valued and traded on the market. Therefore, investors can contribute capital with many types of assets. For assets that are not money or gold but property rights, real estate, machinery, equipment, etc., the parties must conduct a valuation to convert it into Vietnamese dong and transfer ownership rights to the company if the property is subject to registration of ownership. For assets without registration of ownership, the parties can confirm the capital contribution by the minutes of delivery and receipt of the contributed assets or through the bank account.
2. Valuation of contributed assets
Depending on the time of contribution, the asset valuation will also be different in terms of participants. Accordingly, at the time of the establishment of the enterprise, assets when contributing capital must be valued by members and shareholders on the principle of consensus or conducted by a valuation organization. In the case of evaluating through an appraisal organization, the appraisal results must be approved by more than 50% of the members and founding shareholders.
Members and shareholders should also note that if the valuation is higher than the actual value of the asset at the time of capital contribution, the founding members and shareholders jointly contribute the difference and bear the responsibility if any damage arises from this valuation.
For the time of capital contribution after the establishment of the enterprise, the assets contributed as capital shall be contributed by the owner, members and shareholders. It shall be done together with the Members’ Council for limited companies; the Board of Directors in the case of joint stock companies to agree or by a valuation organization; and jointly responsible for the same as when valuing assets contributed as capital to establish an enterprise if the asset valuation is higher than the actual value.
3. Convert assets into contributed capital
This is the final step to recording the enterprise’s ownership of assets used by members and shareholders towards capital contribution. Accordingly, for assets without registration of ownership, capital contribution must be made by handing over the contributed assets in writing. In which, the minutes of delivery and the receipt of assets contributed as a capital need to ensure several key contents as prescribed by law. For assets subject to ownership registration, the capital contributor must carry out procedures for transferring ownership of such property or land use rights to the company at a competent state agency.
In fact, for assets that must be registered for ownership, it will be easier for the enterprise to control and verify the lawful ownership of members and shareholders, because there is the participation of the third party (a state agency) when carrying out registration procedures for changing ownership. However, if a property does not require registration of ownership, the decision of whether the property is legally owned by that member or shareholder, and whether they are the sole owner or co-owner, businesses often face many difficulties in determining this issue. In some cases, incorrect determination leads to disputes from third parties related to assets.
In a real case, the plaintiff, Mr. Nguyen Viet T, sued the defendant, MN Company limited, asking the Court to allow the plaintiff to own the value of the infrastructure area of 848.5 m2 and half the value of a 6th-floor house, currently under the right of use and owned by MN Co., Ltd. Mr. T’s wife, Mrs. Nguyen Thi Dieu N, is the director of this company. Mr. T and Mrs. N lived together and had a child together in 1995, but only registered their marriage in August 2003. The evidence for the petition, the plaintiff made is from February to August 2001, the amount of nearly 1.2 billion VND to rent/purchase the above 848.5 m2 land of MN Co., Ltd. directly submitted by Mr. T, shown in 5 receipts. The charter capital of MN Company is 3 billion VND, equal to the value of building a 6-story house in which the Company is doing business. The company has two members, Mrs. Nguyen Thi Dieu N and Ms. Nguyen Thi Tuyet M, Mr. Viet T has paid 1.5 billion dongs and authorized Mrs. N to be the director of the company.
The defendant MN Co., Ltd., represented by Mrs. Dieu N, said that the number of the above 5 plaintiffs’ receipts was the capital contribution of Mrs. N and Ms. M and Mr. T was only the one to pay instead. Regarding the construction value of the 6-story house, the defendant asserted that the house was legally owned by Mrs. N and Ms. M. Mrs. N said that from December 12th, 2001, Ms. M and Mrs. N had a contributed capital written agreement to establish the company, each person contributed over 593 million dongs and when the company registered its business, each party contributed more than 906 million dongs, forming 3 billion dongs of charter capital. This money is used to build a 6-story house. Therefore, the respondent requests to dismiss the plaintiff’s claim.
Business registration certificate of a limited liability company with multi members issued by the Department of Planning and Investment to MN Co., Ltd. (dated 12/11/2001) recorded in the list of capital contributors with two people as Nguyen Thi Dieu N and Nguyen Thi Tuyet M, with each contributing 1.5 billion VND, accounting for 50% of the total charter capital. The minutes of agreement on the land lease between the two companies TH – MN were also signed by Ms. M representing the company.
In this case, the Court resolving the case decided for Mr. Nguyen Viet T to own 1/2 of a 6-story house and the right to use 848.5m2 of land under house ownership and land use rights of the MN Co., Ltd. However, this judgment was met with objections about whether the amount of capital contribution was not clear whether it was owned by Mr. Nguyen Viet T or privately owned by Mrs. Nguyen Thi Dieu N, or under the common ownership of Mr. Nguyen Viet T and Mrs. Nguyen Thi Dieu N. In case Mr. Nguyen Viet T is not a capital contributing member of MN Company, he cannot have the right to own half of the assets of that Company.
Thus, to eliminate risks, enterprises need to determine the following points:
For the type of property intended to be contributed as capital, the Law dictates how ownership is decided;
Whether the respective property is subject to registration of ownership;
What documents are necessary to verify the ownership of assets for shareholders or members;
The work that needs to be done when changing ownership for both properties that need to be registered and properties that do not need to be registered.
In addition, it should be noted that assets used in business activities for private business owners do not have to carry out procedures to transfer ownership to the enterprise. The payment for all activities of buying, selling, transferring shares and contributed capital and receiving dividends of foreign investors must be made through the investor’s capital account opened at a bank within Vietnam except for the case of payment in property. In summary, enterprises need to base themselves on the status of members, local or abroad shareholders (individuals/organizations), and other issues depending on each specific case, to have an appropriate method of capital contribution.