Capital Contribution of Vietnam Limited Liability Company

The purpose of the report is to clarify the understanding about Capital Contribution particularly in Vietnam Limited Liability Company. The report covers important articles relating Capital contribution of Limited Liability Company, and take some cases to illustrate these articles. The main situation of a Vietnam limmited liability company is analysised to emphasize regulations of the capital contribution. To complete this research, besides of the Reference, we search the Internet for more detailed information, and all links can be found in the appendix. The report investigates the main regulations of capital and a case study of anonymous company, then two barriers are discussed carefully with more details. It is recommended that the dishtinguishes between real capital contribution and committed capital contribution should be figured out particularly, based on Civil Code and Enterprise Law.

Executive Summary The purpose of the report is to clarify the understanding about Capital Contribution particularly in Vietnam Limited Liability Company The report covers important articles relating Capital contribution of Limited Liability Company, and take some cases to illustrate these articles The main situation of a Vietnam limmited liability company is analysised to emphasize regulations of the capital contribution To complete this research, besides of the Reference, we search the Internet for more detailed information, and all links can be found in the appendix The report investigates the main regulations of capital and a case study of anonymous company, then two barriers are discussed carefully with more details It is recommended that the dishtinguishes between real capital contribution and committed capital contribution should be figured out particularly, based on Civil Code and Enterprise Law I Introduction According to Enterprise law, Chapter III, Article 38 about Limited liability companies with two or more members, Members may be organizations and/or individuals; the total number of members shall not exceed fifty; Members are responsible for debts and other property liabilities of the enterprise within the amount of capital that they have committed to contribute to the enterprise, Capital shares of the members may only be transferred The matter of concern of this report is about Capital contribution in Vietnam Limited Liability Company In the first part of the report Legal regulations and relative regulations about capital contribution in Limited Liability are quoted according to VietNam Enterprise law Next, current situation of capital contribution in VietNam LLC is discussed There are still some inappropriate points in capital contribution regulation such as unclear and insufficient regulation in capital contribution, legal barriers in capital contribution regulation causing difficulties for investor II Provision Chapter III LIMITED LIABILITY COMPANIES Section LIMITED LIABILITY COMPANIES WITH TWO OR MORE MEMBERS Article 39.Capital contribution and grant of capital share certificates Members must contribute capital fully and on time with types of assets as committed Any change in the type of assets that members have committed to contribute must be approved by all other members and informed in writing by the company to the business registration office within seven working days as from the date of approval of such a change The representative-at-law of a company must inform in writing the progress of capital contribution to the business registration office within fifteen days as from the date of commitment to contribute capital, and is personally liable for any damage caused to the company or other persons due to his/her late, inaccurate, untruthful and incomplete report If a member fails to contribute capital fully and on time as committed, the amount not yet contributed shall be considered his/her debt toward the company; such a member shall be liable for any damage caused by his/her failure to fully contribute capital on time as committed If the capital contribution is not fully made within the time limit as last committed, the capital amount not yet contributed shall be dealt with in one of the following ways: a/ One or several members agree to contribute such amount; b/ Other persons are mobilized to contribute capital to the company; c/ All other members contribute such amount in proportion to their capital shares in the company's charter capital When the capital amount is fully contributed under the provisions of this Clause, members that fail to make capital contribution as committed shall, as a matter of fact, not be considered members of the company, which must register this change in business registration contents in accordance with this Law At the time of full contribution of capital amounts, members shall be issued a capital share certificate by the company A capital share certificate shall contain the following principal information: a/ Company name and address of company head office; b/ Number and date of grant of the business registration certificate; c/ The company's charter capital; d/ Full name, permanent address, nationality, number of the people's identity card, passport or other lawful personal certification of the member being an individual; name, head office, nationality, number of the establishment decision or business registration certificate of the member being an organization; e/ Capital share and its value; f/ Number and the date of grant of the certificate; g/ Full name and signature of the representative-at-law of the company If the capital share certificate is lost, torn, burnt or otherwise destroyed, it may be re-issued by the company Article 40.Member registration books A member registration book must be made by the company as soon as the business registration is made It must contain the following principal contents: a/ Company name and address of company head office; b/ Full name, permanent address, nationality, number of the people's identity card, passport or other lawful personal certification of the member being an individual; name, head office, nationality, number of the establishment decision or business registration certificate of the member being an organization; c/ Value of contributed capital at the time of capital contribution and capital share of each member; time of capital contribution; type, quantity and value of every asset used to make capital contribution; d/ Signature of the member being an individual or the representative-at-law of the member being an organization; e/ Number and date of grant of the capital share certificate Member registration books shall be kept at head offices of companies Article 41.Rights of members Members of a limited liability company with two or more members shall have the following rights: a/ To participate in the Members' Council meetings, discuss, make suggestions and vote on matters falling under the competence of the Member's Council; b/ To vote in proportion to their capital share; c/ To check, review, search, copy or extract the member registration book, transactions recording and monitoring books, accounting books, annual financial statements, minutes of Member's Council meetings, and other papers and documents of the company; d/ To be distributed profits in proportion to their capital share after the company has fully paid taxes and fulfilled other financial obligations according to law; e/ To be distributed the value of remaining assets in proportion to their capital share when the company is dissolved or goes bankrupt; f/ To be given priority in contributing more capital into the company when the company increases its charter capital; transfer part or the whole of their capital shares in accordance with this Law; g/ To lodge complaints about or initiate lawsuits against the director or general director who fails to fulfill his/her obligations, causing damage to members or the company according to the provisions of law; h/ To dispose of their capital shares by transfer, bequeath, donation or otherwise according to the provisions of law and the company's charter; i/ To have other rights as provided for by this Law and the company's charter A member or group of members holding more than 25% of the charter capital or a smaller ratio as provided for in the company's charter, except the case stated in Clause of this Article, shall be entitled to convene a Members' Council meeting to decide on matters falling under competence; If the company has a member holding more than 75% of the charter capital and the company's charter does not provide any ratio smaller than that stated in Clause of this Article, the group of all minor members shall automatically have the right stated in Clause of this Article Article 42.Obligations of members To make capital contribution fully and on time as committed and be liable for debts and other property liabilities of the company within the amount of capital committed to contribute; not to withdraw capital from the company in any form, except the cases stated in Articles 43, 44, 45 and 60 of this Law 2 To observe the company's charter; To abide by decisions of the Members' Council; To perform other obligations as provided for by this Law; To be liable individually when acting on behalf of the company to: a/ Violate the laws; b/ Conduct business or other transactions not in the interest of the company but causing damage to other persons; c/ Pay off undue debts when there is a financial danger facing the company Section II ONE-MEMBER LIMITED LIABILITY COMPANIES Article 64.Rights of the company owner The company owner that is an organization shall have following rights: a/ To decide on contents of the company's charter and its amendment or supplement; b/ To decide on the development strategy and annual business plan of the company; c/ To decide on the structure of organization and management; appoint, remove from office and dismiss managers of the company; d/ To approve investment projects valued at 50% or more of total value of assets recorded in the latest financial statement of the company or a smaller percentage as provided for in the company's charter; e/ To decide on methods of market development, marketing and technology; f/ To approve lending, borrowing and other contracts as provided for in the company's charter which are valued at 50% or more of total value of assets recorded in the latest financial statement of the company or at a smaller percentage as provided for in the company's charter; g/ To decide on sale of assets valued at 50% or more of total value of assets recorded in the latest financial statement of the company or at a smaller percentage as provided for in the company's charter; h/ To decide on increase of the charter capital; transfer of part or whole of the charter capital of the company to another organization or individual; i/ To decide on setting up subsidiaries and making capital contribution to other companies; j/ To conduct supervision and evaluation of business performance of the company; k/ To decide on use of profits after fulfilling tax and other financial obligations of the company; l/ To decide on re-organization, dissolution and request for bankruptcy of the company; m/ To collect the whole value of assets of the company after it finishes the dissolution or bankruptcy process; n/ Other rights as provided for by this Law and the company's charter The company owner that is an individual shall have following rights: a/ To decide on contents of the company's charter and its amendment or supplement; b/ To decide on investment and business activities and internal management of the company, unless otherwise provided for in the company's charter; c/ To transfer part or whole of the charter capital of the company to another organization or individual; d/ To decide on use of profits after fulfilling tax and other financial obligations of the company; e/ To decide on re-organization, dissolution and request for bankruptcy of the company; f/ To collect the whole value of assets of the company after it finishes the dissolution or bankruptcy process; g/ Other rights as provided for by this Law and the company's charter Article 65.Obligations of the company owner To make capital contribution fully and on time as committed; if not, to be liable for all debts and other property liabilities of the company; To observe the company's charter; To keep assets of the company and company owner separated; The company owner who is an individual must separate between expenditure of himself or herself and that of the company owner or director or general director To observe laws on contracts and relevant laws on sale, purchase, borrowing, lending, lease, renting or other transactions between the company and the company owner To perform other obligations as provided for by this Law and the company's charter Article 76.Increase and decrease of the charter capital A one-member limited liability company shall not be allowed to decrease the charter capital A one-member limited liability company may increase the charter capital by additional investment made by the company owner or mobilization of capital contributions from others The owner shall decide on the method of increasing and the level of increase of the charter capital If increasing the charter capital by mobilizing capital contributions from others, the company must register for conversion into a limited liability company having two or more members within fifteen days from the date the new members committed to make capital contribution to the company Article 68.Reduce in charter capital Returning part of the contributed capital to members is in proportion to their respective capital contribution ratios in the charter capital of the limited liability company The notification shall be accompanied by the resolution and minutes of the meeting of the Members’Council and the latest financial statement Within working days after receiving the notification, the business registration agency shall update information on the decrease in the charter capital The case illustrating for this Article: Returning part of the contributed capital to Phu Thanh Garment Joint Stock Company in Phu Vinh Hung Knitting CO.,LTD On September, 13th, 2017, Phu Vinh Hung Knitting CO.,LTD returned part of the contributed capital to Phu Thanh Garment JsC by transporting trasporting the part with its value 32,000,000,000 VND , in proportion to 40% the respective charge capital of Phu Vinh Hung to Mr Nguyen Quang Dung (According to the request of Phu Thanh CO.) After transpoting, the value of the capital contribution of Phu Thanh Co in Phu Vinh Hung Knitting CO., LTD is 38,000,000VND, respective to 47.5% the contributed capital III Current situation about capital contribution of Limited Liability Company (LLC) in Vietnam Unclear and insufficient regulation in capital contribution: A case study of anonymous company - Main point of the case: In December 2010, there was LLC with the name X convened a meeting Due to the reason that Mr.A does not have enough capital amount as committed, the other members restricted him the number of voting in term of Members’ Council decisions These members of Company X applied this legal basis: According to Article 18.3 of Decree 102/2010 on the 1st October 2010 that guides in detail several articles in the Enterprise Law (Decree 102), it is quoted that “… the time at which capital amount is not contributed enough, the member has voting and capital gain share corresponding to real contributed capital rate, except the company charter has particular regulation” With above solution of Company X, Mr A did not accept because he considers that he still possesses equal voting number as sufficient capital contribution even he has not contributed enough yet Moreover, when the company shares profit, he still has the right to receive it corresponding to committed contributed capital amount Therefore, the restriction in his right is not reasonable - The case analysis: According to Article 41.1.b and Article 41.1.d in the Enterprise Law 2005, the member of LLC with two or more members has the right to have votings and receive profit share corresponding to capital amount or capital ratio that members contribute to charter capital of company It did not mention the contributed capital amount is commited or real so it become a controversial regulation Before Decree 102 was regulated, the definition of charter capital of LLC with two or more members was understood generally as real contributed capital or commited capital contribution in a certain period of time and it is admitted in the company charter, so the rights of members who contribute capital in the LLC is based on capital amount ratio that was written in company charter It means that the member who commited to contribute capital amount in company charter still has the equal right as the one who completed the capital contribution obligation As a result, Mr A thought that it is illogical that he is restricted the obvious right of a member of LLC and refused Company X’ regulation Back to Decree 102 in the edited Enterprise Law in 2010, according to Article 18.3, the member who has not completed capital contribution obligation has the right in voting and enjoying profit share based on real contributed capital amount So Company X’ other members still have the reasonable decision about Mr.A situation Taking consideration in two directions of situation, it can be concluded that the problem comes from the regulation about contributed capital regarded as foundation to identify right scale of members It did not mention about contributed capital ratio is real or just committed It only used the word “ contribution” for capital The ambiguous regulation led to different understanding (particularly between Mr.A and other members) The decree 102 plays a role as indicator to solve the confusing regulation in the LLC - Amending: Firstly, contributed capital in LLC should be commited capital amount ratio in charter capital of company According to the equal principle, rights and obligations must be adequate together, so the right of member in LLC should equal to his or her obligations Besides, if the member only has the voting right based on real contributed capital amount, it means that power of the member in company’s situation is weakened discussion and responsibility of the member in enterprise’s activities will decrease Secondly, contribution capital of LLC member should be considered as committed capital amount because it will influence regulation to convene meeting and decision-making of Member’s Council If LLC applies real contributed capital, it is afraid that the company must wait for the second, the third meeting to have enough condition to make decision, for example In the first time, members find hard reaching 75% contributed capital and so the voting does Last but not least, characteristic of LLC is a type of company which combined steadily with superior features of two enterprise models: human and capital manner Being influenced by human manner company, members of LLC often have close relationship, acquaint together, trust each other to cooperate to establish company As a result, member who has not contribute enough capital yet often receive acceptance easily Barrier to capital contribution to limited liability companies We all know that establishing a business is not a simple matter, not only having trouble with paperwork but businesses also face many problems of thinking and management…especially contributing capital Business must deal with a lot of difficult for contributing capital However, in this report we only Illustrate basic barriers The first barrier is that we have conflict between Enterprise law and Land law The second conflict is that Enterprise Law 2014 does not clearly stipulate the issue of admitting new members to increase charter capital of limited liability companies with two or more members We can see some example following: A) The first barrier There are two incompatibilities between the four existing laws related to land equity First, capital contribution using land use rights or the value of land use rights? Second, the capital contribution of land may be terminated or not? Enterprise Law The current Enterprise Law defines capital contribution as the transfer of assets into the company to become the owner of the company; Equity assets may be the value of land use rights According to Article 29 of this law, the person making the capital contribution must complete the procedures for transferring the land use right to the company at the competent state agency Thus, (i) the asset is the value of the land use right that can be used to contribute capital to the enterprise, (ii) the right to use that land must be transferred from the contributor to the company and (iii) the right to use Land contributed capital becomes the property of the company while the capital contributor becomes the owner of the company Land Law The new land law provides for capital contribution using land use rights rather than the value of land use rights Under Article 3.10 of this law, capital contribution by land use rights is one of the ways to transfer land use rights from one person to another Depending on the form of capital contribution using land use rights, the determination of capital contribution may be terminated Article 99.1 of the law also states that the recipient is granted a land use right certificate Capital contributors, whether domestic economic organizations or joint ventures with foreign countries, will have the rights of a regular land user who is allocated or leased land by the State with one or more land rents Land use right transfer (Articles 174, 177 and 184) Unlike the old law, the new Land Law no longer provides for the termination of capital contribution by land use rights This has made the Land Law closer to the provisions of the Enterprise Law regarding the issue of land Contradiction between articles make people have some questions The first incompatibility point is which term will be more accurate: capital contribution using land use rights or land use right value? The second incompatibility point will place the party receiving the capital at a disadvantage if the capital contribution is terminated in the cases stipulated in Decree 43 For example, Mr A contributes land and company B contributes money to establish Company C If Mr A died, the capital contribution will be terminated, the descendants of Mr A will receive back the land contributed capital? Similarly, company D contributes capital to company E to become a new shareholder of company E, the law stipulates that company D is only allowed to contribute capital in the remaining land use term ("red book" of the company) E will only record the remaining land use term), so when the expiration of company E will have the right to apply for extension to continue to use the land or company D will get back the land? Will a "nice day" D and E agree to get D back? When company D goes bankrupt, who will the land belong to? B) The second barrier Enterprise Law 2014 does not clearly stipulate the issue of admitting new members to increase charter capital of limited liability companies with two or more members Under the provisions of Point b, Clause 1, Article 68 of the LDN 2014, limited liability companies with two or more members shall be entitled to receive additional new member to increase charter capital However, the LDN 2014 and the implementing guidelines not require that these new members receive a capital contribution right at the time they are received by the Members' Council (via the minutes of the meeting and the decision to receive them) new member of the Members 'Council) or the right to commit capital contribution (ie the time of capital contribution will be made after the time of being accepted by the Members' Council and the company has been granted the certificate of enterprise registration when the registration of changes in the content of enterprise registration has been completed) On the other hand, Article 48 LDN 2014 only specifies the time limit for committing capital contribution to set up a limited liability company with two or more members, rights and obligations of members committed to contribute capital to establish a company, but there is no regulation on the determination of the commitment period of capital contribution New members are admitted to a limited liability company with two or more members as well as the rights and obligations that they enjoy during this period This has made it difficult for the company and its members to be admitted, because the company does not know if they have the right to receive the commitment to contribute capital or to contribute capital right away How long will it take and when will it begin, how will the rights and obligations received by the new member be accomplished during this period? IV.Recommendation: For inadequate issues emerging from capital contribution in limited liability company law, National Assembly should figure out more clearly the difference between real capital contribution and committed capital contribution through consider and modify in article in decree 102/2010 in order to be fit for the actual status of capital contribution and profit share regulations of Ltd Company More details, National Assembly can base on the effects of two types of capital contribution; evaluate to make a decision which types of capital contribution will encourage the company developing more better To deal with barriers in Enterprise Law about capital contribution, first of all, draft law amending the law on Enterprise should modify the way of using “ land use right” and “ the value of land use right” in both decree 43/2014 NĐ-CP and article 727 in the current Civil Code law to be adequate with Land law Secondly, the Civil Code law and Land law at decree 43 should be distinguished two types of capital contribution include: contribute capital to cooperate business or to become owner of company From those, determine the capital contribution by land use right has the duration or can be ended, simultaneously, need to have the unification about understanding rules of current law related to capital contribution by land use right  ... situation about capital contribution of Limited Liability Company (LLC) in Vietnam Unclear and insufficient regulation in capital contribution: A case study of anonymous company - Main point of the case:... for the actual status of capital contribution and profit share regulations of Ltd Company More details, National Assembly can base on the effects of two types of capital contribution; evaluate... mobilization of capital contributions from others The owner shall decide on the method of increasing and the level of increase of the charter capital If increasing the charter capital by mobilizing capital