Capital Contribution Of Establishment Of The Company By Shares, Stakes

ARTICLES

Capital Contribution Of Establishment Of The Company By Shares, Stakes

According to the development trend, the establishment of the company is becoming increasingly simple, the owner just needs to provide a copy of the ID card/passport and fill out a number of sample records that can be established by the enterprise. But conversely, when considering each legal issue with serious research, the enterprise must comply with various legal regulations.

According to the regulations of Article 35 of the Law on Enterprises 2014, shareholders/contributing partners can agree on the assets used to make capital contribution to establish the company is Vietnam Dong, convertible foreign currencies, gold, value of rights to use land, value of intellectual property rights, technologies, technical secrets, and other assets that can be assessed in VND.  Other assets that can be assessed in cash can be part or all of the shares/stakes that the shareholders/contributing partners owning are in another company. When making capital contribution to establishment of enterprises by shares/stakes, enterprises need to take note of the following issues:

1| Shareholders/contributing partners must obtain approval from shareholders/other contributing partners about the use of their stakes to contribute capital to another enterprise. Specifically as the following:

  • Assets used to make capital contribution as shares in the Joint-Stock Company: Although the Law on Enterprises 2014 has not yet regulated conditions for shareholders to use their shares to contribute capital to another enterprise. However, it is understandable that this activity is seen as a transfer of shares and is subject to the regulations of Article 126 of the Law on Enterprises 2014. Details are as the following:

Shareholders are freely to use their shares to contribute capital to establish another enterprise without the approval of the General Meeting of Shareholders, except in the cases mentioned in Clause 3 Article 119 of the Law on Enterprises 2014 and the cases in which shares is restricted from transfer prescribed by the company’s Charter.

Clause 3 Article 119 of the Law on Enterprises 2014 specified within 03 years from the issuance date of the Certificate of Business registration, founding shareholders are permitted to use their shares only to contribute capital to establish another enterprise if approved by the General Meeting of Shareholders. In this case, shareholders intended to use shares to contribute capital to establish another enterprise do not have the right to vote on this. Please note that this restriction does not apply to shares that the founding shareholders have added after registering for the enterprise and shares that the founding shareholders of the transferring to others is not the founding shareholders of the company.

  • Assets contributed is the stakes in the Limited Liability Company: similarly, the Law on Enterprises 2014 has not yet regulations that the contributing partners use their stakes to establish another enterprise. The application in accordance with Article 53 of the Law on Enterprises 2014 for this case is not suitable, specifically the contributing partners must sell part of its contribution to other contributing partners and if the other members do not purchase, then transferred to another person with the same conditions. Therefore, in order to be legally, contributing capital to establish another enterprise with this stakes should be approved by the Board of members and members who use the stakes to capital contribution do not have the right to vote.

2|The result of this capital contribution is that the newly established enterprise will be the owner of the shares/stakes that the shareholders/contributing partners of the newly established enterprise used to make capital contribution into the enterprise. Please note that capital contribution activities by shares/stakes do not create a cross-capital ownership in enterprises.

3|Within 90 days from the issuance date of the Certificate of Business registration, shareholders/contributing partners must complete the capital contribution to the newly established enterprise. The capital contribution is completed when:

  • Assets contributed is the shares in the Joint-Stock Company: the newly established enterprise is noted as a share owner in the Shareholders Register of the enterprise with shares used to make capital contribution;
  • Assets contributed is the stakes in the Limited Liability Company: the newly established enterprise is noted as a contributing partners of the Certificate of Business registration of the enterprise has the stakes used to make capital contribution.

4| Valuation of assets: Assets contributed upon the enterprise establishment must be unanimously assessed by members or founding shareholders, or assessed by a professional valuation organization. If assets are assessed by a professional valuation organization, the value of contributed assessed must be concurred with by the majority of members or founding shareholders. If a contributed asset is assessed at a higher value than its true value at the time of contribution, the members or founding shareholders shall contribute an additional amount which is equal to the difference between the assessed value and true value when the valuation is done; and are jointly responsible for the damage caused by deliberate assessment of assets higher values than their actual values.

A number of legal issues of capital contribution by shares/stakes are not clearly regulated in the Law on Enterprises 2014 or other legal documents such as the above analysis, which make it difficult for shareholders/contributing partners to their ownership.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.