Personal investment: be careful with virtual projects and business plans

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Personal investment: be careful with virtual projects and business plans

As an investor, before putting money into a project, a company or signing a business cooperation contract, profitability is always the first aspect to be put into consideration. Therefore, when being proposed a good project, a clear business plan which seems “impossible to make a loss” along with promises of profit…, not all individual investor can be wise enough to verify the information of the proposed project or plan before investing the money. Then, after a few years, when not receiving the promised benefits, and they start seeking assistance from the law and the authorities.

In some cases where the writer participated in resolving and advising for fraudulent investors recently, calling for investment is often based on a motif:

Investors are called upon to contribute capital to the parent company (a limited liability company) whose own subsidiaries which manage the potential projects. In the proposal for calling capital contribution, the party calling for capital contribution often gives evidence of promising projects, as well as a detailed business plan and profit-sharing commitment. Besides, they also put pictures and information of reputable individuals on the call for investment records to increase the trust of investors.

Inconsistencies in the application for capital contribution calling

Regarding the authenticity of projects calling for investment: Although the legal entities recorded in the call for investment application actually exist, the information about the project is often just virtual information and has no evidence to prove. Even in some cases, reputable individuals who are and named in dossiers don’t even know about the calling.

Regarding the form of calling for investment: The form of investment into a company usually through two primary forms: lending and investing capital through cooperation contracts or buying capital from the company. In particular, the capital contribution to a business is often the preferred option by those who call for investment because the money invested will not be returned (unless the parties otherwise agree), and the benefits that the investor enjoys will depend on the business results of the company.

In the above cases, the call for capital contribution is made in the form of dividing the investment and the investment is implemented based on the share mechanism. According to current law, depending on the type of enterprise, that enterprise may be able to perform different types of capital mobilization. In particular, if the investor contributes capital to a limited liability company, the investor should be noted that the type of limited liability company is not allowed to issue shares to raise capital (Clause 3, Article 47 of the 2014 Enterprise Law). Besides, for each time of receiving additional capital and new members, the Limited Company must carry out the registration procedures at the Department of Planning and Investment. And the maximum number of members of the Company must not exceed 50. However, in many cases, after transferred the full capital contribution, the investor neither being recorded as a member of the Company, nor allowed to participate in the management and administration of the company, or even entitled to received profit as committed or according to the business plan given because the company “is at a loss” – as reported by the executives, who usually are the same the individuals called for investment earlier.

Regarding the value of the investment: in the above-mentioned investment calling application, the amount of money that the investor must contribute in an investment rate is often significant, while the percentage of the capital contribution that the investor owns in the company usually only 5-10%. If the investment capital is used to evaluate the company’s value, the valuation of the parent company is generally pushed up to a very high level, while the company’s charter capital is low and The Company’s project is still on paper, there is no basis to determine.

Regarding profit commitment: In addition to information about the project or operators, the investment callers also have very compelling business models along with the promise of profit which investors are entitled to receive from the Company’s business activities. But before starting a business, no one can guarantee that the Company will always be profitable, the figures shown in the investment plan table are just paper figures.

It is not rare for the caller to make commitments on profits to earn the trust of investors for investment, but when receiving the full investment, the caller does not pay back to earnings to investors as promised and having signs of closing the Company and running away.

The above is just an example of taking advantage of the cover of calling for investment to appropriate investors’ assets. In fact, the forms and tricks of using virtual business projects, business plans and commitment to virtual profits to earn the trust of investors are even much more diverse and sophisticated assets. Therefore, individual investors need to stay alert and be careful to check project information before investing, consult lawyers or experts to minimize the risk of investing in virtual projects.

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.