Capital contributions by stock – a tool for optimizing investment capital

When establishing or expanding a business, capital contribution is often perceived in the form of cash. However, under current laws, stock may also be lawfully used as capital contribution. In particular, listed stock is assets with high liquidity, clearly determined market value and legal recognition, capital contribution also brings significant financial and strategic benefits beyond their nominal value, such as the ability to establish a company, increase charter capital, or invest in new projects without the need to withdraw cash or dispose of existing shares. This is not only a legal matter but also a tool for shaping ownership structures, controlling capital flows, and thoughtfully expanding a business ecosystem.   

1. Legal basis and conditions of application

According to Article 34 of the Law on Enterprises 2020, organizations and individuals are entitled to contribute capital to an company by types of lawful assets, including cash, land use rights, intellectual property rights, gold, and other assets capable of valuation in Vietnamese dong, among which including stock or shares of another company. 

For listed stock, these are financial assets with outstanding advantages such as: the stock price is transparently determined on the stock market; The possibility of quick transferability on the exchange ensures credibility in realizing value; Investors, regulators, banks, and business partners can look up information and verify their value.

2. Strategic advantages

The use of shares for capital contribution is a deeply strategic approach that helps companies to optimize resources and safeguard internal control structures. The main advantages include: 

• No cash requirement: Instead of liquidating stock, selling assets or borrowing from banks when cash is unavailable, particularly for large-scale projects valued in trillions of dong – companys may use stock for contributing to establish or increase the charter capital of a target company. This helps preserve overall liquidity, especially in times of high capital costs. 

• Tax optimization: As no sale and purchase transaction arises, capital contribution by stock does not give rise to personal or corporate income tax on transfer. This is a significant cost advantage, especially if the number of shares contributed to capital is large or is high valued. 

• Preservation of share value and ownership structure: Capital contribution by stock is the transfer of ownership rights without increasing outstanding stock or affecting market price because of no selling pressure. Moreover, allowing parent companies or major shareholders to maintain control rights through both legal entities. 

• Leverage for subsequent financing: Once the target company has adequate charter capital, it may raise funds through bank loans, bond issuances secured by a pledge of contributed stock, or capital raising from strategic partners. The initially contributed stock serves as the foundation for triggering subsequent funding rounds. 

• Legitimizing financial capacity according to investment requirements: In many cases, demonstrating a minimum level of equity capital is a mandatory condition for project approval or participation in bidding. Stock enables companies to meet this requirement lawfully, efficiently, and flexibly, even without actual cash flow. 

3. Positive market impact on listed stock

The use of listed stock for capital contribution not only provides immediate financial benefits for investors but also has positive impacts on the stock itself in the market. 

• Increasing market demand: Prior to making a capital contribution, an investor may need to accumulate additional stock. The purchase of a substantial volume of stock on the market naturally increases demand and pushes up the stock price, creating a positive signal of the stock’s attractiveness in the market. 

• Raising market and small retail investor expectations: When a stock is contributed to large-scale projects, especially in infrastructure, energy, or high technology, the market often interprets that: the listed company is expanding its business; that major shareholders are linked with affiliated entities (such as project companies); that the stock may serve as the “core” asset in a long-term investment chain. This usually results in increased investor expectations and buying pressure, supporting stock price. 

• No pressure to sell: Unlike selling stock to get cash to contribute capital, capital contribution by stock does not increase outstanding stock in the market. The investors only transfer ownership rights to an associated legal entity, so: no creating selling pressure cause to downward price; while maintaining the stock within a controlled ecosystem. 

• Enhancing the symbolic value and investor confidence in stock: Using shares to “activate” large-scale projects is a way of transforming stock from a financial asset into a tool for generating tangible value. This approach reinforces the image of stocks as a strategic asset rather than merely a speculative instrument. 

4. Practical Example

Mr. Pham Nhat Vuong – Chairman of Vingroup, transferred more than VND 10,000 billion worth of VIC stock into Vinspeed and VinEnergo, two newly established companies tasked with implementing transportation and energy infrastructure projects. Despite being newly incorporated, Vinspeed was able to quickly record substantial charter capital due to this capital contributions by stock, thereby meeting conditions for undertaking large-scale projects and requiring strong financial capacity. 

Remarkably, Mr. Vuong did not need to sell stock or generate cash flow but nevertheless transferred legally assets with clear market value into the project company. This serves as a typical example of strategy using listed shares as capital contribution to create financial capacity for a project company, expediting investment progress while maintaining control and optimizing the financial structure within the group’s ecosystem.   

5. Implementation in practice

Capital contribution by listed stock should be carried out in a methodical process to ensure legality, financial efficiency, and avoid transaction risks. In practice, companies may follow three main stages:  

Stage 1: Establish ownership structure and project entity 

• Contributor: Either an individual or a legal entity holding listed stock. 

• Recipient company: A newly established or existing company formed for the purpose of implementing a specific investment project (such as urban development, renewable energy or logistics, etc.). 

• Key requirement: The contributor must have full ownership and disposal rights over the stock to be contributed. If the stock is held by an organization, internal approvals must be obtained in accordance with the authority structure of that entity such as resolution of the Board of Directors or the General Meeting of Shareholders.  

Stage 2: Carrying out capital contribution by stock 

• Determine the value of stock at the time of contribution; 

• Execute a capital contribution agreement with assets, specifying stock’s details, number, value, and purpose of contribution; 

• Transfer ownership of the stock from the contributor to the recipient company through a securities company or depository institution; 

• Record the amount of contributed capital in the shareholder register and legal records of the recipient company; 

• Completely update charter capital on the Company Registration Certificate (if it involves a newly established company or capital increase). 

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