Consequences of not contributing full charter capital

Charter capital is the total value of assets contributed or committed to by company members and owners when establishing a limited liability company; it is the total par value of shares sold or registered to buy when establishing a joint stock company(1). However, currently, many individuals and organizations disregard capital contributions and only register a typical capital amount, only contributing when it is needed for company operations. This leads to many consequences. This article will help business owners, capital contributors, and shareholders see the importance of contributing capital on time as well as the legal value of capital contribution. 

1. Impacts the rights of owners, capital contributors, and shareholders of the company  

1.1 For LLC with 2 or more members 

In case capital contributing members do not contribute or contribute not enough capital as committed, they will be handled as follows:(2) 

• Members who have not contributed capital as committed are automatically no longer members of the company; 

• Members who have not fully contributed their committed capital have rights corresponding to their capital contribution; 

• The members’ uncontributed capital is offered for sale according to the resolutions and decisions of the Board of Members. 

Thus, if members do not contribute enough capital, the member’s rights will be changed based on the actual amount of capital contributed by the members. In case a member registers with a high level of capital, owns over 65% of the charter capital, and has the right to vote on most of the Company’s issues. However, failure to contribute enough capital on time leads to the registered capital being adjusted corresponding to the actual contributed capital, changing the capital ratio of the members. 

To avoid this situation, members should consider the capital level appropriate to their financial capacity to be able to register the appropriate capital level and ensure timely contributions as committed. 

1.2 For a one-member limited liability company 

In case the committed charter capital is not fully contributed, the company owner must register to change the charter capital to equal the value of the contributed capital within 30 days from the last day to contribute the charter capital fully.(3) 

However, the law does not deprive the owner of the rights in case of not contributing capital or not contributing enough capital but only stipulates that the company owner is responsible for all of their assets for the company’s financial obligations, damage occurs due to failure to contribute, not contribute fully, or not contribute charter capital on time.(4) 

Accordingly, it can be seen that if the owner does not contribute capital or does not contribute enough capital, it does not affect the rights and obligations of the owner. The owner is only responsible if any damage occurs or the company’s financial obligations are fulfilled. 

1.3 For a joint stock company 

In case shareholders do not contribute or do not contribute enough capital as committed, they will be handled as follows:(5)

• Shareholders who have not paid for the shares registered to buy are automatically no longer shareholders of the company and may not transfer the right to buy those shares to others; 

• Shareholders who only pay a portion of the shares registered to buy have the right to vote, receive dividends, and other rights corresponding to the number of shares paid; The right to buy unpaid shares is not allowed to be transferred to another person;  

• Unpaid shares are considered unsold shares and the Board of Directors has the right to sell; 

• Within 30 days from the end of the period to fully pay for the number of shares registered to buy, the company must register to adjust its charter capital equal to the par value of the shares that have been paid in full, minus In case the outstanding shares have been sold within this period; Register to change founding shareholders. 

Similar to an LLC with 2 or more members, for a joint stock company, if a shareholder does not fully pay for the number of shares registered to buy within the prescribed time limit, the capital ratio will be adjusted accordingly later when the company registers a change in capital, it affects the rights of shareholders if shareholders do not contribute enough capital. 

2. Penalties for administrative violations in case of failure to adjust charter capital according to actual contributed capital 

For acts of not contributing enough capital but not adjusting capital according to the provisions of the Enterprise Law or not yet contributing capital but increasing capital, enterprises may be sanctioned for the following acts: 

• Violation of the deadline for registering changes to business registration content: in case the company is late in adjusting or reducing charter capital due to members/owners/shareholders not contributing enough capital, it may Penalties for administrative violations range from 3,000,000 VND to 30,000,000 VND(6) 

• Failure to carry out procedures to adjust capital or change members and founding shareholders according to regulations at the business registration department after the end of the capital contribution period and the expiration of the capital adjustment period due to members and shareholders. The founder does not contribute enough capital, but none of the members or founding shareholders commit to contributing capital: fine from 30,000,000 VND to 50,000,000 VND and forced to carry out procedures to adjust capital or change member, founding shareholder.(7)

• Violations of declaring business registration documents: fine from 20,000,000 VND to 30,000,000 VND. This behavior will usually be sanctioned if during the operation process, the enterprise changes the business registration content such as changing the headquarters, industry, legal representative and record in the Minutes of the meeting of the Board of Members/ the General Meeting of Shareholders that the capital has been fully contributed, but in fact, the capital has not been fully contributed, this sanction will be applied.(8)

It can be seen that the maximum fine for not contributing enough capital and not registering to change charter capital is 100,000,000 VND. This is not a very large fine, and businesses are usually only fined when they voluntarily notify the business registration agency or are inspected or examined. This leads to business owners, members, and shareholders disregarding compliance with legal regulations and only when internal problems occur will they carry out adjustment notices and pay administrative fines. 

3. Internal disputes 

In case, members and shareholders do not contribute enough capital but do not adjust the capital level according to actual contribution, it will easily lead to internal disputes. For example, some members/shareholders do not contribute capital or contribute a small part but still participate in company management, still want to share profits according to the registered capital ratio, and still want to participate, leading to disputes. Other members/shareholders who have contributed in full or more are not satisfied, and this leads to disputes.  

An internal dispute will somewhat affect the Company’s business operations. In the worst-case scenario, a lawsuit must be filed to resolve or suspend the company’s operations because the internal conflict cannot be resolved.  

It can be seen that not contributing capital or not contributing enough capital, in addition to being subject to administrative sanctions, also affects the rights of members and shareholders and can significantly lead to internal disputes. 

Currently, the business registration agency does not have a strict control mechanism for insufficient capital contribution or no capital contribution but still does not change the capital level. Therefore, members/shareholders and owners should comply with the capital contribution deadline to stabilize the company’s operations and limit the consequences of not contributing enough capital. 

(1) Article 4.34 Enterprise Law 2020 

(2) 10 Article 47.3 Enterprise Law 2020 

(3) Article 75.3 Enterprise Law 2020 

(4) 12 Article 75.4 Enterprise Law 2020 

(5) Article 113.3 Enterprise Law 2020 

(6) Article 44 of Decree 122/2021/ND-CP 

(7) 15 Article 46.3 of Decree 122/2021/ND-CP 

(8) Article 43 of Decree 122/2021/ND-CP

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