Contributing Capital to a Joint-Stock Company with Labor: Is It Allowed?

May one contribute capital to establish a joint-stock company with labor?

Under Article 34 of the Law on Enterprises 2020 on assets used to contribute capital to establish a joint-stock company as follows:

“Article 34. Capital-contributing assets

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1. Capital-contributing assets are Vietnamese dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technologies, technical know-how, and other assets valuable in Vietnamese dong.

2. Only individuals and organizations that are lawful owners or have lawful use rights of the assets prescribed in Clause 1 of this Article have the right to use such assets to contribute capital as prescribed by law.”

Based on the above legal provisions, assets used to contribute capital to establish a joint-stock company include the following types of assets:

– Vietnamese dong;

– Freely convertible foreign currencies, gold;

– Property rights, including: land use rights, intellectual property rights, technologies, technical know-how;

– Other assets valuable in Vietnamese dong.

Thus, for the case of wishing to contribute capital to establish a joint-stock company with labor, it may be said that labor is not an intellectual property right or any technology or technical know-how. However, with the open provision that capital-contributing assets may be other assets valuable in Vietnamese dong, in practice you may still contribute labor to the capital for establishing a joint-stock company when there is written consensus of the founding members, expressed in the company charter on capital contribution, and the members shall self-value the assets in a sum of money in accordance with the legally prescribed order.

In which cases must capital-contributing assets for establishing a joint-stock company be valued?

For capital-contributing assets other than Vietnamese dong, freely convertible foreign currencies and gold, they must be valued by the founding members or shareholders or by a valuation organization as prescribed in Article 36 of the Law on Enterprises 2020 as follows:

“Article 36. Valuation of capital-contributing assets

1. Capital-contributing assets other than Vietnamese dong, freely convertible foreign currencies and gold must be valued by the founding members or shareholders or by a valuation organization and expressed in Vietnamese dong.

2. Capital-contributing assets upon enterprise establishment must be valued by the founding members or shareholders under the principle of consensus or by a valuation organization. Where a valuation organization values them, the value of the capital-contributing assets must be approved by more than 50% of the founding members or shareholders.

Where the capital-contributing assets are valued higher than the actual value of such assets at the time of capital contribution, the founding members or shareholders shall jointly contribute additionally by the difference between the valued value and the actual value of the capital-contributing assets at the time of completion of the valuation; and at the same time shall be jointly liable for damage caused by intentionally valuing the capital-contributing assets higher than the actual value.

3. Capital-contributing assets during operation are valued by agreement between the owner, the Members’ Council for limited liability companies and partnerships, the Board of Directors for joint-stock companies and the contributor, or by a valuation organization. Where a valuation organization values them, the value of the capital-contributing assets must be approved by the contributor and the owner, the Members’ Council or the Board of Directors.

Where the capital-contributing assets are valued higher than the actual value of such assets at the time of capital contribution, the contributor, the owner, members of the Members’ Council for limited liability companies and partnerships, and members of the Board of Directors for joint-stock companies shall jointly contribute additionally by the difference between the valued value and the actual value of the capital-contributing assets at the time of completion of the valuation; and at the same time shall be jointly liable for damage caused by intentionally valuing the capital-contributing assets higher than the actual value.”

How is the transfer of ownership of capital-contributing assets for establishing a joint-stock company carried out?

The transfer of ownership of capital-contributing assets for establishing a joint-stock company is prescribed in Article 35 of the Law on Enterprises 2020 as follows:

“Article 35. Transfer of ownership of capital-contributing assets

1. Members of limited liability companies and partnerships and shareholders of joint-stock companies must transfer ownership of capital-contributing assets to the company as follows:

a) For assets with registered ownership or land use rights, the contributor must carry out procedures to transfer ownership of such assets or land use rights to the company as prescribed by law. The transfer of ownership or land use rights for capital-contributing assets is not subject to registration fees;

b) For assets without registered ownership, the capital contribution must be made by handing over the capital-contributing assets with confirmation in minutes, except where carried out via account.

2. The minutes of handover of capital-contributing assets must include the following principal contents:

a) Name and head office address of the company;

b) Full name, contact address, personal legal document number, or organizational legal document number of the contributor;

c) Type of assets and number of units of capital-contributing assets; total value of the capital-contributing assets and the proportion of such total value in the charter capital of the company;

d) Date of handover; signatures of the contributor or the contributor’s authorized representative and the legal representative of the company.

3. The capital contribution is only considered fully paid when the lawful ownership of the capital-contributing assets has been transferred to the company.

4. Assets used in the business operations of a sole proprietorship owner are not subject to procedures for transferring ownership to the enterprise.

5. Payment for all activities of buying, selling, transferring shares and capital contributions, receiving dividends and transferring profits abroad of foreign investors must be carried out via account as prescribed by the law on foreign exchange management, except for payment by assets and other non-cash forms.”