Is transfer of capital contribution required to convert the type of enterprise?

Does transferring capital contribution require converting the type of business? If yes but not implemented, will it be handled?

1. How is the transfer of capital contribution regulated?

Pursuant to Article 52 of the Law on Enterprises 2020, the regulations on transfer of capital contribution are as follows:

“Article 52. Transfer of capital contribution

1. Except for the cases specified in Clause 4, Article 51, Clause 6 and Clause 7, Article 53 of the Law Here, members of a limited liability company with two or more members have the right to transfer part or all of their capital contribution to others according to the following regulations:

a) Offer to sell that capital contribution to the remaining members in proportion to their capital contribution in the company with the same offering conditions;

b) Transfer with the same offering conditions to the remaining members specified in point 1. This clause is for non-members if the remaining members of the company do not buy or do not buy all within 30 days from the date of offering.

2. The transferring member still has the rights and obligations towards the company corresponding to the relevant capital contribution until the information about the buyer specified in Points b, c and dd, Clause 2, Article 48 of this Law is fully recorded in the member registration book.

3. In case of transfer or change of capital contributions of members resulting in only one member of the company remaining, the company must organize management in the form of a one-member limited liability company and register changes to the business registration content within 15 days from the date of completion of the transfer.”

Specifically, Clause 4, Article 51, Clause 6 and Clause 7 Article 53 of the Law on Enterprises 2020 is as follows:

“Article 51. Redemption of capital contribution

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4. In case the company cannot pay the capital contribution required to be repurchased according to the provisions of Clause 3 of this Article, that member has the right to freely transfer his/her capital contribution to another member or person who is not a member of the company.

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Article 53. Handling of capital contribution in some special cases

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7. In case a member uses capital contribution to repay debt, the payment recipient has the right to use that capital contribution in one of the following two forms:

a) Become a member of the company if approved by the Board of Members;

b) Offer to sell and transfer that capital contribution according to the provisions of Article 52 of this Law.”

2. Can capital contributing members transfer their capital contribution?

Pursuant to Clause 1, Article 187 of the Law on Enterprises 2020, the rights of capital contributing members are as follows:

“Article 187. Rights and obligations of capital contributing members

1. Capital contributing members Capital contributing members have the following rights:

a) Participate in meetings, discuss and vote at the Board of Members on amending and supplementing the company’s Charter, amending and supplementing the rights and obligations of capital contributing members, reorganizing and dissolving the company and other contents of the company’s Charter directly related to their rights and obligations;

b) Receive annual profit shares corresponding to proportion of capital contribution in the company’s charter capital;

c) Be provided with the company’s annual financial report; have the right to request the Chairman of the Board of Members and general partners to provide complete and truthful information about the company’s business situation and results; review accounting books, minutes, contracts, transactions, records and other documents of the company;

d) Transfer shares his/her capital contribution in the company to another person;

dd) Conducting business in the company’s business line on behalf of an individual or on behalf of another person;

e) Dispose of your capital contribution by inheritance, gift, mortgage, pledge and other forms according to the provisions of law and the company’s Charter; In case of death, the heir who replaces the deceased member becomes a capital contributing member of the company;

g) Receive a portion of the company’s remaining asset value corresponding to the proportion of capital contribution in the company’s charter capital when the company dissolves or goes bankrupt;

h) Other rights according to the provisions of this Law and the company’s Charter.”

Thus, the Capital contributors are allowed to transfer their capital contributions in the company to other people.

3. Is there a penalty for transferring capital contributions without converting the business type?

As mentioned above, in case of transfer of capital contributions of members resulting in only one member of the company remaining, the company must organize management in the form of a one-member limited liability company and register on behalf of the company. Change the business registration content within 15 days from the date of completion of the transfer. Therefore, if you violate this case, you will be penalized according to Point b, Clause 3, Article 12 of Decree 12/2022/ND-CP as follows:

“Article 12. Violations of regulations on amending, supplementing and terminating labor contracts

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3. A fine from 5,000,000 VND to 10,000,000 VND shall be imposed on employers who commit one of the following acts:

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b) In case of structural or technological changes or for economic reasons; when dividing, separating, consolidating, merging; selling, leasing, converting business types; Transfer of ownership and rights to use assets of an enterprise or cooperative where the employer commits one of the following acts: not making a labor use plan; Establishing a labor utilization plan but not having all the main contents as prescribed by law or failing to exchange opinions with the grassroots employee representative organization for places where there is a grassroots employee representative organization when formulating a labor utilization plan;”

The above are the fines for individuals and for organizations that violate, the fine for organizations is 2 times the fine for individuals.

Thus, within 15 days from the date of completion of the transfer, your company must organize its operations in the form of a single-member limited liability company and at the same time register to change the business registration content. If you do not change the type, you will be fined from 5,000,000 VND to 10,000,000 VND.