Donating Capital Contributions in a Multi-Member LLC under Vietnamese Law

1. What is a capital contribution in a limited liability company with two or more members?

Clause 27, Article 4 of the Law on Enterprises 2020 defines a capital contribution as follows:

“Article 4. Interpretation of terms

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27. A capital contribution is the total value of the assets that a member has contributed or committed to contribute to a limited liability company or a partnership. The capital contribution ratio is the ratio between a member’s capital contribution and the charter capital of the limited liability company or partnership.

Accordingly, a capital contribution is the total value of the assets that a member has contributed or committed to contribute to a limited liability company or a partnership. The capital contribution ratio is the ratio between a member’s capital contribution and the charter capital of the limited liability company or partnership.

2. How are capital contributions for company establishment and the issuance of certificates of capital contribution in a limited liability company with two or more members regulated?

Capital contributions for company establishment and the issuance of certificates of capital contribution in a limited liability company with two or more members are regulated in Article 47 of the Law on Enterprises 2020, as follows:

– The charter capital of a limited liability company with two or more members upon enterprise registration is the total value of the capital contributions that the members commit to contribute, as stated in the company charter.

– Members must fully contribute the committed assets, in the committed type, to the company within 90 days from the date of issuance of the enterprise registration certificate, excluding the time for transportation and import of the contributed assets and for completing administrative procedures to transfer ownership of the assets. During this period, members have rights and obligations corresponding to their committed capital contribution ratios. A member may contribute assets of a different type than committed only if approved by more than 50% of the remaining members.

– After the time limit specified in Clause 2 of this Article, if there are still members who have not contributed or have not fully contributed their committed capital contributions, the following shall apply:

+ A member who has not contributed the committed capital shall automatically cease to be a member of the company;

+ A member who has not fully contributed the committed capital shall have rights corresponding to the capital actually contributed;

+ The uncontributed capital contributions of the members shall be offered for sale under a resolution or decision of the Members’ Council.

– Where there are members who have not contributed or have not fully contributed their committed capital, the company must register the change of charter capital and the capital contribution ratios of the members to reflect the actually contributed capital within 30 days from the last day on which the capital contributions were due under Clause 2 of this Article. Members who have not contributed or have not fully contributed their committed capital shall be liable in proportion to their committed capital contribution ratios for the company’s financial obligations arising before the date on which the company registers the change of charter capital and capital contribution ratios.

– Except as provided in Clause 2 of this Article, a capital contributor becomes a member of the company from the time the capital contribution is paid and the contributor’s information specified at Points b, c and dd, Clause 2, Article 48 of this Law is fully recorded in the member register. Upon full payment of the capital contribution, the company must issue a certificate of capital contribution to the member corresponding to the value of the contributed capital.

– A certificate of capital contribution must contain the following principal particulars:

+ The company’s name, enterprise code and head office address;

+ The company’s charter capital;

+ For an individual member: full name, contact address, nationality and legal document number; for an organizational member: name, enterprise code or legal document number and head office address;

+ The member’s capital contribution and capital contribution ratio;

+ The number and date of issuance of the certificate of capital contribution;

+ The full name and signature of the company’s legal representative.

– Where a certificate of capital contribution is lost, damaged or otherwise destroyed, the member shall be re-issued a certificate of capital contribution in accordance with the order and procedures prescribed in the company charter.

3. Can the wife’s elder sister donate her capital contribution in a 2-member LLC to her younger brother-in-law? Will he become a member in her place?

Under Article 53 of the Law on Enterprises 2020 on the handling of capital contributions in certain special cases, as follows:

– Where a member who is an individual dies, the heir under the will or at law of that member becomes a member of the company.

– Where a member who is an individual is declared missing by a Court, the member’s rights and obligations shall be exercised through the manager of that member’s assets in accordance with civil law.

– Where a member has limited civil act capacity or has lost civil act capacity, or has difficulties in cognition or in controlling his/her acts, the member’s rights and obligations in the company shall be exercised through a representative.

– A member’s capital contribution shall be redeemed by the company or transferred in accordance with Articles 51 and 52 of this Law in the following cases:

+ The heir does not wish to become a member;

+ The donee under Clause 6 of this Article is not approved as a member by the Members’ Council;

+ A member that is an organization is dissolved or goes bankrupt.

– Where the capital contribution of a deceased individual member has no heir, the heir refuses the inheritance or is disqualified from inheriting, such capital contribution shall be handled in accordance with civil law.

– Where a member donates part or all of his/her capital contribution in the company to another person, the donee becomes a member of the company as follows:

+ Where the donee is an heir at law under the Civil Code, such person automatically becomes a member of the company;

+ Where the donee is not within the category specified at Point a of this Clause, such person becomes a member of the company only when approved by the Members’ Council.

– Where a member uses his/her capital contribution to pay a debt, the payee may use such capital contribution in one of the following two forms:

+ Becoming a member of the company if approved by the Members’ Council;

+ Offering for sale and transferring such capital contribution in accordance with Article 52 of this Law.

– Where a member who is an individual is in temporary detention, serving a prison sentence, or serving an administrative handling measure at a compulsory detoxification establishment or compulsory education establishment, such member shall authorize another person to exercise some or all of his/her rights and obligations in the company.

– Where a member who is an individual is prohibited by a Court from practicing a profession or performing certain work, or a member that is a commercial legal entity is prohibited by a Court from doing business or operating in certain fields within the company’s business lines, such member shall not practice the prohibited profession or perform the prohibited work at that company, or the company shall temporarily suspend or terminate business in the relevant lines under the Court’s decision.

Accordingly, where the wife’s elder sister donates her capital contribution in the company to her younger brother-in-law, he will only become a member of the company when approved by the Members’ Council, pursuant to Point b, Clause 6, Article 53 of the Law on Enterprises 2020.