How Does the Law Regulate Capital Contribution Transfers in Multi-Member LLCs?

How is the transfer of enterprise contributed capital regulated?

Under Clause 27, Article 4 of the Law on Enterprises 2020 as follows:

“Article 4. Interpretation of terms

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In this Law, the terms below are understood as follows:

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27. Contributed capital is the total value of assets contributed or committed by a member to a limited liability company or partnership. The contributed capital ratio is the ratio between a member’s contributed capital and the charter capital of the limited liability company or partnership.”

Accordingly, contributed capital is the total value of assets contributed or committed by a member to a limited liability company or partnership. Transfer of contributed capital is the transfer by a member owning contributed capital in a multi-member limited liability company of part or all of their contributed capital to members of the company or to individuals or organizations that are not members of the company. This transfer includes the transfer of the contributed capital and the rights and obligations corresponding to that contributed capital.

How is the transfer of contributed capital in a multi-member limited liability company carried out?

Under Clause 1, Article 52 of the Law on Enterprises 2020 as follows:

“Article 52. Transfer of contributed capital

1. Except as prescribed in Clause 4, Article 51, Clauses 6 and 7, Article 53 of this Law, a member of a multi-member limited liability company may transfer part or all of their contributed capital to others as follows:

a) Offering such contributed capital for sale to the remaining members in proportion to their contributed capital in the company on the same offering conditions;

b) Transferring on the same offering conditions as those offered to the remaining members prescribed in Point a of this Clause to a person who is not a member if the remaining members of the company do not purchase or do not fully purchase within 30 days from the date of offering.”

For the transfer of contributed capital in a multi-member limited liability company, a member of a multi-member limited liability company may transfer part or all of their contributed capital to others as follows:

– Offering such contributed capital for sale to the remaining members in proportion to their contributed capital in the company on the same offering conditions;

– Transferring on the same offering conditions as those offered to the remaining members to a person who is not a member if the remaining members of the company do not purchase or do not fully purchase within 30 days from the date of offering.

However, the following cases may not proceed with the transfer of contributed capital:

– Where the company cannot pay for the contributed capital requested to be repurchased within 15 days from the date of receipt of the member’s request as prescribed, the company must repurchase that member’s contributed capital at market price or at the price determined under the principles prescribed by the company charter.

– Where the contributed capital of a member that is a deceased individual has no heir, the heir refuses to accept the inheritance, or is deprived of inheritance rights, that contributed capital is resolved under civil law.

– Where a member donates part or all of their contributed capital in the company to another person, the donee becomes a company member as prescribed.

What are the legal consequences after the transfer of contributed capital in a multi-member limited liability company?

Clauses 2 and 3, Article 52 of the Law on Enterprises 2020 provide on the legal consequences after the transfer of contributed capital in a multi-member limited liability company as follows:

“Article 52. Transfer of contributed capital

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2. The transferring member retains rights and obligations towards the company corresponding to the relevant contributed capital until the information on the buyer prescribed in Points b, c and dd, Clause 2, Article 48 of this Law is fully recorded in the member register.

3. Where the transfer or change of members’ contributed capital results in only one remaining company member, the company must organize management under the single-member limited liability company model and register the change of enterprise registration contents within 15 days from the date of completion of the transfer.”

Accordingly, when transferring contributed capital, the transferring member retains rights and obligations towards the company corresponding to the relevant contributed capital until the information on the buyer is fully recorded in the member register.

Where the transfer or change of members’ contributed capital results in only one remaining company member, the company must organize management under the single-member limited liability company model. At the same time, it registers the change of enterprise registration contents within 15 days from the date of completion of the transfer. Transfer of contributed capital is a member’s right, but it must be exercised in accordance with the company charter and the law. This ensures the interests of both the member and the company.

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