What is the charter capital of an enterprise? Capital plays an extremely important role when establishing a new enterprise. In this entire system, charter capital plays an important part, specifically stipulated in legal regulations. If you are engaged in researching the charter capital of an enterprise but are still a bit vague about the basic aspects, the information below is quite useful for you.

1. What is the charter capital of an enterprise?

Answer to the question: What is the charter capital of an enterprise? According to the provisions of Clause 4, Article 34 of the Enterprise Law 2020, the concept of charter capital is specifically stipulated as follows:

Charter capital is the total value of assets contributed or committed to be contributed by company members and company owners when establishing a limited liability company or partnership; is the total par value of shares sold or registered to be purchased when establishing a joint stock company.

By definition, charter capital is understood as the total value of assets that members or owners of a company have contributed or committed to contribute when establishing a limited liability company or partnership. For a joint stock company, charter capital also includes the total par value of shares sold or registered to buy during the establishment process.

The concept of charter capital plays an important role in constituting the capital structure of an enterprise. In particular, it plays an important role in determining the capital contribution ratio of each owner and member in the company. Through this, the division of profits, rights and responsibilities among members participating in capital contribution becomes clearer and fairer.

Moreover, charter capital also reflects the scale and financial capacity of the company in the market. This makes partners and customers feel more confident when cooperating and conducting transactions with a partner company with large charter capital, because it demonstrates the company’s stability and ability to fulfill financial commitments.

2. The role of charter capital in the enterprise

Charter capital in the financial structure of an enterprise plays an extremely important role. In reality, charter capital carries a series of meanings and functions that cannot be ignored in the operation of the company.

The most important point about the meaning of charter capital is that it is the foundation for determining the capital contribution ratio of owners and members in the enterprise. Thanks to this number, the enterprise can easily divide profits, rights and responsibilities among related parties. With this definition, shareholders and members in the company will be responsible for the debt level and other financial obligations.

Charter capital also plays an important role in assessing the business capacity of the enterprise, especially in business areas that require specific standards. For example, in the real estate industry, the charter capital must be at least VND 20 billion, while debt trading requires at least VND 100 billion, and in the life insurance sector, the charter capital must be from VND 600 billion or more.

Information on the charter capital of an enterprise is stored in the meeting minutes and shows the commitment of the members to the property and physical assets to customers and partners. Based on the charter capital figure, partners, customers and the government have a comprehensive view of the total initial investment capital needed for the enterprise’s operations. Charter capital also shows the scale, capacity and position of the company in the market, increasing trust and the ability to conduct transactions with companies with large charter capital.

In general, a high charter capital level means the value and leading position of the enterprise in the industry. Newly established businesses often have small charter capital due to lack of management experience, but when their operations are stable, they often increase their charter capital to compete more effectively with competitors at the same stage.

3. Characteristics of enterprise charter capital

Charter capital includes the following basic characteristics:

3.1 Regarding contributed capital

According to the provisions of Article 35 of the Enterprise Law, contributed capital can be the following types of assets:

– Contributed capital can be Vietnamese Dong, freely convertible foreign currency, gold, land use rights value, intellectual property rights value, technology, technical know-how, other assets that can be valued in Vietnamese Dong.

– Intellectual property rights used to contribute capital include copyrights, rights related to copyrights, industrial property rights, rights to plant varieties and other intellectual property rights as prescribed by the law on intellectual property. Only individuals and organizations that are legal owners of the above rights have the right to use such assets to contribute capital.

3.2 About charter capital

Basically, Vietnamese law does not have regulations restricting the maximum capital that an enterprise is allowed to register or the minimum capital that an enterprise must meet. Except for some cases for business lines with conditions on legal capital.

3.3 About capital contribution period

Depending on the type of enterprise, the capital contribution period is different. Specifically:

– For LLCs with two or more members

The charter capital of a LLC with two or more members when registering a business is the total value of the capital contribution that the members commit to contribute to the company.

According to Clause 2, Article 47 of the Law on Enterprises 2020, members must contribute capital to the company in full and with the correct type of assets as committed when registering to establish a business within 90 days from the date of being granted the Certificate of Enterprise Registration, excluding the time for transporting, importing contributed assets, and performing administrative procedures to transfer ownership of assets. During this period, members have rights and obligations corresponding to the committed capital contribution ratio. Company members may only contribute capital to the company with assets other than the committed assets if approved by more than 50% of the remaining members.

– For single-member LLCs

The charter capital of a single-member LLC at the time of business registration is the total value of assets committed by the owner and recorded in the company charter.

According to Clause 2, Article 75 of the 2020 Enterprise Law, the Owner must contribute in full and in the correct type of assets as committed when registering to establish the enterprise within 90 days from the date of being granted the Enterprise Registration Certificate.

– For joint stock companies

According to Clause 1, Article 113 of the Enterprise Law 2020, shareholders must fully pay for the shares they have registered to purchase within 90 days from the date of issuance of the Enterprise Registration Certificate, unless the Company Charter or the share purchase registration contract stipulates a shorter period. The Board of Directors is responsible for supervising and urging full and timely payment of shares that shareholders have registered to purchase.

– For partnerships

According to Clause 1, Article 178 of the Enterprise Law 2020, general partners and capital contributors must contribute the capital in full and on time as committed.

The Enterprise Law does not stipulate the capital contribution period of a partnership. However, when registering a business, general partners must register their capital contribution and the capital contribution commitment period. Thus, the capital contribution commitment period is the basis for determining the capital contribution period of the partnership.

– For private enterprises

Clause 1, Article 189 of the Enterprise Law 2020 stipulates: The investment capital of a private enterprise owner is self-registered by the enterprise owner. The private enterprise owner is obliged to accurately register the total investment capital, clearly stating the capital in Vietnamese Dong, freely convertible foreign currency, gold and other assets; for capital in other assets, the type of asset, quantity and remaining value of each type of asset must also be clearly stated.

Thus, the capital contribution commitment period of a private enterprise is the period in which the private enterprise owner must fully contribute the capital immediately after establishing the enterprise.

4. How much charter capital is enough?

Currently, according to the provisions of the Enterprise Law, there is no specific charter capital level prescribed for enterprises in general. This leads to the fact that enterprises can depend on the financial capacity of the owner and specific business goals to decide on the charter capital level.

When deciding on the charter capital level, enterprises often consider a number of important factors as follows:

• Financial capacity of the owner
• Scope and scale of business operations
• Operating costs after establishment
• Business projects and contracts with partners

5. What assets are used to contribute charter capital?

Regarding the provisions on assets used to contribute to the company’s charter capital, Article 34 of the Enterprise Law 2020 specifically stipulates as follows:

Assets contributed to capital

1. Assets contributed to capital are Vietnamese Dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technology, technical know-how, and other assets that can be valued in Vietnamese Dong.
2. Only individuals and organizations that are legal owners or have legal rights to use the assets specified in Clause 1 of this Article have the right to use such assets to contribute capital in accordance with the provisions of law.

Accordingly, assets that can be used to contribute to charter capital include:

– Vietnamese Dong.

– Freely convertible foreign currencies.

– Gold.

– Land use rights.

– Intellectual property rights, technology, technical know-how.

– Other assets that can be valued in Vietnamese Dong.

At the same time, Article 35 of the Enterprise Law 2020 stipulates the transfer of ownership of contributed assets, specifically stating that:

Transfer of ownership of contributed assets

Members of limited liability companies, partnerships and shareholders of joint stock companies must transfer ownership of contributed assets to the company according to the following provisions:

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

b) For assets without registered ownership, capital contribution must be made by handing over contributed assets with confirmation in writing, except in cases where it is made through an account.

Thus, members of limited liability companies, partnerships and shareholders of joint stock companies must be responsible for transferring ownership of assets contributed as capital to the company.

The above article has answered the question: What is the charter capital of an enterprise? The importance of charter capital in an enterprise cannot be denied, it is the decisive factor in the scale of the enterprise’s operations, the ability to carry out business activities, and even build trust with partners. VIET MY LAW AND ACCOUNTING hopes that the information is useful to you.