Capital contribution by foreigners to Vietnamese companies

I am a foreigner holding Vietnamese citizenship and currently owning a single-member limited liability company established in Vietnam. I wish to share the business with a friend of mine, who is an expatriate too, and transform the company into a limited liability company with two members.

Does my friend have to contribute additional capital to the company or should I transfer part of the company’s charter capital to him? Which is the better way? What percentage of charter capital must foreigners and Vietnamese citizens hold in order to keep a limited liability company with two members still a Vietnamese company?

What procedures should I carry out to transform the company?

As you wish to transform a single-member limited liability company into a limited liability company with two or more members, with the new member being a foreign investor, you may either transfer part of your contributed capital in the company to the foreign investor, then, as the company owner, make your own decision to transform it into a limited liability company with two or more members, or receive new capital contribution from the new investor, whilst retaining your capital contribution, for the company to become a two-member limited liability company.

The way your company is to be transformed into a two-member limited liability one depends on practical needs of the company as well as its charter’s provisions on the transfer of its equity capital contribution, i.e. whether the transfer is limited or not. If the transfer of the company’s equity capital contribution is limited, you should let the foreign investor contribute an additional capital amount so that you can transform the company without having to meet the conditions provided in the company’s charter.

The question of what percentage of your company’s capital which foreign investors have to hold depends on whether the business line of the company is a conditional one subject to a law-prescribed foreign holding cap. As you do not specifically mention the business lines of your company, we cannot provide you an exact advice on the company transformation. Therefore, you should base yourself on specific conditions of your company to seek the right answer.

Moreover, as per the Commercial Law, foreign traders are traders established and making their business registrations in accordance with foreign regulations or recognized by foreign laws. Foreign investor’s capital contribution to your company will not change its legal status as a Vietnamese company (trader) since it was lawfully established and has been operating in accordance with the Vietnamese law on enterprises.

A dossier for transformation of your company into a two-member limited liability one which you have to prepare must comprise:

(i) A written request for company transformation;

(ii) Charter of the new company as specified in Article 22 of the Law on Enterprises;

(iii) A list of company members, made according to the form promulgated by the Ministry of Planning and Investment and enclosed with a valid copy of one of personal identification papers of individual members of the company;

(iv) A transfer contract or written certification of the donation of part of the company ownership in case the company owner transfers or donates part of his/her ownership to one or more than one individual;

(v) The company owner’s decision on additional mobilization of capital contribution from one or more than one individual in case the company additionally mobilizes capital contribution;

(vi) The original enterprise registration certificate or business registration certificate and tax registration certificate;
(vii) Other documents, if you have registered a conditional business line:

A written certification of legal capital by a competent agency or organization (for enterprises engaged in sectors or business lines requiring legal capital in accordance with law).

A valid copy of practice certificate(s) of one or more than one individual (for companies engaged in sectors or business lines requiring practice certificate in accordance with law).

The dossier for company transformation must be submitted to the business registration office of the provincial-level Planning and Investment Department. Within five working days from the date of receipt of the transformation dossier, the competent business registration office or state agency in charge of investment management will re-grant an enterprise registration certificate or investment certificate.

You may choose seal specimen and number for the new company. In the course of company transformation, you are not required to carry out the procedures for changing the seals if the company’s name and address are not changed.

In case of seal change, the company is, after having its legal entity status seal engraved, required to carry out the procedures for registering and publicizing the seal specimen(s) on the national enterprise registration portal.

After successfully changing the company’s business registration, you have to publicize information about the change on the national enterprise registration portal within 30 days from the date of change.

However, information about the former business location, branches or representative offices of the single-member limited liability company that is transformed into a limited liability company with two members will not be displayed on the enterprise registration certificate.

At present, such information is not presented on legal documents issued to transformed companies and may only be found on their business registration and tax registration certificates. The certification of such information has not yet been provided by law.

If you wish to set up a branch, representative office or new business location of the company, you may be granted a separate certificate for it to replace the previously granted enterprise registration certificate with the same information about existing business locations.

(source: Vietnamlawmagazine)