Investor’s failure to fully contribute capital and notable remarks

“The Covid-19 pandemic has been going on for a long time and until now, ithas shown no sign of settling, which seriously affects the operations of investors; especially new investors who are preparing the necessary conditions to operate in Vietnam. Not to mention the difficulties of the investors regarding the progress of capital contribution for projects in Vietnam. The following article will outline the issues that investors might need to pay attention to.“

Currently, the Law on Investment 2020 does not specify the deadline for capital contribution of investors. However, the law of enterprises requires investors who establish an enterprise to implement an investment project, to make capital contribution within 90 days from the date of issuance of the Enterprise Registration Certificate.  

When an investor has not contributed fully according to the committed schedule, the investor shall adjust the progress of capital contribution at the investment registration agency. Within 15 working days after receiving the investor’s proposal, the investment registration agency will issue its written opinion on the extension of the capital contribution progress.

Direct effects on normal operations of the Project in Vietnam

For an investment project associated with the establishment of an enterprise, the investor should carry out registration procedures for the change of the charter capital equal to the value of the contributed capital. These procedures must be carried out within 30 days from the deadline for full charter capital contribution. Otherwise, state agencies will consider applying the penalty for the violation due to late capital contribution. Accordingly, the applicable fine is from 20,000,000 to 30,000,000 VND when the investment capital contribution period has expired but the investor fails to register for adjustment of investment projects to the licensing agency (according to Point b, Clause 4, Article 13 of Decree 50/2016/ND-CP).Besides, Clause 3, Article 28 of Decree 50/2016/ND-CP also stipulates the sanctioning of administrative violations in Planning and Investment, with a fine of 10,000,000 – 20,000,000 VND insufficient capital contribution as originally committed.

Investors are not only affected by sanctions from state agencies, but will also take a lot of time to explain their delay in capital contribution to the Inspectorate of the Department of Planning and Investment. Accordingly, when recognizing that an enterprise committed a violation, the receiving department will transfer to the Inspectorate of the Department of Planning and Investment to review the violation and this process will take a lot of time for the enterprise depending on the severity of the violation and the enterprise’s explanation.

Notable remarks for members who are late in contributing capital

In case the Investor is also the Owner, the investor is responsible corresponding to the capital contribution committed for the company’s financial obligations arising before the last date of the company’s registration to change its charter capital. At the same time, the investor is responsible with their assets in respect of the company’s financial obligations, damage caused by failure to contribute, to fully contribute, or to contribute on time.

For limited liability companies with two or more members, investors who have not yet contributed capital as committed are obviously no longer members of the company. Investors who have not fully contributed their committed capital contributions only have the rights corresponding to the amount of contributed capital.

For joint-stock companies, similar to the above, Investors who have not paid for the registered shares are no longer shareholders of the company and cannot transfer the right to purchase such shares to another person. Investors who only pay a part for the registered shares can buy, have the right to vote, receive dividends and other rights corresponding to the number of paid shares. Such investors shall not transfer the right to purchase the unpaid shares to another person, and the unpaid shares are considered unsold shares and the Board of Directors will be entitled to sell;

Investors who have not paid or have not fully paid for the registered shares shall be responsible corresponding to the total par value of the registered shares for the company’s financial obligations arising before the date when the company registers to adjust its charter capital.

As mentioned above, the delay in capital contribution appears to be simple if it only affects the financial resources of the enterprise. However, this will interrupt the right to do business based on the criteria of considering the effectiveness of the investment project, the state agency will strictly control the capital contribution activities of the Investors. Hence, the failure to comply with the progress of the Investor’s capital contribution, in addition to the fines, can also lead to other legal consequences as mentioned above, wasting a lot of time of the investor. Therefore, each investor needs to closely follow the progress of capital contribution corresponding to the type of operation in Vietnam and take remedial measures immediately after realizing that the investor himself is not capable of implementing the schedule of committed capital contribution.

Src: PLF Law Firm