What will happen if the company fails to contribute charter capital as prescribed by law?

Question:

I have just established a limited liability company in early 2020 with the charter capital stated on the Enterprise Registration Certificate (“ERC“) of 5 billion dongs. The company has 03 members. However, after 01 year of operation, the actual capital is only 3 billion dongs due to lack of capital contribution by a member. I want to know what will happen if the charter capital is not contributed enough as the initial commitment. Hope to get an answer from lawyer soon, thank you.

Answer:

First, PL & Partners would like to thank you for trusting and sending your question to us. We would like to reply as follows:

1. The period for charter capital contribution.

For a multiple-member limited liability company, charter capital is the total value of assets that have been contributed or promised by members of the company when it is established.

Article 47 of the Law on Enterprise 2020 stipulates: Members shall contribute sufficient and correct assets as promised when applying for enterprise registration certificate within 90 days from the date of issue of the Enterprise Registration Certificate, excluding the time needed to transport or import the contributed assets and for completing ownership transfer procedures.

2. Remedy in case the period for capital contribution expires but one member fails in contribution.

The missing capital of such member will be offered for sale under a resolution or decision of the Members’ Council. At the same time, the Company shall register the change in charter capital, and the members’ stakes within 30 days from the deadline for contributing capital. The member who fails to contribute his capital shall be responsible for the financial obligations incurred by the company during the period before the company registers the change in charter capital and the members’ stakes in proportion to their promised contributions.

*** Usually, there are 03 cases as follows:

Case 1: When the required period of contribution expires but one member has not fully contributed as promised, the company registering the change in its charter capital by the actual value of contributed capital within 30 days as prescribed in Clause 4, Article 47 will not be administratively sanctioned.

Case 2: The company not registering the change in charter capital as a member failed to contribute or fully contribute capital as promised within 30 days shall be imposed fine. Pursuant to Article 28 of Decree No. 50/2016/ND-CP, a fine ranging from VND 10,000,000 to VND 20,000,000 shall be imposed for failing to register the change with the business registration authority when the company is not able to fully contribute capital as registered upon.

Case 3: If a member’s missing capital is sold to the remaining members or other individuals and organizations, the Company is not required to register for the change in charter capital but to register for a change in members and/or a change in the capital contribution ratio by members.

Hence, compared to your question, your company falls into Case 2 (the term of 30 days to register the change in charter capital is overdue because one member failed to contribute capital). Your company shall be imposed a fine from VND 10,000,000 to VND 20,000,000 before applying for adjustment of charter capital.