Consequences of breaching capital contribution commitment

Wednesday, Aug 13, 2014 10:08

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Capital contribution made fully and punctually when establishing a limited-liability company will help its members or company owner avoid consequences, such as financial penalties and requirement to change business registration content or charter capital.

According to the laws, members (in relationship to multi-member limited-liability companies) or company owners (in relationship to one-member limited-liability companies) must make adequate capital contribution promptly with the type of assets they have committed. If a member fails to contribute capital fully and punctually as committed, the uncontributed amount of capital shall be considered his/her debt towards the company.

Members or company owners must be responsible for other debts and property liabilities of the company due to their failure to contribute the committed amount of capital wholly and punctually. In the time limit for making adequate capital contribution as committed, members will have votes and receive profits corresponding to their actual contributed capital amounts, unless otherwise provided for in the Company Charter.

In case of multi-time capital contribution commitment:

(i) Regarding multi-member limited-liability companies, the time limit for each member to contribute capital does not exceed 36 months, commencing from the date the company is granted an enterprise registration certificate. Within 90 days after committing to make the last installment of capital contribution, the amount not yet adequately contributed shall be handled in the following order of priority:

a) Other members undertake to partially or fully contribute such capital amount in proportion to the capital amount they have already contributed to the company;

b) One or several members undertake to fully contribute such capital amount;

c) Mobilising other parties to adequately contribute such capital amount.

Once the remaining capital amount is fully contributed, members who fail to make capital contribution as committed shall, unquestionably, no longer be considered members of the company; which leads to change registration of the company's business registration contents in accordance with Law on Enterprise.

In case the capital actually contributed is still lower than the total capital amount to be contributed as committed (despite having implemented all of the above mentioned measures), the business registration office will register the contributed capital as the company's charter capital upon carrying out procedures for change registration of the company's membership; which means the company's charter capital is also required to be reduced.

(ii) Regarding one-member limited-liability companies, in all circumstances, company owners are required to adequately contribute the registered amount of capital; unlike multi-member, limited-liability companies which are eligible for a reduction of charter capital.

Apart from the mentioned consequences, members or company owners may also face fines ranging from VND5 million to VND10 million (US$238-476) when failing to contribute the registered capital on time; or fines amounting from VND10 million to VND20 million ($476-952) for not contributing capital as adequately as registered. Enterprises should also note that such fine levels are only applied to organisations and individuals. Household business shall receive fines equal to a half of those imposed on organisations.

Above are some noteworthy points on the consequences of breaching the commitment of capital contribution in a limited-liability company. — PLF – LAW FIRM

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