Duration of capital contribution when establishing joint stock company – how to understand about duration undertaken to pay capital contribution as agreed

Lawyer LeThanh Tung

Lawyer Nguyen Huu Viet

DIMAC Law Firm

The 2014 Law on Enterprises requires shareholders of joint stock companies to contribute shares of capital contribution in full within ninety (90) day from the date of issuance of the Enterprise Registration Certificate (the “ERC”) for the establishment of a joint stock company (“Maximum Duration of Capital Contribution”).

Article 112.1 of the 2014 Law on Enterprises stipulates that “Shareholders must pay in full for the number of shares which have been registered for subscription within ninety (90) days from the date of issuance of the enterprise registration certificate, except where the charter of the company or share subscription agreement stipulates a shorter time-limit...”. Pursuant to this provision, the shareholders may agree on a capital contribution term shorter than the Maximum Duration of Capital Contribution on condition that this agreement must be set out in the charter of the company or in the contract for subscription of shares signed at the time of its establishment. According to DIMAC's experience in advising and handling disputes involving shorter timeout than the Maximum Duration of Capital Contribution, we think that “other shorter term” is understood to be shorter than ninety (90) days from the date the joint stock company is issued with the ERC

Pursuant to Article 112.2 of the 2014 Law on Enterprises, “Within the period from the date on which the company is issued with an ERC to the last day on which the shares which have been registered for subscription must be paid in full in accordance with clause 1 of this article, the number of votes of the shareholders will be  calculated on  the  basis  of  the  number of  ordinary shares  having  been  registered for subscription, unless otherwise stipulated in the charter of the company”. This provision implies the timing of capital contribution calculated “from the day the company is issued with an ERC” and also used as a standard for calculating the time-limit for capital contribution as well as determining the interests of the shareholder in a joint stock company.

Moreover, in the event that shareholders agree to complete the time-limit of capital contribution before the enterprise is issued with the ERC, this capital contribution is very difficult to be recognized and implemented in reality because at that time, it is not certain that the company will be allowed to establish by the competent authorities. In addition, the current law neither specifies nor guides the management mechanism of capital contributed by shareholders prior to the establishment of the company.

In reality, we have encountered cases where shareholders agree on the time-limit for capital contribution in the charter of the company prior to its being issued with the ERC. This agreement does not comply with the applicable law, and as such, it has no effective value despite the commitment of the parties.

Therefore, to ensure their lawful rights when committing capital contribution in a company with the time-limit for capital contribution shorter than the Maximum Duration of Capital Contribution, shareholders should pay attention to the following points:

 - They should commit a shorter term of the capital contribution than the law when the shareholders are certain their financial capability can meet such term;

 - They should not agree to complete the capital contribution prior to or on the date the company is expected to be established because it is difficult to ensure it is established at such time; and

 - In cases where it is impossible to meet the obligation to contribute capital within a shorter time than that undertaken, if it is still within the Maximum Duration of Capital Contribution as prescribed by law, shareholders should consider re-negotiating extension of the duration of capital contribution having been agreed in the contract for share subscription or in the original charter so that the new duration is equal to the Maximum Duration of Capital Contribution.