Hello Lawyer. I want to start a business. However, I see there are 02 terms for capital, which are charter capital and legal capital. So can you tell me if the legal capital is the charter capital? I look forward to hearing from you as soon as possible. Sincerely thank you.
Thank you for trusting and sending questions to our Lawyer X. Below is the article Is legal capital the charter capital? We invite you to read along.
Legal grounds
Enterprise Law 2020
What is charter capital?
According to Clause 34, Article 4 of the Enterprise Law 2020, charter capital is:
Total value of assets contributed or committed to contribute by members when establishing a limited liability company or partnership;
Total par value of shares sold or registered for purchase upon business establishment, for joint-stock companies.
In simple words, charter capital is the amount of money that a member commits to contribute at the time of company establishment registration, which is recorded in the application for establishment of the company sent to the Business Registration Office.
Features of charter capital:
- Any enterprise needs a charter capital, the basis for determining charter capital is the total value of assets contributed or committed to contribute by members when establishing a limited liability company or partnership; is the total par value of shares sold or registered for purchase upon business establishment for a joint-stock company.
- The law does not stipulate the minimum or maximum charter capital when establishing a company. However, if the registered charter capital is too low, it will not show the financial potential of the company, but if the registered charter capital is too high compared to the actual capital, it will greatly affect the implementation of the book. accounting books, performing financial obligations. Therefore, enterprises should choose the level of charter capital appropriate to the business scale, in accordance with the costs to invest in machinery and equipment, rent space, labor, purchase input materials… for business registration.
- Assets contributed as capital can be Vietnam Dong, freely convertible foreign currency, gold, value of land use rights, value of intellectual property rights, technology, technical know-how, other assets that can be contributed as capital. Valuable in Vietnam Dong and intellectual property rights.
What is legal capital?
Currently, the Enterprise Law 2020 has no regulations on legal capital. However, in Clause 7, Article 4 of the 2005 Enterprise Law, there are regulations on legal capital as follows:
Legal capital is the minimum capital required by law to establish an enterprise.
Accordingly, based on the most common understanding, we can understand that legal capital is the minimum capital required to be able to establish a business.
Legal capital is fixed by a competent authority and is considered viable for the project when establishing an enterprise.
Legal capital will vary depending on the business sector and industry. Legal capital is determined according to each industry or profession, not applicable to each type of enterprise.
The characteristics of legal capital are:
- Legal capital does not apply to each type of enterprise but is determined according to each specific business line. Only enterprises operating in those lines and professions need to register the full amount of capital as prescribed.
- The regulation of specific legal capital in Vietnam is mainly determined through specialized documents, detailing conditions for business in conditional industries.
- Depending on each business line, there are industries that only need to register for legal capital to be able to do business, but there are industries that in addition to registering legal capital, enterprises also have to make a deposit to ensure their business its business activities.
Is legal capital the charter capital?
Charter capital and legal capital are the initial capital contributed by investors to the company as capital for production and business of the company.
However, the difference between legal capital and charter capital is as follows:
| Charter capital | Legal capital | |
| Basis of determination | When establishing a company, it is required to register a charter capital. Charter capital may increase or decrease during the operation of the enterprise. | Legal capital does not depend on the type of business but is determined by specific business lines. If a company intends to establish a business that requires legal capital, the contributed capital must be at least equal to the legal capital. |
| Capital level | The law does not stipulate the minimum or maximum charter capital when establishing a company. However, it should be noted that if the registered capital is too low, it will be difficult to create trust with customers when trading. However, if the registered capital is too high compared to the actual capital, it will affect the financial obligations of the company | The level of legal capital is fixed for each business line. For example: – Real estate business with legal capital of 6 billion VND – Labor subleasing requires 2 billion VND legal capital |
| Time limit for capital contribution | Contributing sufficient capital from the start of conditional business activities | Make capital contribution within 90 days from the date of registration |
Thus, charter capital and legal capital are not the same, these are two types of capital that investors need to pay attention to when starting a business.
How is the procedure to increase or decrease charter capital?
According to the provisions of Article 68 of the Enterprise Law 2020, it is clearly stated that:
An enterprise may increase its charter capital in the following cases:
Increase the member’s contributed capital;
Receive additional capital contributions from new members.
Accordingly, the procedures for increasing charter capital are carried out under the guidance in Article 51 of Decree No. 01/2021/ND-CP, specifically as follows:
Dossier of increase or decrease of charter capital
About the application documents:
Notice of change of business registration contents;
Resolutions and decisions of the company owner, for single-member limited liability companies; resolutions, decisions and meeting minutes of the Members’ Council, for limited liability companies with two or more members, partnerships, of the General Meeting of Shareholders, for joint stock companies, on the change of capital regulations;
The investment registration authority’s document approving the capital contribution, share purchase or capital contribution purchase of foreign investors or foreign-invested economic organizations, in case procedures are required to be carried out. register for capital contribution, purchase of shares or purchase of contributed capital in accordance with the Law on Investment.
Procedures for increasing and decreasing charter capital
Regarding the order and procedures:
Step 1: Submit your application
Do one of the following two ways:
Option 1: Submit application directly at the one-stop department at the Business Registration Office of the Department of Planning and Investment where the enterprise’s head office is located.
Option 2: Submit online through the National Portal on business registration with a public digital signature or use a business registration account.
Step 02: Receiving and processing dossiers
Step 03: Get the result
The processing time is 03 working days from the date of receipt of the complete application.
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Frequently asked questions
Meaning of charter capital:
– A commitment to the level of material responsibility of members to customers, partners, as well as to businesses and cooperatives.
As investment capital for the operation of enterprises and cooperatives.
– It is the basis for distributing profits as well as risks in business to capital contributors.
Pursuant to Clause 1, Article 20 of the Law on Credit Institutions 2010 stipulates as follows:
A credit institution shall be granted a License when fully meeting the following conditions:
Having a charter capital, the capital allocated at least equal to the legal capital level;
The owner of the credit institution is a one-member limited liability company, the founding shareholders and founding members are legal entities that are operating legally and have sufficient financial capacity to contribute capital; Founding shareholders or founding members are individuals with full civil act capacity and sufficient financial capacity to contribute capital.
Conclusion: So the above is Compare legal capital and charter capital under Vietnamese law. Hopefully with this article can help you in life, please always follow and read our good articles on the website: lsxlawfirm.com
