Management and utilization of capital and assets in the enterprise of which 100% charter capital is held by the state in Vietnam

Vietnam law has regulations on management and utilization of capital and assets in the enterprise of which 100% charter capital is held by the state. Let’s find out this issue with Lawyer X through the following situation: “Dear Lawyer! I want to ask what are regulations on charter capotal in the enterprise of which 100% charter capital is held by the state in Vietnam? What are regulations on investment, construction, purchase and sale of fixed assets in these enterprises? Thanks for answering me!”

Legal grounds

• 2014 Vietnam Law on Management and Utilization of State capital invested in the enterprise’s manufacturing and business activities

Charter capital the enterprise of which 100% charter capital is held by the state in Vietnam

– Rules for determining the charter capital:

+ The amount of charter capital must not be lower than the amount of legal capital required for manufacturing activities and business scope in accordance with laws;

+ The amount of charter capital must correspond to the size and output designed for the enterprise’s manufacturing activities and business scope;

+ The amount of charter capital must be appropriate for the strategy and proposal for the enterprise’s investment and development, and core business lines of the enterprise approved by the competent authority;

+ The amount of charter capital must accord with the manufacturing and business plan.

– The owner’s representative agency shall assume responsibility for approving the charter capital and investing a sufficient amount of charter capital in an enterprise as prescribed in regulations laid down in Clause 1 of this Article.

– Investments in charter capital for the purpose of business establishment and supplementary investments in the charter capital of an existing enterprise shall be funded by sources of state capital acquired by such enterprise.

Capital mobilization in the enterprise of which 100% charter capital is held by the state in Vietnam

– Enterprises have the right to take out loans granted by credit institutions, financial institutions, any organization or individual outside of such enterprises, and employees; issue corporate bonds and other types of capital mobilization permitted by laws.

– Principles of capital mobilization:

+ This plan must rely on the 5-year strategy and plan for investment and development, and annual plan for production and business of an enterprise;

+ The plan for capital mobilization must ensure the solvency;

+ The approver of capital mobilization plan must bear full responsibility for carrying out supervision and inspection to ensure that the amount of mobilized capital is used for the right purpose and in an efficient manner;

+ Capital mobilization shall be performed in the form of a binding contract between domestic organizations and individuals as stipulated by laws; in case loans are derived from the State’s investment and development credit, legal regulations on investment and development credits and other relevant laws must be observed;

+ Capital mobilization of foreign organizations and individuals, borrowing or issuance of Government-guaranteed bonds shall comply with legal regulations on public debt management and other relevant laws;

+ Capital mobilization performed in the form of corporate bond issuance shall comply with laws.

– Authority over capital mobilization:

+ Board of Members or the President of an enterprise must decide on the capital mobilization plan for each project that requires the mobilization rate of less than 50% of equity capital recorded in quarterly or yearly financial statements at the latest period compared with the date on which the capital mobilization occurs, but is restricted to the amount of mobilization capital that does not exceed the amount of capital mobilization for Class-B projects in accordance with the Law on Public Investment.

The mobilization of capital used for production and business activities must ensure that total liabilities, inclusive of pledges given by the subsidiary companies in accordance with Clause 4 of this Article, are not allowed to be three times more than total equity capital recorded in quarterly or yearly financial statements of the enterprise at the latest period compared with the date on which the capital mobilization occurs.

Board of Members or the President of that enterprise must delegate the General Director or Director to make a decision on the capital mobilization plan in accordance with regulations laid down in the charter or internal financial rules of such enterprise;

+ In case the capital is mobilized in excess of the permitted amount stipulated at Point a of this Clause, or from foreign organizations and individuals, the Board of Members or the President of the enterprise must send a report to the owner’s representative agency for their consideration and approval.

– Enterprises are entitled to offer pledges for the subsidiary company’s loans at credit institutions behind the following principles:

+ Total value of pledges on loans, given by a subsidiary company of which 100% charter capital is held by the enterprise, shall not be permitted to exceed the equity capital of such subsidiary company with reference to the quarterly or yearly financial statement released at the latest period compared with the date on which the offer of such pledges takes place;

+ Total value of pledges on loans, given by a subsidiary company of which 50% charter capital is held by the enterprise shall not be permitted to exceed the actual value of paid-in capital of the enterprise recorded at the date on which the offer of such pledges occurs;

– In case that enterprise use mobilized capital to serve the wrong purpose, or the capital is mobilized in excess of the permitted amount, which is not approved by the competent authority, the owner’s representative agency shall consider, make a decision or send a report to the competent authority to identify which responsibility the Board of Members or the President of that enterprise must bear in accordance with legal regulations.

Investment, construction, purchase and sale of fixed assets

– Authority over investment, construction, purchase and sale of fixed assets in an enterprise:

+ Given the 5-year strategy and plan for investment and development as well as the annual plan for production and business of that enterprise, the Board of Members or the President of that enterprise shall have decision-making authority over each project for investment, construction, purchase and sale of fixed assets that are worth less than 50% of equity capital recorded in quarterly or yearly financial statements of such enterprise at the latest period compared with the date on which the decision on such projects is obtained, but are not permitted to exceed the amount of capital invested in Class-B projects in accordance with regulations laid down in the Law on Public Investment.

The Board of Members or the President of that enterprise shall delegate the General Director or Director to make a decision on projects for investment, construction, purchase, sale of fixed assets in accordance with regulations laid down in the charter or internal financial rules of such enterprise;

+ In respect of projects for investment, construction, purchase and sale of fixed assets of which the value is greater than the amount stipulated at Point a of this Clause, the Board of Members or the President of the enterprise shall submit a report to the owner’s representative agency for their consideration and approval.

– Procedures and processes for investment, construction, purchase and sale of fixed assets shall comply with legal regulations.

– The decision maker of projects for investment, construction, purchase and sale of fixed assets must bear legal responsibility for granting decisions beyond their delegated authority or for any fixed asset therefrom that is unusable or may be used in an insufficient manner.

Management and utilization of fixed assets

– The enterprise can set, introduce and implement the rules and regulations on management and utilization of fixed assets.

– The enterprise shall be vested the right to lease, mortgage and pawn fixed assets on principle that the capital derived therefrom must be preserved, developed and used in an efficient manner; sell or dispose of fixed assets that have been damaged, outdated, or have not been being used for some reasons, or have been used in an efficient manner to serve the purpose of capital recovery.

Regulations on management of receivables

– The enterprise shall manage receivables as follows:

+ Formulate, issue and implement the rules and regulations on management of receivables. The rules and regulations on management of receivables must identify responsibilities that a collective or individual must assume when carrying out the debt management and collection;

+ Manage receivables, depending on equivalent types of receivables;

+ Frequently classify debts and expedite debt collection.

– The enterprise shall be entitled to sell overdue receivables, receivables difficult to collect, and uncollectible debts. The enterprise shall be only entitled to sell debts to economic institutions licensed to trade debts, and shall not be allowed to directly sell debts to indebted entities. The selling price shall be agreed by contracting parties and these parties shall be also held responsible for their decisions.

– Where debt management possibly leads to losses on the equity capital, or debt sale results in the enterprise’s losses, capital loss, insolvency, dissolution or bankruptcy, the Board of Members or the President of the enterprise, or related persons, must make up for such losses and, shall be subject to penalties under the legal regulations and the enterprise’s charter, depending on the nature and severity of violations.

Regulations on management of payables

– The enterprise shall manage payables as follows:

+ Formulate, issue and implement the rules and regulations on management of payables. The rules and regulations on management of payables must identify responsibilities that a collective or individual must assume when carrying out the monitoring, collation, confirmation and payment of debts;

+ Monitor payables, depending on different types of payables; frequently classify debts; design the plan for debt repayment, cash flow balancing, which serves the purpose of debt repayment; make the debt repayment by the due date.

– The Board of Members or the President of the enterprise, the General Director or Director shall be responsible for regularly considering, assessing and analyzing the debt repayment capability of the enterprise, early detecting difficulty in debt repayment in order to take remedial measures on time and prevent any overdue debts.

– Where debt management possibly leads to overdue debts or uncollectible debts, depending on the nature and severity of violations, the Board of Members or the President of the enterprise, or related persons, must make up for losses and, shall be subject to penalties under the legal regulations and the enterprise’s charter.

Regulations on external investment of the enterprise

– Utilization of capital, assets and land title of the enterprise as external investments must conform to regulations enshrined herein, the law on investment, legislation on land and other related legal regulations; 5-year strategy and plan for investment and development, and annual plan for production and trading of the enterprise.

– Type of external investment of the enterprise:

+ Contribute capital to set up joint-stock companies and limited liability companies; make capital contribution through business cooperation contract without forming a new legal status;

+ Purchase stocks of joint-stock companies, and purchase a portion of contributed capital of limited liability companies and partnerships;

+ Purchase the whole of other enterprises;

+ Purchase bonds or government bonds.

– Cases in which the external investment is prohibited shall include:

+ Contribute capital, purchase stocks, or the whole of other enterprises of which the manager or representative is the spouse, natural parent, foster parent, natural or adopted son or daughter, sibling or sibling-in-law of the Chairperson and members of the Board of Members, the President, Auditor, General Director or Director, Deputy Director General or Vice Director and Chief Accountant of that enterprise;

+ Contribute capital to subsidiary companies for the purpose of setting up joint-stock companies and limited liability companies or executing the business cooperation contract.

– Decision-making authority over the enterprise’s external investment:

+ The Board of Members or the President of that enterprise shall have decision-making authority over each project for external investment that are worth less than 50% of equity capital recorded in quarterly or yearly financial statements of such enterprise at the latest period compared with the date on which the decision on such project is obtained, but are not permitted to exceed the amount of capital invested in Class-B projects in accordance with regulations laid down in the Law on Public Investment.

The Board of Members or the President of that enterprise shall delegate its General Director or Director to make a decision on external investment projects in accordance with regulations enshrined in the charter or internal financial rules of such enterprise;

+ In case the enterprise is running external investment projects of which the value is greater than the amount stipulated at Point a of this Clause, venture projects funded by the enterprise and foreign investors in Vietnam or those developed by means of making investment in other enterprises to serve the purpose of providing public products and services, the Board of Members or the President of the enterprise shall submit a report to the owner’s representative agency for its consideration and approval.

Regulations on outward investment of the enterprise

– Utilization of capital or assets of the enterprise for the purpose of making outward investments must comply with provisions enshrined herein, regulations on investment, foreign exchange management as well as other relevant laws.

– The Board of Members or the President of the enterprise shall submit a report to the owner’s representative agency for their consideration and decision on the intention to carry out the outward investment projects.

In case these projects are subject to the consent to investment intention from the National Assembly within its delegated decision-making authority, the Prime Minister shall rely on such consent to make his decision on outward investment; in case these projects are subject to the consent to investment intention from the Prime Minister within his delegated decision-making authority, the owner’s representative agency shall rely on such consent to make its decision on outward investment.

– Responsibility of the Board of Members or the President of the enterprise:

+ Ensure that outward investment projects are likely to achieve the pre-determined aim, prove the efficiency and take all potential risks or threats into account, all of which shall be submitted to the owner’s representative agency for its consideration and approval;

+ Issue the operation regulations, and manage, utilize capital and assets of the enterprise invested in overseas countries, which must comply with the governing laws enforced in the host country and pay close attention to strictly managing and preventing any loss on such capital and assets;

+ Regularly supervise, assess and assume their responsibility for the efficiency in the enterprise’s outward investment activities;

+ Submit a periodic report every 06 months to the owner’s representative agency on the progress in executing projects under development, and on the investment efficiency that such investment projects may achieve;

+ Timely report and propose solutions to any difficulty that can cause severe impacts on the enterprise’s outward investment activities to the owner’s representative agency;

+ Remittance of profits, other incomes and capital divestment upon completion of these projects from overseas countries to home countries, or continuation of such outward investment projects shall conform to the charter, financial rules of the enterprise, provisions enshrined in 2014 Vietnam Law on Management and Utilization of State capital invested in the enterprise’s manufacturing and business activities, and legislation on investment and other relevant laws.

The enterprise’s management of subsidiary companies of which 100% charter capital and paid-in capital in joint-stock companies and limited liability companies are held by that enterprise

– With regard to subsidiary companies of which 100% charter capital is held by the enterprise, the enterprise shall manage them in the following manners

+ Make a decision on establishment and charter capital when establishing such subsidiary companies, objectives, tasks and business scope, and possible adjustments to the charter capital during their operations, restructuring, ownership transfer, dissolution and petition for bankruptcy;

+ Issue the financial rules of these subsidiary companies;

+ Decide on policies on appointing, reappointing, dismissing, commending, rewarding and imposing penalties on the Chairperson and members of the Board of Members or the President, General Director or Director, Auditor of subsidiary companies;

+ Approve the 5-year strategy and plan for investment and development, and annual plan for production and business of these subsidiary companies;

+ Approve and revise the charter of these subsidiary companies;

+ Approve the capital mobilization plan, projects for investment, construction, purchase and sale of fixed assets that either are worth more than 50% of equity capital recorded in quarterly or yearly financial statements of these subsidiary companies at the latest period compared with the capital mobilization period, or else equal the rate lower than the one stipulated in their charter;

+ Approve financial statements, distribute profits and set up annual funds at these subsidiary companies.

– With regard to the enterprise’s paid-in capital invested in joint-stock companies and multiple-member limited liability companies, it shall be managed in the following manners:

+ Decide or request the competent management to decide on an increase or decrease in capital or capital divestment or disposal of the rights to purchase or contribute capital from/to joint-stock companies and multiple-member limited liability companies in accordance with legal regulations and the charter of the enterprise;

+ Adopt regulations on requirements, appointment, dismissal, commendation, reward and punitive actions, and decide on salary, wage, allowance, bonus and other benefits that the representative of the enterprise’s capital share is entitled to in accordance with regulations laid down in Article 46, 47, 49 and 50 hereof;

+ Assign the representative of the enterprise’s capital share with the task of protecting the enterprise’s lawful rights and interests in joint-stock companies and multiple-member limited liability companies;

+ Assign the representative of the enterprise’s capital share to request joint-stock companies and multiple-member limited liability companies to transfer distributable profits and dividends or divest invested capital to the enterprise; monitor the divestment of invested capital and collection of distributable profits and dividends;

+ Request the representative of the enterprise’s capital share to report how the representative exercises their powers and performs their tasks to orientate enterprises of which stocks and paid-in capital shares make up more than 50% of charter capital in order to reach expected objectives and conform to the strategy of the enterprise;

+ Request the representative of the enterprise’s capital share to make periodic or on-demand reports on financial status, manufacturing and business performance of joint-stock companies and multiple-member limited liability companies;

+ Examine and manage the performance of the representative of the enterprise’s capital share in order to prevent and handle any of the representative’s mistakes or faults.

Transfer of invested capital out of the enterprise

– Principles of invested capital transfer:

+ Comply with legal regulations on enterprises, securities and other relevant laws;

+ Comprehensively mirror the actual value of the enterprise, inclusive of the value of land title in accordance with the law on land;

+ Stick to the principles of market, disclosure and transparency.

– Modalities of invested capital transfer:

+ Transfer of the enterprise’s invested capital in limited liability companies shall conform to legal regulations on enterprises;

+ Transfer of the enterprise’s invested capital in joint-stock companies whose stocks are listed on the stock exchange market shall conform to legal regulations on securities;

+ Transfer of the enterprise’s invested capital in joint-stock companies whose stocks have yet to be listed on the stock exchange market shall be carried out through the open auction. In case the open auction is not successful, the competitive bidding shall be in place. In case the competitive bidding is not successful, the method agreed by interested parties shall be in place.

– The Board of Members or the President of the enterprise shall be vested with the decision-making authority over transfer of the enterprise’s invested capital in joint-stock companies and limited liability companies after obtaining the consent to investment intention from the owner’s representative agency. In case the transferred value stays lower than the book value after making up or deducting provisions for any loss on invested capital, the Board of Members or the President of a company shall submit a report to the owner’s representative agency for their consideration and decision.

Salary and bonus paid to employees

– Principles of determining employee’s salary and bonus:

+ Comply with legal regulations on employment;

+ Conform to agreements specified in employment contracts;

+ Adhere to the productivity and efficiency of employees.

– Bonuses for employees shall be determined on the basis of their productivity and significant contribution, and shall be funded by the enterprise’s after-tax profit. The Board of Members or the President of the enterprise shall issue the scheme for employee rewards.

Salary, remuneration and bonus paid to the enterprise’s managers

– Principles of determining the salary and remuneration paid to the enterprise’s managers appointed by the competent management:

+ Comply with legal regulations on employment, officials and public officers;

+ Rely on the annual manufacturing and business outcome of the enterprise;

+ Adhere to the performance of such managers; remuneration paid to part-time managers shall be determined by workload and working time but is restricted to less than 20% of salary paid to full-time managers of the enterprise.

– Bonuses for the enterprise’s managers shall be approved by the owner’s representative agency on the basis of the efficiency in manufacturing and business activities, enterprise rating, performance of managers, and shall be extracted from the enterprise’s after-tax profit.

Principles of the enterprise’s after-tax profit distribution

– Set aside less than 30% of after-tax profit used for the purpose of developing core business sectors of the enterprise.

– Set aside a part of the enterprise’s after-tax profit to establish the reward and welfare fund for employees and bonus fund for the enterprise’s managers, auditors on the basis of efficiency in the enterprise’s operating activities and performance of tasks assigned by the State.

– The State shall collect the remaining portion of after-tax profits after setting up the above-mentioned funds as prescribed in Clause 1 and 2 of this Article in order to ensure that the State receives the benefit from the investment of state capital in the enterprise.

Preservation and development of the corporate capital

– Preservation and development of the corporate capital shall be carried out according to the following methods:

+ Manage, utilize capital and assets in compliance with 2014 Vietnam Law on Management and Utilization of State capital invested in the enterprise’s manufacturing and business activities and other relevant regulations;

+ Purchase the asset insurance;

+ Handle any loss on assets and irrecoverable debts;

+ Set up provision against devaluation of inventories, bad debts, depreciation of long-term investments, warranty of products, goods and construction works.

– The Board of Members or the President of the enterprise shall assume the following responsibilities:

+ Preserve the corporate capital;

+ Report on the change in the corporate equity capital to the owner’s representative agency.

Please see more:

• Instructions for exclusive registration of company logos in Vietnam
• Service of changing the legal representative of Vietnamese enterprises

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