One of the issues of establishing a business that we are concerned about is often charter capital, there are many businesses that often declare incorrect charter capital, also known as “overstatement of charter capital”. Is it illegal to overstate charter capital and what are the legal consequences? LSX Lawfirm will give you an article about: “Overstatement of charter capital in Vietnam”, as follows:
Legal grounds
Law on enterprises 2020
What is charter capital?
According to the provisions of the Enterprise Law 2020:
Charter capital is the total value of assets owned by members of the company; the company owner has contributed or committed to contribute when establishing a one-member limited liability company; establish a limited liability company with two or more members; establishment of a partnership company; is the total par value of shares sold or registered for purchase upon the establishment of a joint-stock company.
So, members and shareholders of the company can contribute capital with assets including: money, value of land use rights, value of intellectual property rights, technology, technical know-how, freely convertible foreign currency, yellow…; stated in the company’s charter contributed by members to form the company’s capital.
Owners, members and shareholders have 90 days from the date of issuance of the Certificate of Business Registration (GCN DKDN); to fully contribute the contributed capital as committed in the enterprise establishment dossier. Thus, in each enterprise with different models; the investment of charter capital is different as well as the legal responsibility related to the charter capital is not the same. There will be two types of liability for the current charter capital: Unlimited liability and limited liability.
Is it possible to overstate charter capital?
In general, overstating charter capital is no longer a strange case for today’s businesses; however, the law also prohibits cases of dishonesty; Specifically according to Clause 5, Article 16 of the Enterprise Law 2020:
“5. So, over-declaring the charter capital, failing to contribute the full amount of charter capital as registered; intentionally valuing the assets contributed as capital at the wrong value.”
The overstatement of charter capital will violate the law. Thus, the truthful declaration of charter capital is also the legal responsibility of the business owner. Besides, this behavior will also be administratively fined according to the provisions of Clauses 3 and 5, Article 28 of Decree 50/2016/ND-CP:
Article 28. Violations against regulations on enterprise establishment
A fine of between VND 10,000,000 and 20,000,000; for the act of failing to register the change with the business registration agency when not contributing enough charter capital as registered.
Remedial measures:
c) So, forced registration for adjustment of charter capital; rate of capital contribution; shares of members; shareholders equal to the amount of capital contributed, for violations specified in Clause 3 of this Article;”
According to the above provisions, then; the company’s overstatement of charter capital is one of the prohibited acts under the Enterprise Law 2020. When the competent authority discovers this behavior; the company fined from 10,000,000 VND to 20,000,000 VND. Besides; Enterprises forced to register for adjustment of charter capital by the amount of contributed capital, for violations.
Actual declaration of charter capital
So, returning to the definition, charter capital is the property and money that members and shareholders contribute or commit to contribute to the company. The time for members to contribute capital to the company agreed upon by the members themselves; but must not exceed 90 days from the date of having the business registration certificate. In fact; this is the declaration and self-control obligations of the enterprise; If, after 90 days, the enterprise fails to contribute capital in full as committed, it will have to carry out procedures for capital reduction in accordance with the law:
Procedures for reducing the company’s charter capital
Procedures for increasing the company’s charter capital
So, state agencies, business registration agencies will have no responsibility to check or verify the amount of capital that enterprises have declared themselves. Therefore, it often happens that enterprises declare more than the actual number. Declare a large amount of charter capital sometimes makes it easier for businesses to sign contracts; work with partners or foreign investment business.
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Related questions
After business establishment and operation; depending on the needs and financial capacity of the business owner; the enterprise can increase or decrease its charter capital accordingly.
Currently, the law does not stipulate the minimum or maximum amount of charter capital that business households must register. How much charter capital is registered depends on the needs and capabilities of the household head. Charter capital should be registered at a moderate level suitable to the financial capacity of the household.
Legal capital is a condition on the amount of capital required by law for an enterprise to have before conducting business registration. This level of conditional capital will be determined by a competent state agency based on the nature and level of risk of the business line for which the competent authority shall determine a specific level of legal capital.
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