VALUATION OF CONTRIBUTED ASSETS INTO A COMPANY

Capital in a company is the amount of money or assets that owners or investors invest in the company, which is the foundation in business establishment or operation. From the economic perspective, contributing capital creates assets and ensures operating costs. From the legal perspective, capital contribution is an act of establishing the status, forming the rights and obligations of the business owner. So, what should be keep in mind upon valuation of contributed assets into a company?

1. Types of contributed assets into the company

According to current Enterprise Law, the types of assets that can be contributed as capital to the company include:

– Vietnam Dong (VND);

– Convertible foreign currencies: Foreign currencies allowed to circulate by the laws of Vietnam;

– Gold;

– Land use right ;

– Intellectual property rights;

– Technologies, technical secrets;

– other assets that can be converted into VND. For example: car, boat…

It should be noted that for assets with registration required, ownership or land use rights, when contributing capital, shareholders or capital contributing members must carry out procedures to transfer asset ownership or land use rights to company. The transfer of ownership of contributed assets is not subject to registration fees.

In principle, all assets can be contributed as the company’s capital on the condition that these assets must be legally transferred in civil exchanges. However, approval of capital contribution depends on the specific agreement of the company’s members or founding shareholders.

2. Valuation of contributed assets into the company

Assets contributed as capital must be valuated, excluding money (including VND and freely convertible foreign currency) and gold. The valuation of contributed assets into the company must comply with the principle of consensus, including unanimity in selecting the subject performing the valuation and approving the valuation value.

a. Valuation of contributed assets into the company upon establishment

The valuation of assets contributed as capital to the company upon establishment is carried out by one of two methods:

– Determined by members and founding shareholders according to consensus principles; or

– Valued by a valuation organization. In this case, the value of contributed assets must be approved by more than 50% of the members, founding shareholders.

In case a contributed asset is valued at a value higher than its actual value at contribution time (overvalued), the members/partners/founding shareholders shall jointly contribute an amount equal to the difference and are jointly responsible for the damage caused by the overvaluation.

b. Valuation of contributed assets into the company during its operation

The valuation of assets contributed as capital to the company during its operation is carried out by one of two methods:

– Valuation is agreed upon by the owner, the Board of Members for limited liability companies and partnerships, and the Board of Directors for joint stock companies and capital contributors; or

– Valued by a valuation organization. In this case, the value of contributed assets must be approved by the capital contributor and the owner, the Board of Members or the Board of Directors.

In case a contributed asset is overvalued, the contributor, the owner and members of the Board of Members/Partners/Director shall jointly contribute an amount equal to the difference and are jointly responsible for the damage caused by the overvaluation.

>> PROCEDURES ON CAPITAL INCREASE OF MULTIPLE-MEMBER LIMITED LIABILITY COMPANY https://linconlaw.vn/procedures-on-capital-increase-of-multiple-member-limited-liability-company/

>> LEASE PURCHASE OF OFF-PLAN CONSTRUCTION WORK https://linconlaw.vn/lease-purchase-of-off-plan-construction-work/

3. Some forms of capital contribution by assets to the company

a. Contribute capital to become an owner, shareholder or member of the company

For newly established companies, the company’s charter capital is mobilized from those participating in the founding capital. Those people can be shareholders (for joint stock companies) or owners/capital contributors (for limited liability companies). These people are often directly involved in company management activities.

b. Contribute business capital to share profits according to business cooperation contracts

Contributing capital under a business cooperation contract can be a way to contribute capital to the company, depending on the organization and specific provisions of the cooperation contract.

A business cooperation contract is a contract signed between investors for business cooperation and profit sharing. This can be an agreement between two or more parties to work together on a project, product or service. In some cases, one party can contribute capital to a specific business activity through a cooperation contract.

The profits from business activities from the business cooperation contract will be divided between the parties according to the agreement, a common agreement is according to the ratio of capital contribution. For this form of capital contribution, the capital contributor does not directly participate in managing the company but only participates in certain activities, or may not participate in direct management but only enjoys profits from capital contribution.