REGULATIONS ON INVESTMENT IN THE FORM OF CAPITAL CONTRIBUTION, SHARE PURCHASE, PURCHASE OF CONTRIBUTED CAPITAL TO ECONOMIC ORGANIZATIONS.

1. Legal bases

• Investment Law 2020
• Decree 31/2021/NDCP

2. Investment in the form of capital contribution, share purchase, purchase of contributed capital

Pursuant to Article 24 of the 2020 Investment Law, Investors are entitled to contribute capital, purchase shares or purchase stakes of business organizations. However, foreign investors making investment by contributing capital, purchasing shares and purchasing stakes of business organizations must satisfy the following regulations and conditions: 

Firstly, satisfy market access conditions applied to foreign investors as prescribed in Article 9 of the Law on Investment 2020;

Second, ensure national defense and security in accordance with law

Third, comply with regulations of the law on land and conditions for receipt of land use rights and conditions for use of land on islands or border or coastal communes.

3. Forms of capital contribution, share purchase, purchase of contributed capital

According  to Article 25 of the Law on Investment 2020, the forms of investment enterprises entitled to contribute capital, purchase shares or purchase contributed capital are prescribed as follows: 

1. 1. Forms of capital contribution to business organizations

Investment enterprises may contribute capital to economic organizations in the following forms:

• Purchase of shares of joint-stock companies through the initial public or additional issuance;
• Contribution of capital to limited liability companies and partnerships;
• Contribution of capital to other business organizations not mentioned in Point a and Point b of this Clause.
  2. Forms of share purchase, purchase of capital contributed to economic organizations

Investors buy shares, purchase capital contributions of economic organizations in the forms of:

• Purchase of shares in a joint-stock company from such company or its shareholders;
• Purchase of stakes of members of a limited liability company to become a member of such limited liability company;
• Purchase of stakes of a capital contributing member of a partnership to become a capital contributing member of such partnership;
• Purchase of stakes of members of other economic entities not mentioned in Points a, b and c of this Clause.

Thus, investors contribute capital to a joint-stock company by buying first-issued shares or additional issued shares of a joint-stock company, while limited liability companies and partnerships can contribute additional capital to increase the company's charter capital. In this case, the enterprise must carry out procedures for changing business registration.

In case investors want to buy shares of a joint-stock company, they must buy from the company or shareholders. If you want to buy the contributed capital of a limited liability company, buy from a company member, buy the contributed capital of a partnership, buy from a capital contributing member.

4. Conditions and principles for carrying out investment activities in the form of capital contribution, share purchase, purchase of contributed capital

Conditions and principles for carrying out investment activities in the form of capital contribution, share purchase and purchase of contributed capital are guided through Article 65 of Decree 31/2021/ND-CP, specifically:

• Principle of implementation

Any domestic investor that invests in contributing capital, purchasing shares or purchasing stakes in a business organization established in Vietnam shall comply with the conditions and procedures specified in the Law on Enterprises and other law applicable to each type of business organization.

The contribution of capital, purchase of shares or stakes on the securities market shall comply with regulations of law on securities.

Wholly state-owned enterprises and representatives of state capital invested in enterprises shall comply with the conditions and procedures prescribed by regulations of law on management and use of state capital invested in manufacturing and business activities of enterprises; law on management and use of public property and other relevant law upon conducting investment activities by contributing capital, purchasing shares or purchasing stakes in business organizations or transferring the stakes or shares to other organizations and individuals.

• Conditions 

Market access conditions applied to foreign investors upon capital contribution, and purchase of shares and stakes in business organizations established in Vietnam as prescribed in Clause 3 Article 9 of the Law on Investment and Articles 15, 16 and 17 of this Decree;

Conditions concerning assurance of national defense and security and conditions for land use applied to a business organization to which foreign investors contribute capital or whose shares/stakes are purchased by foreign investors in case such business organization has the certificate of rights to use land on the island, in border commune, ward or town and coastal commune, ward or town; other areas that affect defense and security, except for the business organization executing the investment project in an industrial park, export-processing zone, hi-tech zone or economic zone established under the Government’s regulations.

Any foreign organization or individual that receives shares or stakes in a business organization established in Vietnam by a gift or exchange or another contract of transfer of ownership rights as prescribed by law or through inheritance shall satisfy the conditions set out in Clause 4 of this Article and follow procedures in accordance with regulations applicable to foreign investors making investment in the form of capital contribution, purchase of shares or stakes.

5. Investment procedures in the form of capital contribution, share purchase, purchase of contributed capital

Investment procedures in the form of capital contribution, share purchase, purchase of contributed capital shall comply with Article 26 of the Law on Investment 2020:

Upon contributing capital, purchasing shares or purchasing stakes of a business organization, the investor shall satisfy conditions and follow procedures for change of members or shareholders in accordance with regulations of law applicable to each type of business organization.

A foreign investor shall follow procedures for registration of capital contribution or purchase of shares or stakes of a business organization prior to change of members or shareholders in one of the following cases:

+ The capital contribution or purchase of shares or stakes increases the ownership ratio by foreign investors in a business organization conducting business in the restricted business lines;

+ The capital contribution or purchase of shares or stakes results in a foreign investor or business organization specified in Points a, b and c Clause 1 Article 23 of this Law holding over 50% of the charter capital of the business organization in the following cases: The holding of charter capital by the foreign investor is increased from less than or equal to 50% to over 50%; the holding of charter capital by the foreign investor is increased while such foreign investor is holding over 50% of the charter capital of the business organization.

+ The foreign investor contributes capital, purchases shares or stakes of a business organization that holds a certificate of rights to use land on an island or in a border or coastal commune, or in another area that affects national defense and security.

Investors other than those mentioned in Clause 2 of this Article shall follow procedures for changing shareholders/members as prescribed by law when contributing capital, purchasing shares or stakes of business organizations. If such investors wish to register their capital contribution or purchase of shares or stakes of business organizations, regulations in Clause 2 of this Article shall be complied with.

Thus, regulations on investment in the form of capital contribution, share purchase, purchase of contributed capital to economic organizations play an important role in the management and guidance of investment activities. These policies and regulations ensure transparency, fairness and protect the interests of investors, while creating favorable conditions for businesses to grow. 

----------

For more information, please contact:

Hoang Pham (James) / Managing Partner at: hoang.pham@vselawyers.com

© 2023 VSE LAWYERS LIMITED LIABILITY LAW COMPANY – All rights reserved.

Attention: This legal update is not an advice and should not be treated as such.