Scenario: Tech Company X was established by three members (A, B, and C) with a registered charter capital of 3 billion VND, divided equally at 33.3% each (equivalent to 1 billion VND per person). On the Enterprise Registration Certificate (ERC), all three are recorded as having fully contributed their capital. However, in reality, after six months of operation, Mr. A (Technical Director) has only transferred 100 million VND to the company account for petty expenses; for the remaining 900 million VND, Mr. A has continuously delayed payment citing financial difficulties. By the seventh month, Mr. A submitted his resignation and declared: “Even if I leave the company, I still own 33.3% of the shares on paper. You must distribute profits to me or buy out my shares for 2 billion VND”. I am B (the Legal Representative); I would like to ask: Does the Company have the right to deny Mr. A’s status as a shareholder and recover those “phantom” shares?
Answer:
1. Obligation to Contribute Capital and Violation of the 90-day Time Limit
Pursuant to Clause 2 Article 47 of the Law on Enterprises 2020, members of a multiple-member limited liability company must fully contribute the committed capital within 90 days from the issuance date of the Enterprise Registration Certificate, unless a shorter period is stipulated in the company charter.
In this case:
- The company has been operating for more than six (06) months; and
- A has contributed only VND 100 million out of the committed VND 1 billion.
Accordingly, Mr. A has seriously breached his statutory capital contribution obligation.
The fact that the ERC records Mr. A as holding 33.3% of the charter capital is merely an administrative record based on self-declared information, and does not constitute conclusive evidence of actual ownership if the capital contribution obligation has not been fulfilled in substance.
2. Legal Consequences of the Unpaid Capital Contribution
Under Clause 3 Article 47 of the Law on Enterprises 2020:
(1) A member who fails to contribute or fully contribute capital:
- Automatically ceases to be a member with respect to the unpaid portion; and
- Has no rights over such unpaid portion;
(2) The unpaid capital contribution shall be offered for sale by the Members’ Council in accordance with the company’s decision.
Applying these provisions:
- A is only recognized as a member corresponding to the VND 100 million actually contributed (approximately 3.3% of charter capital);
- The unpaid VND 900 million (approximately 30%) does not belong to Mr. A, and he has no right to profit distribution, voting, or disposal with respect to this portion;
- A’s demand that the company or other members purchase the “33.3% capital contribution” at VND 2 billion is entirely without legal basis.
3. Residual Liability of Mr. A and Legal Risks for Mr. B and Mr. C
3.1. Liability of Mr. A
Pursuant to Clause 4 Article 47 of the Law on Enterprises 2020, notwithstanding the loss of rights over the unpaid portion, Mr. A remains liable up to the full committed capital amount of VND 1 billion for the company’s financial obligations arising prior to the date on which the company registers the change of charter capital and capital contribution ratios.
Therefore, failure to fully contribute capital does not release Mr. A from liability for company debts incurred during the period in which the charter capital was inaccurately recorded.
3.2. Legal Risks for Mr. B and Mr. C
If Mr. B and Mr. C fail to promptly carry out the statutory adjustment procedures:
- The company may be subject to administrative penalties under Decree No. 122/2021/ND-CP;
- Company managers may be deemed to have breached their duties of honesty and prudence under Article 71 of the Law on Enterprises 2020, particularly if the continued recording of “virtual capital” misleads business partners, tax authorities, or creditors.
4. Recommended Course of Action
Step 1: Confirmation of Actual Capital Contribution and Members’ Council Resolution
The Members’ Council should prepare minutes confirming the actual capital contributed by Mr. A as of the 90th day from the incorporation date, and issue a resolution to:
- Recognize Mr. A’s ownership only in respect of the VND 100 million actually contributed; and
- Decide on the offering for sale of the unpaid VND 900 million capital contribution.
Mr. A has no voting rights with respect to the unpaid portion.
Step 2: Adjustment of Membership Status and Internal Records
The company should:
- Withdraw and re-issue the Certificate of Capital Contribution reflecting only the actually contributed amount;
- Update the Register of Members accordingly; and
- Formally notify Mr. A of the rejection of his demands for profit distribution or buy-back of the unpaid capital portion.
Step 3: Registration of Changes with the Business Registration Authority
Within 30 days, the company must:
- Register the adjustment of charter capital and/or capital contribution ratios; and
- Update member information to accurately reflect the actual capital structure.
In this case, Vietnamese law protects members who contribute capital in substance, not those who merely declare capital contributions without fulfilling their financial obligations. Mr. A has lost his rights over the unpaid VND 900 million capital portion by operation of law, and has no legal basis to demand profit distribution or a buy-back at an inflated price.
The company has no obligation to purchase unpaid or “virtual” capital, and is fully entitled under the Law on Enterprises 2020 to dispose of such unpaid portion and restructure its ownership. Nevertheless, Mr. B and Mr. C should promptly implement the required legal procedures to mitigate potential liabilities arising from inaccurate charter capital records.
Consultation: Company services
