Transferring capital in multi-member Limited company

I.                   THE MATTER:

SPC and B Company are Limited company. SPC is foreign company and B is local company. SPC (the buyer) want to buy capital from B (the seller). 

II.                LEGAL OVERALL:

1.      Department of Planning and Investment (DPI) approval

1.1  In some cases, the Buyer must get the approval from DPI

a.      Objectives:

-       The investor contributes capital, buy shares or capital contributions of business organizations engaged in business lines subject to conditions applied to foreign investors.

-       51% of charter capital of the business organization or more is held by foreign investors and/or business organizations mentioned in Clause 1 Article 23 of this Law after the capital is contributed, or shares/capital contributions are purchased.

b.      The implementing department: Department of Planning and Investment

c.       Dossiers:

-       A written for registration of capital contribution or purchase of shares/capital contributions

-       A copy of the Certificate of establishment or an equivalent paper that certifies the legal status of the investor

d.      Time to grant: 15 working days

e.       Legal basis:

Article 26. Procedures for making investment by contributing capital, buying shares, or buying capital contributions

1. An investor shall follow the register the capital contribution, purchase of shares, or capital contributions in the following cases:

a) The investor contributes capital, buy shares or capital contributions of business organizations engaged in business lines subject to conditions applied to foreign investors.

b) 51% of charter capital of the business organization or more is held by foreign investors and/or business organizations mentioned in Clause 1 Article 23 of this Law after the capital is contributed, or shares/capital contributions are purchased.

2. An application for registration of capital contribution or purchase of shares/capital contribution:

a) A written for registration of capital contribution or purchase of shares/capital contributions, which specify information about the business organization to which investment is made; the holding of the foreign investor after making investment;

b) A copy of the ID card or passport (if the investor is an individual); a copy of the Certificate of establishment or an equivalent paper that certifies the legal status of the investor (if the investor is an organization).

3. Procedures for registration of capital contribution or purchase of shares/capital contributions:

a) The investor shall submit the application prescribed in Clause 2 of this Article at the Service of Planning and Investment of the province where the headquarter of the business organization is situated;

b) If the contribution of capital, purchase of shares/capital contributions satisfies the conditions in Point a and Point b Clause 1 Article 22 of this Law, the Service of Planning and Investment shall send a written notification to the investor within 15 days from the day on which the satisfactory application is received in order for the investor to follow procedures for changing shareholders/members as prescribed by law. If conditions are not satisfied, the Service of Planning and Investment shall notify the investor in writing and provide explanation.

4. Investors other than those mentioned in Clause 1 of this Article shall follow procedures for changing shareholders/members as prescribed by law when contributing capital, buying shares/capital contributions of business organizations. If such investors wish to register the capital contribution or purchase of shares/capital contributions, regulations in Clause 3 of this Article shall be followed.

1.2  The buyer doesn’t need approval from DPI:

a.    Objective

Except for the Objectives mentioned above, other foreign investors don’t need to get permission from DPI to buy capital from the seller.

b.     Legal basis

Article 53: Except for the case in Clause 3 Article 52, Clause 5 and Clause 6 Article 54 of this Law, every member of multi-member limited liability company are entitled to transfer part or all of his/her capital to another person as follows:

a.       Offer the capitals to other members in proportion to their capitals in the company under the same conditions;

b.       Only transfer the capital under the same conditions applied other members prescribed in Point a of this Clause to persons other than members if the members do not buy or do not buy completely within 30 days from the offering date.

c.       The transferring member still has the rights and obligations to the company in proportion to his/her capital until information about the buy mentioned in Points b, c and d Clause 1 Article 49 of this Law is written on the member register.

d.       If the transfer or change of the capital causes the company to have only one member, the company shall be converted into a single-member limited liability company and register the business registration changes within 15 days from the day on which the transferred is finished.

Exception:

-          If the company does not repurchase the capital with the market price, the member is entitled to transfer his/her stake to another member or a person other than members.

-          If a member being an individual dies without an inheritor, the inheritor renounces the inheritance or is disinherited, such stake shall be settled in accordance with civil law.

-          A member is entitled to give part or all of his/her stake to another person.

The recipient is the member’s spouse, parent, child, or a person within three ranks of inheritance, is naturally the company’s member. If the recipient being another person shall only become the company’s member if accepted by the Board of members.

2.      Procedure for transferring capital:

	Decription	Note
Step 1 Purchase Share Approval	The investor can get the approval by implementing the procedure in Part 1.1 above	Investor can skip this step as mention in Part 1.2 above
Step 2:        Money Transferring	Buyer shall transfer money to Company’s Directly Investing bank account. Location: The bank of the company Result: The Transfer Money Receipt
Step3: Amendment ERC	Location: Department of Planning and Investment Time: 03 working days Result: new ERC	Deadline: 10 days from Money Transferring Day
Step4: IRC	1.      Amendment IRC Location: Investment Room of Department of Planning and Investment Time: 10 working days Result: new IRC	If the foreign investors hold less than 51% capital.
	2.      Get new IRC Location: Investment Room of Department of Planning and Investment Time: 15 working days Result: new IRC	If the foreign investors hold more than 51% capital.

 

3.      Tax obligation:

The holders who sold the capital must pay Personal Income Tax.

a.       Tax rate: 20 %

b.      Taxable income:

Taxable income = Transfer price - Purchase price - Related reasonable expenses

Inside:

·         Transfer price is the amount of personal money received under the capital transfer contract.

·         Purchase price is the value of capital contribution at the time of capital transfer.

·         The reasonable costs involved are the legal costs in connection with the transfer, the fee, the fee paid to the budget and other fees directly related. These items must have valid invoices and vouchers.

c.       Time of determination of taxable income: The time when the capital contribution contract is valid. Particularly for cases of capital contribution with the capital contribution, the time of determination of taxed incomes from capital transfer is the time when individuals transfer capital or withdraw capital.