Can a limited liability company in Vietnam sell its new capital contribution for a premium?

A profitable and well-run company usually demands a “premium” when it issues new equity to investors. This means that in a profitable company, a new investor may be required to pay more than the price paid by an existing investor for the same amount of equity and voting rights in the past. Usually, the difference between the price of the new equity portion and the nominal value of such equity portion is referred to as premium.

However, it appears that a limited liability company (LLC) in Vietnam may not be able to do so without changing the voting rights of existing members. This is because:

  • Other than in the context of a joint stock company (JSC), there is no legal concept of equity capital premium in the Enterprise Law and in accounting regulations. “Par value” of shares only exists in the context of shares in JSCs. And under Circular 19/2003, the difference between issuance price of new shares by a JSC and their aggregate par values could be recorded as “capital premium accounts”. On the other hand, capital contribution in a charter capital of a LLC does not have a “par value”.  There is no legal concept for the difference between the price of the new capital contribution portion and the nominal value of such capital contribution portion. Therefore, LLC does not have capital contribution premium if it issues new capital contribution;
  • Decree 102/2010  further provides that charter capital of a LLC with two or more members is “the total value of capital portions” already contributed or undertaken to be contributed within a certain period by its members and is stated in the company charter. If the value of all assets contributed by members of a LLC including new members constitutes the charter capital of such LLC then there is no capital contribution premium in a LCC. In addition, under Decree 102/2010, all amounts paid by a new member of a LLC should carry voting rights; and
  • Tax regulations only expressly exempt corporate income tax on share premium received by a JSC. Therefore, there is no certainty that a LLC will be exempted from capital contribution premium.

In light of the above, a LLC wishing to issue new capital contribution at a premium may consider an alternative structure which allows such a LLC to record the actual value of the amount to be contributed by the new member and at the same time maintains the desired ownership percentage and voting among all members.

Offshore guarantees by Vietnamese Companies

Under the amended Ordinance on Foreign Exchange, a Vietnamese entity (Vietnamese Guarantor) can only guarantee  for obligations of an offshore entity if it obtains an approval by the Prime Minister for doing so. Obtaining a Prime Minister’s approval makes it considerably difficult for a company in Vietnam to issue a guarantee for obligations of an offshore company (e.g. the parent company of a Vietnamese subsidiary). Circular 37/2013 of the State Bank of Vietnam (SBV) which takes effect from 14 February 2014 provides further guidance on an offshore guarantee by a Vietnamese Guarantor. In particular, 

  • Circular 37/2013 provides that the obligations to be guaranteed by a Vietnamese Guarantor need to be “financial obligations” (nghĩa vụ tài chính). There is no definition of financial obligations. It is not clear if this means that offshore guarantees for non-financial obligations can be issued without obtaining Prime Minister’s approval;
  • Circular 37/2013 requires the Vietnamese Guarantor to open a special account to pay for the guaranteed obligations and to receive reimbursement payment by the guaranteed entity; and
  • Circular 37/2013 requires the Vietnamese Guarantor to register the repayment obligations by the offshore guaranteed entity with the SBV after the Vietnamese Guarantor’s paying the guaranteed amount to the beneficiary. 


Law of agency in Vietnam

Under the Civil Code 2005, in an agency relationship where a person (the authorised representative) acts on behalf of another person (the principal),

  • an authorised representative may only perform civil transactions within his or her scope of representation;
  • an authorised representative must inform third parties in civil transactions of the scope of his or her representation;
  • an authorised representative may not establish or perform civil transactions with him-self or herself, or with a third party for whom the representative also acts, unless the law provides otherwise;
  • an agency relationship may terminate if the legal representative of the legal entity rescinds the authorisation or the authorised person renounces the authorisation;
  • an agency relationship can be established through an unilateral power of attorney given by the principal in favour of the agent  or a contract of authorisation between the principal or the agent;

  • a contract of authorisation has a default term of one year unless otherwise agreed by the parties or provided by law.  It is not clear if this rule also applies to an authorisation given by way of an unilateral power of attorney;

  • in the context of a contract of authorisation, sub-authorisation is permitted if the principal agrees so.  It is not clear if sub-authorisation is permitted in the context of an unilateral power of attorney; and

  • there is no apparent authority doctrine in Vietnamese agency law. Under common law system, apparent authority refers to a situation where a reasonable person would understand that an agent had authority to act. This means a principal is bound by the agent's actions, even though the agent had no actual authority, whether express or implied. However, in Vietnam, a transaction established by an authorised representative which is outside of the scope of authorisation may not bind the principal.


Applicability of Vietnamese Internet Regulations to foreign website

An offshore website may be subject to Vietnamese internet regulations in certain cases. In particular,

  • under Decree 72/2013, foreign organizations and individuals must comply with applicable Vietnamese laws in case public information provided by such foreign organizations and individuals involve users in Vietnam or access from Vietnam.  Public information is defined as information which is stored, transmitted, collected and processed via the network and made public to all entities without the need to identify specific name or address of such entities; and
  • an offshore website which provides a platform to connect Vietnamese users or to allow Vietnamese users to share information may be subject to regulations on social network in Vietnam.