In other countries, legal capital is often understood to be “the amount of a company's equity that cannot legally be allowed to leave the business and cannot be distributed through a dividend or any other means. The closest meaning to this under Vietnamese law is “charter capital”.
However, for a Vietnamese company, the term “legal capital” has a different meaning than it is usually understood in other countries. Currently, under the Enterprise Law, “legal capital” (vốn pháp định) is defined as the minimum amount of capital required by law for the establishment of an enterprise engaging in certain conditional business (e.g. real estate, banking or securities). “Charter capital” is the amount actually contributed or will be contributed by the shareholders of a company. Therefore, the “charter capital” must be at least equal to the “legal capital”, and in most cases are much higher than the “legal capital”. Usually, legal capital is fixed at a specific number. For instance, an entity engaged in real estate business must have a “legal capital” of VND 6 billion. This means that the entity must have a charter capital of VND 6 billion or more.
The above difference may cause certain confusion when interpreting Vietnamese law. For example,
- Before 1 July 2006, for foreign-invested enterprises, under the old Foreign Investment Law, the term “legal capital” is defined to mean the equity capital contributed (or to be contributed) by the investors in a foreign invested enterprise. Certain laws or regulations still use the term “legal capital” in this sense. These laws and regulations are usually issued before 1 July 2006. However, by mistakes, some laws or regulations issued after 1 July 2006 still use the term “legal capital” in this sense (e.g. the amendment to the Law on Cinematography issued in 2009).
- The WTO Commitments of Vietnam also contain various references to “legal capital” in the context of applicable foreign ownership limits. Again the term “legal capital” in this context should be understood as “charter capital”.
That being said, there is no express guidance about how to interpret the term “legal capital” used in the above scenarios. Therefore, if the authority happens to take a restrictive view then the foreign ownership limit in certain sectors provided in the WTO Commitments or certain laws and regulations may be subject to a much lower limit.