Case Law No. 78/2025/AL on determining the purpose of capital contribution to a company

Source of the Case Law:

Cassation Decision No. 17/2022/KDTM-GDT dated December 13, 2022, of the Judicial Council of the Supreme People's Court regarding the business and commercial case "Dispute between a company member and the company" between the plaintiff, Mr. Tran Manh H, and the defendant, D Co., Ltd.

Location of the Case Law Content:

Paragraphs 4, 5, and 7 of the "Court's Assessment" section.

Overview of the Case Law:

• Case Law Situation: A company has been established; the enterprise registration certificate has specified the contributing members and the charter capital. Subsequently, the contributing party and the company enter into an agreement on capital contribution and profit distribution, but do not agree on increasing the charter capital of the company. The enterprise registration certificate does not reflect an increase in charter capital.

• Legal Solution: In this case, the Court must determine that the capital contribution was for business purposes, not for increasing the company's charter capital.

Legal Provisions Related to the Case Law: Clause 13, Article 4 of the 2014 Law on Enterprises (corresponding to Clause 18, Article 4 of the 2020 Law on Enterprises, as amended and supplemented in 2022 and 2025).

Keywords of the Case Law: “Capital contribution”; “No agreement on charter capital contribution”; “Capital contribution for business purposes”.

CASE DETAILS:

According to the Lawsuit Petition dated February 2, 2019, and testimonies during the legal proceedings, the plaintiff, Mr. Tran Manh H (represented by his authorized representative, Mr. Lai Ngoc T1), presented the following:

Prior to 2001, Mr. Tran V (brother-in-law of Mr. Nguyen Van T) and Mr. T (brother-in-law of Mr. V and Mr. H) jointly established the D Cooperative, which was later changed to D Electrical Equipment Production and Construction Company Limited (hereinafter referred to as D Co., Ltd.) under Business Registration Certificate No. 0102001784 dated January 9, 2001, issued by the Business Registration Office of the Department of Planning and Investment of Hanoi City. The production site was leased at the Q Mechanical Factory in Hanoi, and the registered headquarters was at Mr. T's house at 104 B4, B Ward, H District (now M District), Hanoi City. At that time, the land lease term of the Company had expired; without a site, production and business operations could not continue. Mr. V and Mr. T requested Mr. H, who was working in the Czech Republic (Czechoslovakia) and had idle capital, to return to the country and participate as a member of D Co., Ltd. to mobilize additional investment capital for the production and business site and workshop. Mr. H agreed to join Mr. V and Mr. T in contributing capital into D Co., Ltd.

In early 2001 (during the Lunar New Year), the family of Mr. Tran Manh H organized a gathering/party at the private residence of Mr. Nguyen Van T at 104 B4, B Ward, attended by: Mrs. Nguyen Thị H1, Mr. Tran Manh H, Mr. Tran V and his wife, Mrs. Nguyen Thi Bich T2, and Mr. Nguyen Van T and his wife, Mrs. Tran Thi Ngoc B. At this gathering, Mr. H, Mr. V, and Mr. T discussed and agreed to admit Mr. H as an additional member into the Company and agreed on a capital contribution ratio of 1/3 for each person in D Co., Ltd. to expand the company's scale and conduct business together. Concurrently, they assigned Mr. T to act as the Director and Legal Representative of the Company. Mr. H, Mr. V, and Mr. T clearly specified that each person held a 1/3 share of the capital contribution in D Co., Ltd., and each was entitled to benefits and subject to obligations corresponding to this capital contribution ratio. However, the business registration remained unchanged, listing only two persons as members, namely Mr. V and Mr. T, because Mr. H at that time did not hold an identity card and had not reregistered his permanent residence back to Vietnam. In addition, as Mr. H frequently stayed abroad, it would be inconvenient when signatures on documents were required if his name appeared on the business registration.

Separately, Mr. H contributed an additional VND 500,000,000 for the reason that he did not reside in Vietnam and therefore would not participate in business operations. Mr. T and Mr. V each contributed VND 2,251,000,000, while Mr. H contributed VND 2,751,218,000.

Precisely because of the aforementioned capital contribution, Mr. H annually received an amount deducted from the Company's operational profits paid by Mr. T. Specifically, over 12 years of business from 2003 to 2015, Mr. Tran Manh H was distributed profits from D Co., Ltd. totaling approximately VND 7,000,000,000 in cash. In certain years, Mr. T deposited money into 3 savings books under Mr. T's name; then, for the portion distributed to Mr. H, Mr. T entrusted Mrs. T2 (Mr. V's wife) to keep one of the 3 books on his behalf, as Mr. H was abroad. When Mr. H needed to withdraw money from the savings book, Mr. T would provide an authorization for Mrs. T2 to execute the withdrawal at the Bank (this circumstance was confirmed by Mrs. T2).

On March 22, 2017, in the Minutes of the Meeting of the Capital Contributing Board of Members of D Co., Ltd., in which Mr. H participated, the members named in the Business Registration (5th amendment dated May 9, 2012) confirmed the amount of capital contributions in D Co., Ltd. as follows:

• Mr. T contributed VND 2,251,218,000 - equivalent to 31% of the Company's charter capital;

• Mr. V contributed VND 2,251,218,000 - equivalent to 31% of the Company's charter capital;

• Mr. H contributed VND 2,751,218,000 - equivalent to 38% of the Company's charter capital.

This Minutes also reflected that Mr. H contributed VND 500,000,000 more than the other two members, but since he did not manage the Company's business operations, all profits generated and income from the liquidation of the Company's assets would be divided equally among the 3 members at a ratio of 33.33% (1/3) each. Although Mr. H's capital ownership ratio was higher than that of the remaining two members, the agreement dictated that profits were to be split equally among all 3 members.

However, since then, Mr. T has failed to proceed with amending the Business Registration Certificate to include Mr. H as a member of D Co., Ltd., and has failed to convene Meetings of the Board of Members in accordance with the Law on Enterprises to adopt the Financial Statements for the years 2015, 2016, 2017, and 2018, as well as the distribution of profits to the contributing members.

From September 2008, after obtaining a permanent residence registration and an identity card in Vietnam, Mr. H expressed his aspiration to have his name integrated into the Company, discussing and requesting this from Mr. T numerous times, but Mr. T refused.

Mr. H initiated the lawsuit, requesting the Court to resolve the following:

1. Determine that Mr. H is a capital-contributing member of D Co., Ltd. and define Mr. H's capital contribution portion within D Co., Ltd.;

2. Compel D Co., Ltd. to supplement Mr. H as a member of the Company with the actual capital he contributed;

3. Compel D Co., Ltd. to hold a Meeting of the Board of Members to adopt the Financial Statements for the years 2015, 2016, 2017, and 2018 in accordance with the 2014 Law on Enterprises.

During the course of settlement at the Court, the plaintiff partially withdrew his lawsuit claims, requesting the Court to resolve:

• Determine Mr. Tran Manh H's capital contribution portion in D Co., Ltd. to be VND 2,751,218,000 pursuant to the minutes dated March 22, 2017, but only requested the ratio to be fixed at 1/3 (the portion of VND 500,000,000 contributed in excess of the other two members was voluntarily agreed to be split equally among the 03 individuals, so that the ratio for both Mr. T and Mr. V is 33.4% each, and Mr. H is 33.2%).

• Compel D Co., Ltd. to perform procedures at the competent authority to supplement Mr. Tran Manh H as a member of the Company with the capital he contributed. Otherwise, Mr. H shall have the right to contact the competent authority to carry out procedures to register his name as a member of D Co., Ltd.

The defendant, D Co., Ltd. (represented by its legal representative, Mr. Nguyen Van T), presented:

Prior to 2001, Mr. V and Mr. T jointly established 01 D Cooperative, later converted into D Electrical Equipment Production and Construction Company Limited, pursuant to Business Registration Certificate No. 0102001784 dated January 9, 2001, issued by the Business Registration Office of the Hanoi City Department of Planning and Investment.

From late 2001 to 2003, Mr. H transferred money directly to Mr. T multiple times, totaling VND 2,751,000,000. The purpose was to entrust Mr. T and Mr. V to conduct business and distribute annual returns (the return was not fixed to a specific figure but depended on business profits). Mr. T affirmed that this amount did not constitute a capital contribution to the Company.

Mr. T confirmed that from 2003 to 2015, Mr. H enjoyed an amount of VND 11,000,000,000, not VND 7,000,000,000. The annual payment methods consisted of three ways: first, opening a savings book under Mr. T's name, and when Mr. H needed to withdraw money, Mr. T would authorize Mrs. T2 to withdraw and transfer it to Mr. H; second, via direct bank transfer; third, Mr. H received the cash directly, and none of these instances involved any signed receipts.

Regarding the Document dated March 22, 2017, Mr. T confirmed that it contained the handwriting and signatures of Mr. T, Mr. V, and Mr. H, but the content was factually incorrect. The reason for the existence of this document was due to the sum of VND 2,751,000,000 that Mr. H had sent to him from 2001 to 2003. This document was drafted by Mr. V, who, together with Mr. H, brought it to Mr. T asking him to sign for the purpose of certifying Mr. H's financial capacity so that Mr. H could relocate his family from Czechoslovakia to Australia. For that reason, Mr. T signed the Document dated March 22, 2017.

Regarding Mr. H's application to join the Company as a member (dated March 16, 2018), Mr. T did receive Mr. H's application, but it was not requested by Mr. T because Mr. T did not consent; Mr. T currently retains this application and has submitted a copy to the Court.

Therefore, Mr. T, in his capacity as the legal representative of D Co., Ltd., rejected the plaintiff's lawsuit claims.

In First-Instance Business and Commercial Judgment No. 49/2019/KDTM-ST dated November 11, 2019, the People's Court of Hanoi City decided:

• To accept the lawsuit claims of Mr. Tran Manh H against D Co., Ltd. (formerly D Electrical Equipment Production and Construction Company Limited).

• To confirm that Mr. Tran Manh H is a member of D Co., Ltd. with a capital contribution ratio of 1/3.

• To compel D Co., Ltd. to carry out procedures at the Business Registration Office - Department of Planning and Investment of Hanoi City to supplement the name of Mr. Tran Manh H as a member of the Company. To acknowledge the voluntariness of Mr. Tran Manh H in only requesting his capital contribution ratio to be 33.2%. In the event that D Co., Ltd. fails to perform the procedures for amending the business registration to add Mr. H's name as a company member, pursuant to Clause 21, Article 1 of the Government's Decree No. 108/2018/ND-CP dated August 23, 2018, Mr. Tran Manh H shall have the right to execute enterprise registration procedures at the Business Registration Office - Department of Planning and Investment of Hanoi City and at other competent authorities (if any) to supplement Mr. Tran Manh H as a member of the Company with his capital contribution ratio of 33.2%.

• To suspend the claim compelling D Co., Ltd. to hold a Meeting of the Board of Members and adopt the financial statements for the years 2015, 2016, 2017, and 2018, as the plaintiff withdrew this claim to be resolved later.

Additionally, the Court of First Instance decided on court fees and the right to appeal. On November 24, 2019, D Co., Ltd. filed an appeal.

In Appellate Business and Commercial Judgment No. 15/2020/KDTM-PT dated July 10, 2020, the High People's Court in Hanoi decided:

• To dismiss the appeal of D Co., Ltd.

• To uphold the decisions of First-Instance Business and Commercial Judgment No. 49/2019/KDTM-ST dated November 11, 2019, of the People's Court of Hanoi City.

Additionally, the Appellate Court decided on court fees and the right to request judgment enforcement. On September 28, 2021, D Co., Ltd. submitted a petition for a review under cassation procedures against the aforementioned appellate business and commercial judgment.

In Cassation Protest Decision No. 12/2022/KN-KDTM dated September 22, 2022, the Chief Justice of the Supreme People's Court protested against Appellate Business and Commercial Judgment No. 15/2020/KDTM-PT dated July 10, 2020, of the High People's Court in Hanoi; requested the Judicial Council of the Supreme People's Court to conduct a cassation trial, vacate the aforementioned appellate business and commercial judgment, and vacate First-Instance Business and Commercial Judgment No. 49/2019/KDTM-ST dated November 11, 2019, of the People's Court of Hanoi City; and remit the case file to the People's Court of Hanoi City for retrial under first-instance procedures in compliance with the provisions of law.

At the cassation trial, the representative of the Supreme People's Procuracy concurred with the Protest Decision of the Chief Justice of the Supreme People's Court.

THE COURT'S ASSESSMENT:

[1] To prove the lawsuit claim regarding the determination of the capital contribution portion into D Co., Ltd., thereby establishing the membership status of Mr. H at D Co., Ltd., Mr. Tran Manh H (the plaintiff) needs to possess documents and evidence including: agreements among the involved parties on jointly establishing the Company; signatures on the list of founding shareholders of the Company (if it is a joint-stock company); being named in the Company's Charter; being named in the list of company members upon business registration; being named in the certificate of capital contribution portion corresponding to the value of the contributed capital; being named in the member register; or acts of exercising rights and obligations in management and administration within the Company's Board of Members. However, Mr. H does not possess these documents or evidence to substantiate that his lawsuit claim is grounded.

[2] The involved parties all admitted that Mr. H contributed VND 2,751,000,000 to the Company pursuant to the Minutes of the Meeting of the Capital Contributing Board of Members of D Co., Ltd. dated March 22, 2017, with a total capital contribution of VND 7,253,656,000 (comprising all 3 individuals: Mr. Tran V, Mr. Tran Manh H, and Mr. Nguyen Van T). Also according to this Minutes, the parties agreed that all profits generated and income from the liquidation of the Company's assets would be divided equally among the 3 members in equal proportions of 33.33% (1/3) each, and Mr. H voluntarily contributed an extra VND 500,000,000 but did not manage the Company's business operations. The parties all signed this minutes to serve as proof of the capital contribution and profit distribution, without any content agreeing to recognize or supplement Mr. H as a member of the Company.

[3] Pursuant to Clause 13, Article 4 of the 2014 Law on Enterprises, “Capital contribution” means the contribution of assets to form the “charter capital” of the Company. Capital contribution includes contributing capital to establish an enterprise or contributing additional charter capital to an already established enterprise.

[4] In reality, D Co., Ltd. was established in 2001 with 02 capital-contributing members, namely Mr. Nguyen Van T and Mr. Tran V, with a registered charter capital of VND 1,000,000,000; subsequent enterprise registration amendments (2nd, 3rd, 4th, 5th times) in the years 2006, 2010, and 2012 according to the Enterprise Registration Certificate indicated that the Company had 02 members, Mr. T and Mr. V, with the registered charter capital of the Company being VND 6,000,000,000.

[5] According to the aforementioned Minutes of the Meeting of the Company's Board of Members dated March 22, 2017, the parties only confirmed the act of capital contribution without any content confirming that this was the capital amount contributed to establish the Company or to increase the charter capital of the Company in accordance with regulations. The parties only determined the distribution of profits and income of each person to be 33.33%, without any content representing the obligations and liabilities of each person corresponding to their capital contribution portion regarding: debts and other asset obligations of the Company according to the Company's Charter. On the other hand, in this minutes, Mr. H self-determined that he did not manage the business operations of the Company. Even if this were determined to be a capital contribution to increase the Company's charter capital from VND 6,000,000,000 to VND 7,253,656,000 as agreed by the parties, this capital increase has not been recognized because it has not been registered and granted an amended business registration certificate in accordance with the provisions of the Law on Enterprises.

[6] In addition, it was not until March 16, 2018, that Mr. H himself submitted an application to join D Co., Ltd. and E Company to legalize the capital amount contributed to the 2 above companies as 33.3%. However, Mr. T did not agree to perform the regulatory procedures to recognize Mr. H as a company member, but only acknowledged that Mr. H contributed capital to conduct business with the Company and was distributed profits according to the ratio of the contributed business capital.

[7] According to regulations, charter capital, the contribution of charter capital to become a company member, and the contribution of capital for business are 2 distinct matters. The parties had no agreement and did not register an increase of the charter capital to VND 7,253,656,000, in which Mr. H contributed VND 2,751,000,000; thus, the Courts' determination that Mr. H contributed 33.3% of the charter capital is insufficient in terms of grounds. In reality, after the establishment of the Company in 2001, due to a shortage of capital, Mr. V and Mr. T discussed mobilizing capital from Mr. H to lease 42,970m² of land to expand the production factory in Hung Yen (as per the testimony of the plaintiff's own representative). As such, there are only grounds to determine that Mr. H contributed capital for business, not to increase the charter capital of the Company. Therefore, the Court of First Instance and the Court of Appeal accepting Mr. H's lawsuit claims and confirming Mr. Tran Manh H as a member of D Co., Ltd. with a capital contribution ratio of 1/3 is inconsistent with the aforementioned circumstances. Upon retrial of the case, if no other evidence is presented, the plaintiff's lawsuit claims must be dismissed.

For the reasons stated above,

DECISION:

Pursuant to Point a, Clause 2, Article 337; Clause 3, Article 343; and Article 345 of the 2015 Civil Procedure Code;

1. To accept Cassation Protest Decision No. 12/2022/KN-KDTM dated September 22, 2022, of the Chief Justice of the Supreme People's Court.

2. To vacate Appellate Business and Commercial Judgment No. 15/2020/KDTM-PT dated July 10, 2020, of the High People's Court in Hanoi and vacate First-Instance Business and Commercial Judgment No. 49/2019/KDTM-ST dated November 11, 2019, of the People's Court of Hanoi City regarding the business and commercial case "Dispute between a company member and the company" between the plaintiff, Mr. Tran Manh H, and the defendant, D Co., Ltd.; to remit the case file to the People's Court of Hanoi City for retrial under first-instance procedures in compliance with the provisions of law.

This cassation decision takes legal effect from the date of its issuance.

CASE LAW CONTENT

“[4] In reality, D Co., Ltd. was established in 2001 with 02 capital-contributing members, namely Mr. Nguyen Van T and Mr. Tran V, with a registered charter capital of VND 1,000,000,000; subsequent enterprise registration amendments (2nd, 3rd, 4th, 5th times) in the years 2006, 2010, and 2012 according to the Enterprise Registration Certificate indicated that the Company had 02 members, Mr. T and Mr. V, with the registered charter capital of the Company being VND 6,000,000,000.

[5] According to the aforementioned Minutes of the Meeting of the Company's Board of Members dated March 22, 2017, the parties only confirmed the act of capital contribution without any content confirming that this was the capital amount contributed to establish the Company or to increase the charter capital of the Company in accordance with regulations. The parties only determined the distribution of profits and income of each person to be 33.33% [sic] without any content representing the obligations and liabilities of each person corresponding to their capital contribution portion regarding: debts and other asset obligations of the Company according to the Company's Charter. On the other hand, in this minutes, Mr. H self-determined that he did not manage the business operations of the Company. Even if this were determined to be a capital contribution to increase the Company's charter capital from VND 6,000,000,000 to VND 7,253,656,000 as agreed by the parties, this capital increase has not been recognized because it has not been registered and granted an amended business registration certificate in accordance with the provisions of the Law on Enterprises.”

“[7] According to regulations, charter capital, the contribution of charter capital to become a company member, and the contribution of capital for business are 2 distinct matters. The parties had no agreement and did not register an increase of the charter capital to VND 7,253,656,000, in which Mr. H contributed VND 2,751,000,000; thus, the Courts' determination that Mr. H contributed 33.3% of the charter capital is insufficient in terms of grounds. In reality, after the establishment of the Company in 2001, due to a shortage of capital, Mr. V and Mr. T discussed mobilizing capital from Mr. H to lease 42,970m² of land to expand the production factory in Hung Yen (as per the testimony of the plaintiff's own representative). As such, there are only grounds to determine that Mr. H contributed capital for business, not to increase the charter capital of the Company. Therefore, the Court of First Instance and the Court of Appeal accepting Mr. H's lawsuit claims and confirming Mr. Tran Manh H as a member of D Co., Ltd. with a capital contribution ratio of 1/3 is inconsistent with the aforementioned circumstances. Upon retrial of the case, if no other evidence is presented, the plaintiff's lawsuit claims must be dismissed.”