In business practice, particularly among startups and small and medium-sized enterprises, the term “capital contribution” is often used loosely. This leads to confusion between contributions to charter capital and contributions to business cooperation purposes.
In many cases, due to a mindset of mutual trust or a reluctance to handle administrative procedures, many investors accept establishing relationships through rudimentary cooperation agreements, which only record the investment amount and profit-sharing ratio while neglecting to register their status as company members or shareholders. This misalignment between the objective of “wanting to be an owner” and the legal form of “being only a contractual partner” is the very seed of serious legal risks. The clearest evidence lies in Precedent No. 78/2025, adopted by the Council of Justices of the Supreme People’s Court on December 24, 2025, regarding the determination of the purpose of capital contribution to a company, where the boundary between these two forms of contribution is clearly demarcated, leaving a costly lesson for those who mistake the nature of the transaction.
1. Distinguishing between charter capital contribution and business capital contribution
To avoid confusion, investors need to clearly recognize the fundamental difference between these two forms.
Charter capital contribution is the act of a party contributing assets to a company to become an owner or a member (for limited liability companies) or a shareholder (for joint-stock companies). To establish this status, the company must perform registration procedures with the business registration authority. Accordingly, the name of the contributing party must be recorded in the company’s charter, the enterprise registration certificate, the member register, or the shareholder register.
Meanwhile, business capital contribution (usually in the form of a business cooperation contract): Is the act of parties jointly contributing capital to perform a specific project or business activity. This form does not give rise to member or shareholder status in the company. Rights and interests are limited only to the scope of the contract.
2. Legal risks for the contributing party
Confusion between charter capital contribution and business cooperation capital contribution can lead to significant risks:
Difficulty in proving the nature of the transaction: When the contract does not clearly reflect the purpose and nature of the transaction, the contributing party will face difficulties in proving their actual participation as an equity-owning investor in the enterprise.
Non-recognition of member/shareholder status: If the capital contribution is not performed in accordance with legal order and procedures, the contributing party will not be recognized as a member or shareholder, despite having actually transferred the funds. Without recognized status as a company member or shareholder, the contributing party will lack essential rights, such as: voting rights, participation in management, access to information, and entitlement to profits under the member/shareholder mechanism…
Risks when disputes arise: In the event of a dispute, the Court will typically examine the nature of the transaction. If it is determined to be a business cooperation relationship, the contributing party generally may generally only claim: the return of the contributed amount and corresponding profits (if agreed upon), or damages (if any), and will find it difficult to request recognition of member/shareholder status or a claim over the enterprise’s assets.
Tax and compliance risks: Receiving profits from business cooperation results follows a different tax declaration mechanism compared to receiving shared profits for members of a limited liability company or dividends for shareholders of a joint-stock company, easily leading to compliance errors if there is no clear separation from the outset.
3. A perspective from judicial practice – Precedent No. 78/2025
Precedent No. 78/2025 clarifies a crucial boundary between charter capital contribution and business cooperation capital contribution.
According to the content of the precedent, an investor had actually contributed capital to a company, which was recorded in the Minutes of the Members’ Council meeting. The parties agreed that business profits and proceeds from asset liquidation would be shared equally among the two existing members and this investor. When a dispute arose, the investor claimed that this was a capital contribution to become a member, requesting the company to perform registration procedures for the contributing member and recognize their ownership of the corresponding capital contribution. The company representative denied the investor’s member status, asserting that there was only a business cooperation agreement for annual profit-sharing between the parties, and no agreement existed for a capital contribution to become a company member. The Court found that while the investor participated in the capital contribution, there was no agreement to participate in the company’s management, nor did the parties agree to recognize or add the investor as a company member. Furthermore, regarding procedures, the parties failed to comply with the charter capital contribution procedures under the Law on Enterprises; therefore, the contributing party was not recognized as having member status.
Thus, it can be seen that when a dispute occurs, the risk to the contributing party is substantial if there is no specific capital contribution agreement and a failure to comply with registration procedures. In such cases, the contributing party is not recognized as a member or shareholder of the company. All rights and interests are resolved solely based on the agreement signed between the parties. This causes the investor to completely lose the right to participate in the core operations and governance of the enterprise.
4. Risk mitigation measures
To protect legal rights and interests and minimize disputes arising during the investment process, parties should focus on implementing the following specific measures:
Properly understand the nature of each form of capital contribution and structure the transaction correctly from the outset: If the intent of the contributing party is to hold ownership, they must request the execution of a capital contribution agreement into the company’s charter capital to become an official contributing member or shareholder. Accordingly, the contributing party will participate in the management and administration of the company and possess the full rights of a contributing member as prescribed by law. Notably, parties should not sign a business cooperation contract if the objective is to establish capital ownership and hold corporate governance rights.
Correctly perform charter capital contribution procedures: The parties must ensure that the capital contribution is fully implemented in accordance with legal regulations, including recording it in the charter, the member/shareholder register, and completing the necessary registration procedures.
Verify and retain documents proving member or shareholder status in the company: Upon completion of the capital contribution, the investor should request the company to provide documents proving capital ownership, such as: the member/shareholder register, capital contribution certificates or share certificates, and the Enterprise Registration Certificate. These are vital legal evidence to establish and protect capital ownership within the enterprise.
Seek legal advice before the transaction: Consulting with a lawyer before signing a capital contribution agreement will help parties identify risks and build an appropriate transaction structure, avoiding disputes that may arise later.
In conclusion, transparency in the form of capital contribution is the sustainable foundation for every cooperation. Do not let a lack of legal understanding or a “reluctance to handle procedures” transform an investor from an owner into a partner standing on the sidelines of the company’s development.
The lesson from Precedent No. 78/2025 is a costly reminder: In business, trust must be placed upon a foundation of solid legal evidence. Legal clarity not only protects assets but also serves as a benchmark for professionalism and long-term commitment between partners.
Time of writing: 30/03/2026
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You can refer for more information:
- Transactions With Related Parties And Conditions For Validity
- Conditions for the Recognition and Enforcement of Foreign Arbitration’s Awards in Vietnam
- Removing Bottlenecks For Long-Term Projects: The Right To Freely Adjust The Operating Term Of An Investment Project
- Legal Impacts Of Narrowing The Scope Of Projects Subject To Investment Policy Approval Under The 2025 Law On Investment
