Procedures To Purchase Shares or Capital Contribution For Foreign Investors

1.Forms of capital contribution for foreign investors in Vietnam

Foreign investors buying shares or capital contributions to enter a new market are no longer unfamiliar. Making an investment in Vietnam, other than establishing a new business equity, foreign investors can become a member or a shareholder of existing companies. With this type of investment, foreign investors can either choose to contribute to the company’s capital or purchase shares/capital contributions from the company, depending on the purpose and business model they are aiming for.

The first approach is contributing capital which typically refers to providing financial resources such as funds or assets directly to the business or organization. This capital can be in the form of cash, machinery, equipment, property, or other assets.

On the other hand, buying shares or capital contributions of foreign investors involves buying specific types of ownership interest from existing shareholders or partners of the company using cash. With this method, foreign investors may obtain particular rights over the company management depending upon the type of ownership they acquire. In Vietnam, foreign investors shall buy shares or capital contributions of joint-stock companies, limited liability companies and partnerships in the following manners:

• Buying shares of joint-stock companies from the companies or their shareholders.
• Buying capital contributions from members of a limited liability company and becoming members of the companies.
• Buying capital contributions from capital contributors of partnerships and becoming partners;
• Buying capital contributions from members of other economic organizations.

Foreign investors can join the Vietnamese market by purchasing shares or capital contributions of existing companies.

With the above approaches, foreign organizations and individuals can participate in Vietnam's economy to obtain a general overview of the market and be prepared for further in-depth involvement in the future. With the development of the economy, purchase of shares of foreign investors became much easier, providing them with additional avenues to access potential opportunities in other countries.

2.Legal framework regarding purchase of shares and capital contributions for foreign investors

a) Legal documents governing purchase of shares/capital contributions for foreign investors:

According to the current Law on Investment in Vietnam, foreign investors have the right to contribute capital, purchase shares, and capital contributions from Vietnamese enterprises. Investing in the Vietnamese market, foreign investors buying shares or capital contributions of Vietnamese companies must comply to the latest legal documents as followed to ensure a smooth and legal investment process:

• Law on Investment 2020
• Law on Enterprise 2020
• Decree 31/2021/NĐ-CP guiding the Law on Investment
• Decision 01/2021/ND-CP on enterprise registration.

The above-mentioned legal documents are the basic requirements for foreign investors who intend to purchase shares or capital contributions of Vietnamese companies. There are also several other legal documents that foreign entrepreneurs and institutions need to take into consideration as well to possess a comprehensive knowledge of the legal framework and ensure a successful investment process.

b) Requirements of buying shares/capital contributions for foreign investors:

To contribute capital and buy shares of Vietnamese businesses, foreign investors must satisfy several significant conditions to be legally qualified in making investments. These requirements can vary depending on the type of business and the amount of capital being contributed, typically including the following conditions:

• Foreign investors purchasing shares or capital contributions of a business need to satisfy the market access conditions applied to foreign investors as specified in Clause 3 Article 9 of Law on Investment 2020, including: the ratio of ownership of charter capital, investment method, the scope of investment, qualification of the investors and their partners in the investment, and other conditions as prescribed in the international agreements to which Vietnam is a signatory.
• Complying with conditions concerning assurance of national defense and security, conditions for land use applied to a business organization of which foreign investors buy shares.
• Having an investment capital account or a private account opened at a Vietnamese commercial bank, through which all transactions related to investment in Vietnamese enterprises are carried out.
• Having a certified copy of the Business Registration Certificate (for foreign organization investors) and their valid passports (for foreign individual investors).

Overall, in order for the authority to certify the legal status, foreign investors must meet various requirements related to forms of investment, business registration, taxes, and compliance with laws and regulations… to get qualified before purchasing shares or capital contributions

3.Procedures to buy shares or capital contributions for foreign investors

Participating in another country’s market, foreign investors need to ensure they understand the process of contributing capital to businesses to avoid unwanted legal issues. In Vietnam, the procedures to contribute capital for foreign investors (also applied to the procedures for transferring contributed capital to foreigners) are prescribed in the Law on Investment, in which foreign investors need to do the certain steps to carry out a legal share purchase.

Aiming to invest in a new market, foreign investors need to ensure they comply with the provisions and law guiding investment of the host country.

Step 1: Application for shares/capital contributions purchase: The investor shall submit an application for registration of buying shares or capital contributions to the investment registration authority where the business's head office is located.

Step 2: Appraisal and approval of the application: Within 15 days after receiving the investors’ dossier, the assigned institution shall consider the satisfaction of investment conditions for foreign investors and notify the investors if they are qualified.

Step 3: Registration of changing company’s members or shareholders: After receiving the notice, enterprises of which the foreign investors buy shares or capital contributions shall carry out procedures for changing members or shareholders at the competent authorities.

Step 4: Furthermore, if the company’s field is one of the services in the list of conditional investment for foreign investors, the investor must register the Investment Certificate at the authority office which has jurisdiction.

It is essential that the foreign investors and the transferors strictly follow these procedures to complete a smooth and successful transaction. Besides, understanding the above steps thoroughly also helps the involved parties to easily keep track of the investment execution along the way.

4.Dossiers of Purchase of shares/capital contributions for foreign investors

Foreign investors need to prepare multiple documents to satisfy requirements for purchasing shares of businesses in another country.

a) Application for registration of shares/capital contribution purchase dossier:

According to the Enterprise Law and Investment Law, the dossiers for foreign investors to buy shares/capital contributions must include the following elements:

• A written application that specifies information about the targeted business organization and the shares of the foreign investor after making the investment.
• An agreement on the purchase of shares/capital contributions between the foreign investors and the business organization to which investors contribute capital.
• Copies of legal documents of the foreign investors:

+ ID card/passport for individual investors.+ Certificate of Establishment Certified and passport of the legal representative for organization investors.

• A copy of the Certificate of Enterprise Registration of the transferor of capital/shares of the business whose foreign investors purchase shares or purchase capital contributions.

b) Changes to business information registration dossier:

Once the purchase of shares or transferring of capital contributions complete, the enterprise of which foreign investors contributing capital must prepare a dossier to register the chances in the company's members/shareholders. The dossier submitted to the relevant authority must contain the following documents:

• Notice of change of business registration information.
• Decision on the purchase or transferring of shares/capital contribution:+ Decision of the Owner (for single-member limited liability companies)+ Minutes of the meeting and Resolution of the Members' Council (for multi-member limited liability companies )+ Minutes of the meeting and Resolution of the General Meeting of Shareholders (for joint-stock companies).
• Decision to buy the capital contributions of the foreign investor (for organization investors).
• List of members (for multi-member limited liability companies) or List of shareholders who are foreign investors (for joint-stock companies).
• Contract for transferring capital contributions/Document of completion of capital transfer.
• Copy of business registration certificate with consular legalization of the investor (for organization investors) or personal passport (for individual investors).
• Copy of the confirmation of money transfer to buy the capital contributions.

It is apparent that there are a lot of documents required for the purchase of shares or capital contributions of foreign investors. Therefore, both transferor and transferee need to take careful steps while preparing for the dossier submitted to the competent authorities, avoiding missing of any necessary information that can lead to delays or even rejection of the application.

Conclusion

In summary, purchasing shares or capital contributions is an effective way for foreign investors to tap into the potential of existing enterprises. However, there are a lot of legal issues regarding foreign investment that may become an obstacle for foreign investors and cause significant unwanted damages. Thus, both businesses and investors must be careful in carrying out such transactions and aware of the potential risks along the way, most helpful with the support of a legal consulting agency.

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