In fact, enterprises and investors often talk about charter capital and legal capital. However, customers have asked Lawyers of Viet An Law to distinguish between these two types of capital. Based on questions of customers, today Viet An Law Firm would like to offer comparison points for customers to distinguish between charter capital and legal capital.
| Criteria | Legal basis | Charter capital | Legal capital |
| Definition
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Clause 34, Article 4 of the Law on Enterprises 2020.
Point a, Clause 1, Article 175 Decree 155/2020/ND-CP. |
It is the total value of assets which is contributed or committed by the company’s members and owners when establishing a limited liability company or partnership; is the total per value of shares which is sold or registered for purchase upon the establishment of a joint stock company. | It is the minimum capital required by a conditional business line. Currently, legal capital is often required in specialized legal writtens for each specific industry.
For example: the securities brokerage business requires a minimum legal capital is 25 billion VND. |
| The basis of determination | Law on Enterprises 2020.
Decree No. 01/2021/ND-CP. Circular No. 01/2021/TT-BKHĐT.
|
– When establishing a company, it is required to register a charter capital.
– Charter capital may increase or decrease during the operation process of the enterprise. – The registered charter capital must not be lower than the legal capital level for conditional business lines. |
– Specialized laws stipulate for legal capital when establishing an enterprise operating in conditional business lines.
– If the company intends to establish and operate in the business lines requiring legal capital, the registered capital contribution must be at least equal to the legal capital. |
| The level of capital | Specialized law | – The law does not stipulate the minimum or maximum of the charter capital when establishing an enterprise.
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– The level of legal capital is fixed for each business line.
For example: The business of betting on horse racing has a legal capital is 1,000 billion VND. The business of betting on greyhound racing has a legal capital is 300 billion VND. |
| Escrow | Specialized law | Not required. | In some cases, escrow is required in accordance with specialized laws. |
| Timeline for capital contribution | Law on Enterprises 2020 | Within 90 days from the enterprise is granted the Enterprise Registration Certificate. | It must be fully satisfied when operating in a conditional business line. |
| Change in capital during the operation process | During the operation process of enterprises, owners can increase or decrease the charter capital depending on the enterprise situation. | – Legal capital is fixed and determined according to specific business lines.
– Charter capital when reduced, must not be lower than the legal capital for conditional business lines. |
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| Legal Meaning | – It is the basis when an enterprise registers to establish an enterprise;
– Helping enterprises carry out business activities after establishment. |
– As a measure for enterprises to prove to state agencies that they have enough economic potential to operate in this field;
– As a basis for enterprises to ensure the safety, legitimate rights and interests of customers and partners when participating in transactions with their enterprises. |
Above are the similarities and differences between charter capital and legal capital. In the process of learning about the law on enterprises as well as carrying out business activities, if you have any problems, please contact Viet An Law Firm for effective support.
