Capital Contribution in Assets with Inflated Valuation

Contributing Land, Machinery or Brands as Capital at 'Inflated' Values: 10 Legal Questions

Contributing 2 hectares of land valued at VND 50 billion when the market price is only 20 billion; contributing a "brand" worth 30 billion with no one able to explain the valuation method — these are textbook cases of capital contribution with inflated asset valuation in Vietnam, not rare in Vietnamese incorporation practice. Unlike cash contributions (whose value is self-evident), asset contributions open a valuation "grey zone" where the line between lawful optimisation and phantom capital is fragile.

Article 36 of the 2020 Enterprise Law anticipates this risk: overvaluation is not merely an internal matter — it triggers joint liability to top up the gap and damages liability. This article answers the 10 key questions.

Contents

• Questions 1–10: see section 8
• 1. Which assets may be contributed, and valuation principles
• 2. Legal consequences of "inflating" value: Article 36
• 3. The three riskiest asset classes
• 4. The role of independent valuation
• 5. Control checklist when accepting asset contributions
• 6. Remedying already-accepted inflated assets
• 7. The creditor's and new investor's view
• 8. Frequently asked questions
• References

1. Which assets may be contributed, and valuation principles

The 2020 Enterprise Law allows contributions in VND, freely convertible foreign currency, gold, land use rights, intellectual property rights, technology, technical know-how and other assets valuable in VND. The threshold condition: assets must be lawfully owned by the contributor and ownership must be transferred to the company.

Valuation works on two tiers:

• Cash, freely convertible foreign currency, gold: self-evident value, no valuation needed.
• All other assets: must be valued by unanimous agreement of founding members/shareholders, or by a valuation firm.

For JSCs, a valuer's figure for founding shareholders' assets must be approved by a majority of founding shareholders — a "safety valve" many companies skip.

2. Legal consequences of "inflating" value: Article 36

The pivotal provision addressing capital contribution with inflated asset valuation. When a contributed asset is valued above its actual value at the time of contribution:

1. The founding members/shareholders are jointly liable to contribute the gap between the assessed value and the actual value.
2. They are also jointly liable for damage caused by deliberately overvaluing the contributed asset.

Two points matter: first, liability is joint — not confined to whoever contributed which asset, but shared across the founding group. Second, the comparison point is the time of contribution, not the time of discovery (when the asset may have depreciated for objective reasons).

3. The three riskiest asset classes

Land use rights: land prices swing sharply by area and timing; "market price" can differ 2–3x by reference source. Worse, many cases have only a valuation minute with no title transfer to the company — the company then does not truly own the asset. For the full procedure, see the checklist for land use rights capital contributions by foreign investors.

Machinery, equipment, production lines: value depends on actual condition, technology and operability. Used or technologically obsolete machinery is often valued at original purchase price rather than residual value.

Intangibles (brands, technology, know-how): hardest to value objectively since worth attaches to future cash flows and exclusivity — easily inflated. The biggest risk: years later the technology is obsolete and the brand faded, leaving large "phantom" capital with no matching real asset.

4. The role of independent valuation

Not mandatory in every case, but the cheapest "insurance" against Article 36 risk. Engage an independent valuer when: asset value is large relative to capital; the asset is intangible or hard to value; foreign investors participate (setting up an FDI company in Vietnam); the company is fundraising, bank-borrowing or doing M&A.

An independent valuation report does three things: (1) provides an objective basis when members disagree; (2) evidences good faith (no "deliberate" inflation) if later questioned; (3) is documentation banks and investors trust.

5. Control checklist when accepting asset contributions

Before recognising an asset contribution, the company should complete six steps:

1. Verify ownership: does the contributor hold lawful title documents? Is the asset mortgaged, disputed or seized?
2. Independent valuation (for large or intangible assets): use the report as the basis, not verbal agreements.
3. Valuation and handover minutes: record the method, agreed value and asset condition at handover.
4. Transfer ownership: re-title land and vehicles, assign IP rights — complete registration under sectoral law.
5. Book correctly: record the asset at the agreed valuation, depreciate per regulations.
6. Keep the full file: the complete chain from verification and valuation through handover to titling — for inspections or disputes.

6. Remedying already-accepted inflated assets

Late discovery is not hopeless, but delay makes it harder:

• Re-value: engage an independent firm to determine the asset's value as of the contribution date (not its depreciated present value), then quantify the gap.
• Negotiate internally: demand the relevant members/shareholders top up the gap under Article 36; record it in a resolution and charter appendix.
• Litigate: if negotiation fails, the company (or creditors in some cases) may sue for the top-up and damages. After many years the biggest challenges are evidence and limitation periods — under the 2015 Civil Code.

7. The creditor's and new investor's view

For creditors, "phantom" capital means the company's real repayment capacity is below the paper figure. When the company becomes insolvent, creditors have an incentive to demand re-determination of contributed assets' real value and force members to top up — a "second line of defence" beyond company assets.

For new investors (fundraising, M&A), capital due diligence always includes reviewing asset-contribution valuations. Discovering inflated assets typically leads to: re-valuing the whole company (lower valuation), requiring existing shareholders to top up before funding, or simply walking away. A clean contribution file from day one is a real negotiating advantage. Where an FDI company misses its contribution deadline, see how to handle overdue charter capital contributions.

Contact counsel: For review of contributed-asset valuations, disputes over capital contribution with inflated asset valuation, or safe capital structuring advice, contact FLAT Law Firm — Hotline: 0988424851.

8. Frequently asked questions

Which assets may be contributed as capital? The 2020 Enterprise Law allows contributions in VND, freely convertible foreign currency, gold, land use rights, intellectual property rights, technology, technical know-how and other assets valuable in VND. Assets must be lawfully owned by the contributor and have ownership transferred to the company.

Who may value contributed assets? Founding members/shareholders value by mutual agreement, or engage an independent valuation firm. For founding shareholders' assets in a JSC, the valuer's figure must be approved by a majority of founding shareholders. Using an independent valuer is the safest way to avoid later disputes.

What happens if a contributed asset is overvalued? Under Article 36 of the 2020 Enterprise Law, if a contributed asset is valued above its actual value at the time of contribution, the founding members/shareholders are jointly liable to contribute the gap between the assessed and actual values, and jointly liable for damage caused by deliberately overvaluing the asset.

How is "deliberate overvaluation" established? The law gives no mathematical formula; findings usually rest on a re-valuation by an independent firm, an unreasonable gap versus market prices at contribution time, and evidence the contributor knew (or must have known) the real value was far lower. Courts or arbitral tribunals weigh the evidence case by case.

Can the company demand members top up the gap? Yes. On discovering overvaluation, the company (through its legal representative or a Members' Council/GMS resolution) may demand the founding members/shareholders jointly contribute the gap and compensate damage under Article 36.

What rights do creditors have when discovering "phantom" capital? In principle, the top-up duty is owed to the company under Article 36 (the company demands the founding members/shareholders jointly contribute the gap). While the company operates normally, creditors typically act indirectly: pressing the company to exercise this right, or building it into loan covenants. When the company becomes insolvent (especially in bankruptcy proceedings), creditors have grounds to ask courts to re-determine the real value of contributed assets and compel members to top up — a "second line of defence" beyond company assets. In short, creditors do not always have a direct claim; it depends on the company's legal status at the time.

What procedures apply to land use rights contributions? Beyond valuation, contributing land use rights requires registration of the change with the land registration office to transfer the rights to the company. A valuation minute without the title transfer means the company does not truly own the asset — and the contribution may be deemed incomplete.

What is special about contributing brands, technology or know-how? Intangibles are hardest to value objectively: worth depends on future cash flows, market share and exclusivity — all easy to inflate. The biggest risk: years later the technology is obsolete or the brand faded, leaving large "phantom" capital with no matching real asset. For intangibles, independent valuation is nearly mandatory.

When is an independent valuer effectively required? Not mandatory in every case by law, but advisable when: the asset value is large relative to capital size; the asset is intangible or hard to value; foreign investors participate; the company is fundraising, borrowing from banks or doing M&A. Valuation fees are tiny compared with joint top-up and damages exposure.

Can anything still be done if overvaluation is found years later? Yes, but harder: re-value the asset as of the contribution date (not its depreciated present value), quantify the gap and prove deliberateness. Limitation periods and evidence gathering after many years are the main challenges — so controlling valuation upfront is always cheaper than fixing consequences.

References

1. Enterprise Law No. 59/2020/QH14 dated 17/6/2020 (amended 2022 and Law No. 76/2025/QH15) — Article 36.
2. 2015 Civil Code (general rules on limitation and damages).