When establishing a business, many people register high charter capital in the belief that the figure will inspire confidence in clients and business partners. Legally, however, charter capital is not simply a number used to enhance the company's profile.
What is charter capital?
Under the Law on Enterprises, charter capital is the total value of assets contributed or committed by members or the owner when establishing a limited liability company or partnership. For a joint stock company, it is the total par value of shares sold or subscribed for upon incorporation.
Capital contributions are not limited to cash. Depending on the circumstances and statutory conditions, members or shareholders may contribute other assets and must complete their contributions within the applicable deadlines and procedures.
Does higher charter capital mean greater credibility?
Not necessarily. A company with charter capital of VND 50 billion is not required to hold VND 50 billion in cash in its bank account at all times.
Once contributed, capital may be used to purchase goods and machinery, lease premises, pay salaries and meet other lawful operating expenses. Charter capital is therefore only one of several factors to consider when assessing a company.
Actual financial capacity also depends on:
- Current assets and cash flow.
- Revenue, profit and business performance.
- Debts and financial obligations.
- The ability to fulfil commitments to clients and business partners.
- Governance capabilities and compliance history.
Should you register very high charter capital?
Registered capital should reflect business needs, the scale of operations, the actual ability to contribute and any statutory capital requirements for the relevant business lines.
Registering more capital than members or shareholders can contribute may lead to mandatory capital adjustments, changes in ownership percentages and related legal risks. Conversely, setting capital too low may not meet the company's investment needs or counterparties' requirements in certain transactions.
The aim is to choose a realistic level of capital and meet the contribution commitments, not simply to register the highest possible figure.
This article provides general legal information, not advice on a specific matter. When incorporating a company or changing its capital, the company type, business lines and actual financial plans should be considered.