In a time of ever-growing economic activities, capital contribution contracts are very common and popular between individuals and enterprises. The purpose of a capital contribution contract is usually to establish an enterprise, business cooperation, or investment. Therefore, the number of capital contribution contracts is increasing, leading to potential legal risks and disputes. In this article, TNTP will present common capital contribution contract disputes to help readers clearly understand and have urgent solutions to protect their legal rights in the event of an actual dispute.
1. What is a business capital contribution contract?
• According to Clause 18, Article 4 of the Enterprise Law 2020 on Definitions prescribes “capital contribution” means the contribution of capital as charter capital to establish a new company or contribution of additional capital to an existing company.”
• According to Article 385 of the Civil Code 2015 on Definition of civil contract prescribes “Civil contract means an agreement between parties to establish, modify or terminate civil rights and obligations.”
• Current law does not have specific regulations on Business Capital Contribution Contracts or Capital Contribution Contracts (collectively referred to as “Contribution Contracts”), but we can understand that Contribution Contracts are agreements between two or more parties, in which the parties will contribute capital and assets to perform certain works together, benefit from common works and take responsibility according to the regulations in the Contribution Contracts.
2. Common disputes of the Contribution Contract
In reality, it can be seen that the causes of dispute in the Contribution Contracts often revolve around the following issues:
• Dispute about the parties’ failure to fulfill their capital contribution obligations:
According to the regulations in the Contribution Contracts, each party will contribute capital according to the agreed amount, assets, the capital contribution period, and the purpose of capital contribution. Capital contribution assets can be Vietnamese Dong, freely convertible foreign currencies, gold, land use rights, intellectual property rights, technology, technical secrets, and other assets that can be valued in Vietnamese Dong. Only individuals and organizations that are the legal owners or have legal use rights to the above assets have the right to use those assets to contribute capital according to the provisions of the law (Article 34 of the Enterprise Law 2020).
Thus, before signing the contract, the parties must carefully check the origin, value of the asset, legal ownership or legal use rights to that asset; stricter regulations on penalties for breach of contract and compensation for damages when a party failed to contribute capital on time, or when the contributed assets do not belong to the legal use or ownership of the capital contributor, the assets are in dispute, or distrained to ensure the enforcement of judgment.
• Dispute about profit sharing and risk-bearing obligations corresponding to capital contribution:
Normally, when entering into a Contribution Contract, the parties agree to contribute capital and must contribute assets according to regulations to perform the work and share the profits accordingly between the parties. In case there is a risk in the business and the business is at a loss, the parties must be responsible according to the respective capital contributed according to the agreement.
Therefore, if the Contribution Contract does not stipulate the profit-sharing ratio, distribution method, and risk responsibility corresponding to each party’s capital contribution ratio, disputes will easily arise between the parties.
• Dispute about unilateral contract termination:
Similar to other types of contracts, in case one party unilaterally terminates the contract without notifying the remaining parties according to the agreed time limit and/or method of notification, the remaining parties may suffer damages. This leads to conflicts and conflicts between the parties when determining the level of compensation and payment of compensation to the injured party.
3. Solutions for resolving disputes in the Contribution Contracts
a) Settle disputes by Commercial Arbitration
• Commercial Arbitration is a dispute settlement method with high confidentiality and quick procedures. This is also an advantage of this method when the parties do not want to have their information about the deal made public (such as procedures in Court) that will affect the reputation of the business during its operations.
• In addition, according to the principles of Commercial Arbitration, the parties can agree to choose the appropriate Arbitration Center, Arbitrator, language, and applicable law for dispute resolution, etc. according to their wishes.
• Besides, parties should also note that when choosing Commercial Arbitration, arbitration fees are often higher than court proceedings. In addition, the parties can request to cancel the arbitration award in Court if there are grounds to prove that the proceedings are not under the law and the content of the award is contrary to the law.
b) Settle disputes by Court
• This is the method by which a trial, on behalf of the state, the People’s Court has the authority to carry out trials according to the strict and strict order and procedures prescribed in the Civil Procedure Code.
• Unlike settling by Commercial Arbitration, the parties will not be able to choose the Judge or decide on the composition of the Trial Panel to settle their dispute.
• The Court’s Judgment/Decision is valid for enforcement. When settling by this method, the parties must be required to comply with the content of the legally effective Judgment/Decision.
• However, except for the cases specified in Clause 2, Article 15 of the Civil Procedure Code 2015, disputes will normally be heard publicly by the Court. Therefore, confidentiality and business reputation may not be guaranteed, and enterprises need to consider when choosing this solution.
• At the same time, because of the strict nature of the proceedings, the settlement method at the Court will take a long time and will be inflexible.
• In addition, the Judgment can be appealed or protested against if the conditions for appeal or protest are met according to the provisions of the law.
Above is an article by TNTP lawyer on the topic: “Common business capital contribution contract disputes and dispute settlement solutions”. Hopefully, this article brings value to readers.
Sincerely,
