Regulations on the transfer of capital contributions in a multi-member limited liability company

During the operation of an enterprise, the transfer of capital contribution is common and may happened for various reasons, such as capital withdrawal, restructuring, transfer of management rights, or the resolution of internal disputes. However, the transfer of capital contribution in a multi-member limited liability company (LLC) is not entirely unrestricted; it must comply with strict legal requirements. This article clarifies the regulations governing the transfer of capital contributions in a multi-member LLC under the 2020 Law on Enterprises.

1.Principles of transferring capital contributions

• According to Articles 52 and 53 of the Law on Enterprises 2020, a member of a multi-member limited liability company (LLC) has the right to transfer their capital contribution. However, except for certain special cases, the general principle is that the capital contribution must first be offered to the other members of the company under the same conditions before it may be transferred to a non-member.
• A company member is only able to transfer his/her capital contribution to a third party who is not a member of the company in the following cases:

– The member has the right to request the company to buy back his/her capital contribution, but the company fails to make payment within 15 days from the date of receipt of the member’s request at the market price or a price determined in accordance with the principles stipulated in the company’s charter, unless the parties agree on the price.

– The member donates his/her capital contribution to their lawful heir. If the recipient is not a lawful heir, that recipient only becomes a company member if approved by the Members’ Council.

– The member uses his/her capital contribution to settle a debt owed to another organization or individual. In this case, the recipient of the capital contribution for debt settlement also only becomes a company member if approved by the Members’ Council.

2.Procedures for transferring capital contributions

a.Internal offering

• Before transferring a capital contribution to a non-member, the transferring member must first offer that contribution to the remaining members of the company in proportion to their respective capital contributions and under the same transfer conditions (sale price, payment method, etc.).
• To ensure transparency and minimize potential disputes, TNTP recommends that the transferring member sends a written notice to all remaining members, clearly stating the following information:

– The percentage of the capital contribution intended for transfer;

– Price and terms of the transfer.

The remaining members have the right to purchase the offered capital contribution in proportion to their contributed capital in the company or according to any other agreement among the members, within 30 days from the date of the offering. If there are no members who purchase the offered capital contribution, or if they do not purchase the entire amount within this period, the member is then entitled to transfer the capital contribution to an external party.

b.Transfer to a non-member of the company

If no member purchases, or if the members do not purchase the entire capital contribution, the transferring member is entitled to transfer the remaining portion to a non-member, provided that the transfer does not violate the regulations on the maximum number of members (not exceeding 50 people).

c.Procedures for transferring capital contribution

• If the number of members remains at two or more, the company must carry out the following procedures:

– Notify the change of information on the enterprise’s beneficial owner and provide information to identify the beneficial owner in accordance with Article 52 of Decree No. 168/2025/ND-CP; and

– Register the change to the contents of the Enterprise Registration Certificate. The business registration authority will review the validity of the application dossier and issue a new Enterprise Registration Certificate in accordance with Article 30 of the Law on Enterprises 2020.

• When the change results in the company having only one member left, the company must both notify the change in the number of capital-contributing members and carry out procedures to convert the enterprise type into a single-member limited liability company.

3.Notes after the transfer of capital contribution

a.Transfer of capital contribution to foreign investors

The transfer of capital contribution to a foreign investor, in addition to complying with the general provisions of the Law on Enterprises 2020, must also satisfy the market access conditions applicable to foreign investors under the Law on Investment 2020 and its guiding documents. When conducting the transfer, it is necessary to:

• Determine whether the company’s business sectors fall under the list of restricted or unrestricted market access sectors for foreign investors in accordance with Appendix I of Decree No. 31/2021/ND-CP;
• Carry out procedures for registration of the purchase of capital contribution with the investment registration authority where the company’s head office is located.

b.Updating internal records and the company’s charter

The company must update the register of members, amend the company’s charter (if changes arise), update the rights and obligations associated with the contributed capital, and retain all relevant documents, including the capital transfer agreement, the written confirmation of completion of the transfer, and the minutes of the Members’ Council meeting (if approval was required).

c.Notes on non-compliance with procedures

• If the transfer of the contributed capital is not carried out in accordance with the statutory procedures (e.g., failure to offer the capital portion to existing members first, failure to execute a written capital transfer agreement, or failure to register the change of members with the business registration authority), the transferee risks not being recognized as a member of the company.
• This may directly affect the transferee’s voting rights, entitlement to profits, and the right to make subsequent transfers.

d.Tax obligations related to the transfer

The transfer of contributed capital may give rise to tax obligations, including personal income tax (for individual transferors) or corporate income tax (if the transferor is a legal entity). The parties must declare and fully fulfill their tax obligations in accordance with the applicable tax laws.

The transfer of contributed capital is the right of members in a multi-member limited liability company. However, such transfer must be carried out in accordance with the procedures prescribed by law. The enterprise must ensure that the transfer is conducted transparently, in compliance with legal requirements, and promptly updated with the business registration authority to avoid disputes or unintended legal consequences.

The above is TNTP’s legal analysis on the topic: “Regulations on the transfer of contributed capital in a multi-member limited liability company.” We hope this article will be helpful to readers.

Respectfully,