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Legal Advice: Software as capital contribution

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Contributing capital with software is a new method for Vietnamese enterprises. When applying this method, enterprises need to notice matters concerning the objects and subjects of capital contribution, procedures to contribute capital, etc., to avoid fines.

According to provisions of law, a software or computer program is a genre of work entitled to copyright protection, which may be used as an asset to contribute capital to a business or as a means of payment for shares purchased by enterprises.

Subjects of capital contribution

Organizations and individuals may use software or computer program to contribute capital to an enterprise from the early preparation stage for establishment or during its operation process if they satisfy the following conditions:

(i)    Organizations and individuals are not prohibited by law from contributing capital;

(ii)    Only individuals or organizations being the copyright owners of the software or computer program have the right to use those as assets for capital contribution. Copyright owner of the software or computer program may be the direct author; co-authors; organizations or individuals assigning or entering into contracts with the author; an assignee of copyright; or an heir. The determination of the copyright owners may be approved via Certificate of Copyright Registration or not.

Valuation of assets contributed as capital

As prescribed by law, during the establishment of an enterprise, assets contributed as capital, which are neither Vietnam Dong nor freely convertible foreign currency nor gold, must be evaluated by the enterprise’s members or founding shareholders following the principle of consensus or by a professional valuation organization.

If the assets contributed as capital are valued as higher than their actual value at the time of contribution, the members or founding shareholders will jointly be liable for debts and other asset obligations of the enterprise equivalent to the difference between the valuated and actual values of the contributed assets at the end of valuation.

The assets contributed as capital during the operation process will be valued based on the agreement between the enterprise and capital contributor or valued by a professional valuation organization. In case a professional valuation organization carries out the valuation, the value of the assets contributed as capital must be approved by the capital contributor and the enterprise. 

If the contributed assets are valued to be higher than their actual value at the time of contribution, the capital contributor or the valuation organization and the enterprise’s legal representative will jointly be liable for the debts and other asset obligations of the enterprise equivalent to the difference between the valuated and actual values of the contribute assets at the end of valuation.

Enterprises intentionally incorrectly valuating assets contributed as capital from their actual value shall be fined with VND25 million to VND30 million.

Procedures for capital contribution

According to the regulations of Law on Enterprise, organizations and individuals when contributing capital to an enterprise by software must also transfer the ownership of assets to such enterprise. Specifically, in the event where the software has been certified for protection registration, capital contributor must carry out the procedures to transfer the ownership of such asset to the enterprise at competent authorities.

In the case of software with non-registered copyright, capital contributions must be made by the delivery and receipt of contributed assets endorsed by a written record. The record on such delivery and receipt must consist of the following contents: information of the two parties, type and number of units of assets contributed as capital, the total value of contributed assets, and percentage of the total value of such assets in the charter capital of the enterprise, date of delivery and receipt, and signatures of the two parties.

Capital contributor must contribute capital or pay for the shares registered for purchase fully and punctually by the type of assets as committed. When full contribution of capital is made or when the number of shares registered for purchase is sufficiently paid for, enterprises must issue a certificate for contributed capital or shares or write the capital contributor’s name into the registration book of shareholders.

Enterprises fail to issue certificates for contributed capital or fail to properly make a registration book of shareholders as prescribed by law will be fined from 10 million to 15 million Vietnam dong and required to issue a certificate of contributed capital for members or to make a registration book of shareholders in accordance with law.

Furthermore, it is important to know that even after receiving the transferred ownership of software or computer program, enterprises are only the owner of asset rights (the rights to reproduce, distribute, or lease, etc.) and the right to publish or permit others to publish the software or computer program. However, enterprises are not entitled to name or to be the real owner of the software or computer program.

PLF – LAW FIRM

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