Global Vietnam Lawyers would like to introduce our valued readers to an article by Lawyer Tran Minh Quyet & Lawyer Phan My Hanh titled “Capital contribution and membership – When legal form overshadows the parties’ true intent” published in The Saigon Times, 18-2026 (1.846) on April 30, 2026.
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In Vietnam’s business landscape, particularly among family-run enterprises and small and medium-sized companies, capital contributions are not always carried out in strict compliance with legal regulations. Many cooperation or investment relationships are formed on the basis of trust, verbal agreements, or internal commitments, while formal legal procedures are often overlooked or delayed. This mismatch between business practice and the legal framework has given rise to numerous complex disputes.
Precedent No. 78/2025/AL raises a seemingly simple yet pivotal question: if a person has contributed billions of dong, received a share of profits over many years, and had their ownership acknowledged by other parties—does that automatically make them a company member? According to the Precedent, the answer does not lie in the amount contributed or the parties’ agreements, but in whether the statutory requirements for charter capital contribution have been fully complied with.
The case behind the precedent: two conflicting interpretations of the same monetary contribution
The case behind Precedent No. 78/2025/AL highlights a common reality: the same flow of funds can be interpreted by the parties as having entirely different legal natures.
The plaintiff’s perspective: A capital contribution to become a company member (co-owner)
From the plaintiff’s standpoint, Mr. Tran Manh H. argued that his involvement in Company D was not merely a financial investment, but participation in the company’s ownership structure—as a capital-contributing member and co-owner. Accordingly, as early as 2001, the parties had agreed to admit him as a member with a one-third ownership stake, equal to that of the other two members. In practice, Mr. H. contributed more than VND 2.7 billion and received a share of profit continuously over many years. In particular, the 2017 meeting minutes expressly recorded Mr. H.’s contributed capital and his ownership ratio in the company’s charter capital. According to the plaintiff, his absence from the enterprise registration certificate stemmed solely from objective issues relating to identification documents and his frequent residence abroad. On that basis, Mr. H. argued that the relationship between the parties, in substance, constituted a charter capital contribution, and that the lack of formal registration was merely a procedural omission.
The defendant’s perspective: Entrustment of funds for business purposes with profit-sharing
By contrast, Company D categorically denied Mr. H.’s status as a member, asserting that the VND 2.7+ billion was simply a sum placed with the company for business cooperation and profit-sharing. Under this view, the payments Mr. H. received between 2003 and 2015 were returns on investment, not entitlements arising from company membership. The defendant further emphasized that Mr. H. was not named in any of the company’s legal records, did not participate in management or operations, and did not exercise any rights of a member. The defendant also argued that the 2017 meeting minutes did not reflect the true nature of the transaction, but were prepared merely to confirm Mr. H.’s financial capacity for personal purposes, rather than to record a charter capital contribution. Moreover, his application to join the company in 2018, in the defendant’s view, demonstrated that he himself acknowledged he had not previously been a member. On that basis, the defendant maintained that the relationship between the parties was purely a civil arrangement for business investment and profit-sharing, which did not give rise to company membership.
The core conflict of the case
From the two arguments above, it is clear that the dispute does not concern whether Mr. H. contributed funds as this fact is undisputed—but rather how the true purpose of that contribution should be characterized. Specifically, the question is whether the VND 2.7+ billion Mr. H. injected into the company constituted a contribution to charter capital for the purpose of becoming a member, or merely a business investment/cooperative arrangement aimed at earning profits.
This difference in legal classification leads to two entirely distinct legal consequences. If deemed a contribution to charter capital, Mr. H. would acquire the status of a company member with the full set of rights and obligations. Conversely, if it is regarded merely as a business investment, his rights would arise only from a civil agreement, without the legal standing of a company member.
For this reason, determining the true nature of the monetary contribution became the pivotal issue the Court had to resolve in Precedent No. 78/2025/AL.
The Court’s assessment: drawing a line between “charter capital contribution” and “business investment”
While the first-instance court and the appellate court upheld Mr. H.’s claim and recognized him as a member holding a one-third ownership interest, the Judicial Panel, at the cassation stage, adopted a different approach.
In particular, the Court emphasized that a capital contribution to become a company member and a capital contribution for business purposes are two distinct legal relationships and cannot be conflated. Upon reviewing the facts, the Judicial Panel found that the parties had no clear agreement on increasing the charter capital, and that the company had not carried out the legally required procedures to register changes in charter capital and membership. At the same time, the evidence on record primarily reflected profit-sharing arrangements, rather than the full spectrum of rights and obligations of a company member under corporate law; nor did Mr. H. participate in the management or operation of the company.
On that basis, the Court concluded that the funds contributed by Mr. H. could only be characterized as a business investment, rather than a contribution to charter capital in order to become a company member. Accordingly, his claim for recognition as a company member was found to lack merit.
The legal message from the precedent
Precedent No. 78/2025/AL conveys a relatively clear message: the mere contribution of funds to a company—even where there are agreements on ownership ratios and profit-sharing—may still be insufficient to give rise to membership (co-ownership).
In other words, if an individual intends to become a company member, such intent cannot remain at the level of internal agreements alone, but must be manifested through concrete legal indicators. A capital contribution must be tied to an agreement on the establishment of the company or an increase in charter capital, be reflected in the company’s official records—such as the charter, the list of members, or the register of members, and be supported by documentation evidencing the contributed capital. More importantly, such changes must be duly registered with the competent authorities in accordance with the Law on Enterprises.
In cases where capital is contributed after the company has already been established, these requirements become even more imperative, requiring full compliance with the prescribed procedures in order to ensure transparency and clearly define the legal status of the contributor.
Issues of debate arising from the precedent
While Precedent No. 78/2025/AL helps delineate the boundary between “charter capital contribution” and “business investment,” the Court’s approach continues to give rise to considerable debate, both in theory and in practical application.
First, the most contentious issue lies in how the Court assessed the parties’ “true intent.” In this case, according to the plaintiff, the parties had agreed on the “admission of a member,” determined the capital contribution ratio, used the term “charter capital,” and maintained profit-sharing over an extended period. Assuming these elements are true, they could, in substance, indicate an intention to establish a company membership. However, the absence of registration procedures and formal legal documentation was treated as the primary basis for denying such status. This approach raises a critical question: in the adjudication process, how the evidence was assessed to lead to a clear understanding of the “parties’ true intent”, or did the Court rely predominantly on whether the required legal formalities had been complied with?
Second, the precedent does not fully clarify the criteria for distinguishing between “charter capital contribution” and “business investment” in cases where the line between the two is blurred. In practice, many transactions may simultaneously exhibit characteristics of both types of legal relationships—particularly in the context of family-run or small businesses, where arrangements are often made flexibly and without being formally documented.
Third, the Court’s reliance on the factor of “non-participation in management” as a ground for rejecting membership status has also sparked debate. Current corporate law does not impose a mandatory obligation on members to directly engage in the management or operation of the company. As such, treating this factor as a basis for assessment may lead to an unnecessary expansion of the conditions required to establish membership status.
Finally, the precedent also raises concerns about its potential for abuse in practice. If the mere failure to complete registration procedures is sufficient to deny the status of a person who has in fact contributed capital, those in control of the enterprise may exploit this gap to evade obligations—particularly in internal disputes. This calls for a careful balancing between ensuring the transparency of the enterprise registration system and protecting the substantive rights of the parties to a transaction.
Viewed as a whole, the debates surrounding this precedent reflect a broader issue in corporate law: the balance between the legal form and the economic nature of business transactions—an issue for which no consistent approach has yet emerged in judicial practice.
Precedent No. 78/2025/AL is not merely a case-specific ruling; it also clearly reflects the Court’s approach to resolving capital contribution disputes: a preference for certainty and transparency in legal form. However, this approach exposes a gap between the law and business reality.
From a broader perspective, the precedent imposes corresponding responsibilities on both sides. For investors, it underscores the need for caution in completing legal formalities from the outset, rather than relying solely on trust or internal arrangements. For adjudicating authorities, it presents the challenge of striking a balance between maintaining the integrity of the legal system and safeguarding the true nature of a transaction. As the line between “charter capital contribution” and “business investment” becomes increasingly blurred in practice, how the law ultimately addresses this issue will not only affect individual cases, but also shape market confidence in the fairness of the legal system.
