On December 24, 2025, the Council of Judges of the Supreme People’s Court promulgated Precedent No. 78/2025/AL (“Precedent 78”) concerning the determination of the purpose of capital contribution into a company. As this is the first time the Supreme People’s Court has issued a precedent on this issue, and given that its content diverges in several respects from business practices and judicial precedents, Precedent 78 has become the subject of significant debate in legal forums. Numerous experts and lawyers have expressed their views, most of which oppose the content of Precedent 78.
In light of the above, as a firm specializing in corporate law advisory with many years of experience in corporate governance, ATA does not seek to immediately affirm or refute the correctness of Precedent 78. Instead, we analyze the facts, context, relevant legal provisions, and their practical enforcement in order to provide a comprehensive perspective on Precedent 78 and related legal issues.
1. Summary of Precedent 78
The content of Precedent 78 is as follows:
“[4] In fact, Company D Limited Liability Company (the “Company”) was established in 2001 with two capital-contributing members, Mr. Nguyen Van T and Mr. Tran V, with a registered charter capital of VND 1,000,000,000. According to subsequent enterprise registration amendments (2nd, 3rd, 4th, and 5th amendments) in 2006, 2010, and 2012, the Company still had two members, Mr. T and Mr. V, with a registered charter capital of VND 6,000,000,000.
[5] According to the Minutes of the Members’ Council meeting dated March 22, 2017, the parties only acknowledged the capital contribution but did not specify whether such contribution was for the establishment of the Company or for increasing its charter capital as prescribed by law. The parties only agreed on profit and income sharing at 33.33% each, without specifying obligations and liabilities corresponding to each member’s capital contribution in respect of the Company’s debts and other financial obligations under the Company’s Charter. Furthermore, in these minutes, Mr. H (“Mr. H”) stated that he did not participate in the Company’s management. If this contribution were considered as an increase in charter capital from VND 6,000,000,000 to VND 7,253,656,000 as agreed, such increase would not be recognized because it had not been registered and certified in accordance with the Law on Enterprises.”
“[7] According to regulations, charter capital, capital contribution to become a company member, and capital contribution for business cooperation are two distinct matters. The parties neither agreed on nor registered an increase in charter capital to VND 7,253,656,000. Although Mr. H contributed VND 2,751,000,000, there is insufficient basis to determine that he holds 33.3% of the charter capital. In reality, after the Company’s establishment in 2001, due to capital shortage, Mr. V and Mr. T discussed mobilizing funds from Mr. H to lease 42,970 m² of land to expand the production facility in Hung Yen (as stated by the plaintiff’s representative). Therefore, there is only a basis to determine that Mr. H made a business investment contribution, not a contribution to increase charter capital. Accordingly, the first-instance and appellate courts’ decisions recognizing Mr. Tran Manh H as a member of Company D with a 1/3 capital contribution are inconsistent with the above facts. Upon retrial, in the absence of additional evidence, the plaintiff’s claim should be dismissed.”
In summary, the essence of Precedent 78 may be understood as follows: where members of a limited liability company (with two or more members) adopt meeting minutes recording the mobilization and receipt of capital from Mr. H - an individual who is not a company member - but such documents do not specify that the contribution is intended to increase charter capital, and the company has not registered the addition of a new member, such contribution shall only be regarded as a business cooperation investment rather than a capital contribution increasing charter capital, and Mr. H shall not be recognized as a member of the Company.
2. Facts and Background of Precedent 78
Precedent 78 is derived from Cassation Decision No. 17/2022/KDTM-GĐT dated December 13, 2022 of the Council of Judges of the Supreme People’s Court regarding a commercial dispute titled “Dispute between a company member and the company.” The case was adjudicated at first instance by the People’s Court of Hanoi and at appellate level by the High People’s Court in Hanoi.
Previously, both the first-instance and appellate courts held that although Mr. H had not completed all internal procedures at the Company or registration procedures with the business registration authority, he had fulfilled his capital contribution obligation and therefore should still be recognized as a company member, and the Company should be required to complete procedures to record his membership status. These rulings were consistent with prevailing judicial practice, under which judges focus on the substantive truth of a matter, while procedural and formal aspects may be completed subsequently and are not treated as decisive conditions.
Accordingly, the introduction of Precedent 78 represents a significant departure from such practice.
3. Assessment of the Legal Basis and Reasonableness of Precedent 78
The core approach of Precedent 78 is to treat “formality” and “procedures” as decisive conditions for determining the substance of a matter. Specifically, the Court relies on two grounds to conclude that there was no capital contribution to increase charter capital:
- The Minutes of the Members’ Council meeting did not specify the purpose of the capital contribution;
- The Company did not carry out procedures to register the addition of a new capital-contributing member.
These arguments are based on Clause 4, Article 68 of the 2014 Law on Enterprises and Article 44 of Decree No. 78/2015/ND-CP on enterprise registration. Accordingly, the Court considers that an increase in charter capital must originate from a members’ resolution and is only completed upon notification to the business registration authority.
Thus, meeting minutes and enterprise registration procedures become the fundamental bases for determining whether a capital contribution increases charter capital and whether it gives rise to membership status. In the absence of clear documentation and registration, such contribution is deemed merely a business cooperation investment.
While this interpretation is not necessarily contrary to law, it may not be entirely persuasive. The 2014 Law on Enterprises does not specify the timing of capital contribution or the legal basis for determining membership status, nor does it require that membership be recognized only upon completion of registration procedures. In essence, meeting minutes and registration are procedural obligations that must be performed after capital contribution has been made.
In practice, except for large enterprises with strong legal departments or legal advisors, most companies maintain relatively simple documentation that does not fully reflect their intentions or agreements. Moreover, violations of enterprise registration obligations are quite common and are already addressed under Decree No. 50/2016/ND-CP, which provides for administrative penalties and remedial measures.
Additionally, while the law does not clearly regulate this issue for limited liability companies, it does provide explicit guidance for joint stock companies. In such cases, the completion of share subscription and recognition of shareholder status are independent of procedures for registering charter capital increases. Once payment is completed and recorded in the shareholder register, the investor becomes a shareholder with full rights and obligations.
In ATA’s view, the Supreme People’s Court could have applied analogous legal reasoning under Clause 2, Article 45 of the 2015 Civil Procedure Code. Accordingly, for limited liability companies, the act of capital contribution and the admission of a new member should be distinguished from subsequent procedural formalities. This would allow courts to recognize the substance of the transaction where the parties clearly intended to contribute capital to increase charter capital.
Therefore, we believe that the reasoning in Precedent 78 may not fully reflect the practical realities of business transactions and may lead to inequitable outcomes where genuine capital contributions are disregarded solely due to procedural deficiencies.
4. ATA’s Recommendations for Enterprises and Investors
Although we do not fully agree with the reasoning of the cassation judgment, once it has been elevated to precedent, it establishes a new judicial approach and serves as a warning for enterprises and investors in legal compliance and corporate governance.
4.1. Litigation Considerations
In disputes concerning shareholder/member status, courts may now place greater emphasis on documentary evidence and procedural compliance rather than the parties’ actual intentions. This signals a shift toward a more formalistic approach in adjudication.
4.2. M&A and Corporate Governance
Following the issuance of Precedent 78, ATA recommends that enterprises and investors pay particular attention to the following:
a) Clearly record the purpose of capital contribution
Meeting minutes must explicitly state that the contribution is intended to increase charter capital. Otherwise, it may be construed as a business cooperation arrangement.
b) Complete enterprise registration procedures promptly
For multi-member limited liability companies, capital contribution and membership status may only be recognized upon completion of registration procedures. Investors should ensure that obligations are clearly allocated and contractually secured.
c) Maintain comprehensive documentation
Enterprises should properly prepare and retain:
- Meeting minutes and resolutions approving capital contribution/share issuance;
- Updated Enterprise Registration Certificate;
- Member/shareholder register;
- Proof of capital contribution (bank statements, cash receipts, asset transfer records).
Investors should also retain all payment evidence and clearly state the purpose of transfers.
Conclusion
This article reflects ATA’s professional perspective based on extensive experience in corporate legal advisory. We hope it provides a comprehensive understanding of Precedent 78 and its implications for litigation and business practices.
Should you require further clarification or legal assistance, please do not hesitate to contact ATA’s team of lawyers and legal experts.
Comment: