Using non-monetary assets in capital contribution and share transfers in M&A transactions: Opportunities and practical barriers in legal implementation in Vietnam

1. Legal Basis: What assets can be used for capital contribution and share transfers?

According to the 2020 Law on Enterprises, the assets allowed for payment in capital contribution and share transfer transactions include:

• Vietnamese Dong (VND), freely convertible foreign currency
• Gold
• Land use rights, intellectual property rights, technology, trade secrets
• Other assets that can be valued in VND (including securities, bonds, receivables, etc.)

This means that the law does not restrict the use of non-monetary assets in capital contribution or share transfer transactions. However, in practice, administrative barriers still exist, especially when businesses use securities or receivables as payment.

2. Trends in using non-monetary assets for capital contribution and share transfers

More and more businesses are utilizing non-monetary assets in capital transactions, particularly in M&A deals, investment rounds, or corporate restructuring. Some common forms include:

• Share swap: Using shares of another company as payment instead of cash.
• Using listed or unlisted securities: Companies can use shares to acquire capital contributions without immediate cash payment.
• Receivables (Debt claims): Using bonds, loan agreements, or trade receivables as payment assets.

These methods help optimize cash flow, reduce financial pressure, and increase transaction flexibility.

3. Practical barriers to using non-monetary assets in capital transactions

Despite the legal framework, practical challenges still exist, particularly in Ho Chi Minh City (HCMC), where businesses face difficulties when registering share transfers using non-monetary assets. Some key barriers include:

Rejection of applications when using receivables for payment

• Some companies have had their applications rejected simply because the transfer price was settled through debt acknowledgment, despite having duly signed contracts compliant with legal regulations.

Requirement to prove completion of the transfer

• When paying with cash, companies can easily provide bank receipts and payment documents. However, with non-monetary assets, proving value and settlement completion can be more complex, leading to additional document requests and processing delays.

Inconsistency in implementation across provinces

• Some Departments of Planning and Investment (DPI) are more flexible in accepting non-monetary assets, while HCMC DPI often requires additional documentation or even rejects applications, creating legal uncertainty for businesses.

Lack of clear guidance from the ministry of planning and investment

• Currently, there is no specific circular or decree guiding the recognition of securities and receivables in capital transactions, making registration authorities hesitant to process such cases.

4. Solutions for businesses and recommendations for legal improvement

• Prepare comprehensive documentation: Businesses should provide thorough valuation reports, agreements, and legal proofs to validate the value of non-monetary assets.
• Engage with registration authorities in advance: Before submitting applications, companies should consult with the DPI to understand specific requirements and avoid unnecessary rejections.
• Advocate for official guidelines: Businesses and industry associations should petition the Ministry of Planning and Investment to issue clearer regulations regarding non-monetary asset transactions.

5. Conclusion: The need for market-aligned legal reforms

Vietnam is attracting significant FDI and experiencing vibrant M&A activity. Thus, removing legal barriers in the implementation of laws to recognize non-monetary assets in capital transactions is crucial. This will not only provide businesses with more financial flexibility but also enhance transparency and efficiency in the legal system.