CAN I CONTRIBUTE CAPITAL USING LAND USE RIGHTS LEASED WITH ANNUAL RENTAL PAYMENTS?

Corporate capital contribution is a significant legal institution, reflecting the principle of freedom of enterprise while simultaneously ensuring state management requirements over specific types of assets involved in corporate operations. One of the assets frequently utilized as the subject of capital contribution is land use rights. Capital contribution via land use rights entails various complex legal issues due to its intrinsic link to the economic value of land and its subjection to stringent legal regulations.

Because land belongs to the entire people, with the State acting as the owner's representative, the land use rights of organizations and individuals are established through various forms, including the form of State land lease. For cases of land leased with annual rental payments, the land user's rights are more restricted compared to cases of land allocation with land use fees or land leased with a one-off rental payment for the entire lease term. This raises an important legal question: can land use rights leased with annual payments be used for capital contribution?

1. Forms, assets, and subjects of capital contribution:

1.1. Forms of capital contribution:

Capital contribution is the act of an individual or organization contributing their assets into an enterprise to form the company's charter capital, thereby becoming an owner or co-owner and enjoying rights, benefits, as well as bearing obligations corresponding to their role and the value of the contributed assets, comprising the 02 (two) following forms:

Legal Basis: Clause 18, Article 4 of the 2020 Law on Enterprises.

1.2. Assets for capital contribution:

Assets for capital contribution are properties used to contribute capital to an enterprise. According to the provisions of Clause 1, Article 34 of the 2020 Law on Enterprises, assets used for capital contribution include:

1.3. Subjects of capital contribution:

Not every subject can execute capital contribution to an enterprise using assets; only individuals and organizations that are the lawful owners or have lawful use rights over the assets stipulated in Clause 1, Article 34 of the 2020 Law on Enterprises have the right to use such assets for capital contribution in accordance with the law.

Based on the entirety of the above content, capital contribution aimed at forming or increasing the charter capital of an enterprise can be executed through the procedure of contributing assets in the form of land use rights, provided that the subjects of capital contribution are individuals or organizations possessing lawful land use rights.

2. Is it mandatory to transfer land use rights for contributed assets to the enterprise?

Pursuant to Point a, Clause 1, Article 35 of the 2020 Law on Enterprises, for assets with registered land use rights, the capital-contributing subject who is a member of a limited liability company, a partner of a partnership, or a shareholder of a joint-stock company must carry out the procedures to transfer the land use rights to the company in accordance with the law.

The transfer of land use rights for contributed assets is exempt from registration fees.

3. Land use rights and forms of land use:

Based on the 2024 Land Law and Decree No. 123/2024/ND-CP dated October 04, 2024, land use rights can be understood as the rights of individuals and organizations to exploit the utility, enjoy yields and profits from the use of land allocated or leased by the State, or having use rights recognized, or transferred from other subjects through exchange, transfer, lease, sublease, inheritance, donation, etc.

Regarding the form of State land lease, current law includes the 02 (two) following forms:

Among these, land lease with annual rental payments is the case where the State leases land to organizations, households, or individuals, and the lessee fulfills their financial obligations by paying land rent periodically on an annual basis throughout the lease term. In this case, the land user does not have to pay a large initial sum, but their right to dispose of the land is also significantly restricted.

Depending on each form of land use, the land-using subjects will have different rights and obligations. The form of land use holds significant meaning in determining the right to contribute capital using assets that are land use rights.

4. Is it permissible to contribute capital using land use rights leased with annual payments?

To exercise the right to contribute capital using land use rights, the land-using subject must satisfy all conditions stipulated in Clause 1, Article 45 of the 2024 Land Law as follows:

However, for cases of capital contribution using land use rights leased with annual payments, determining the subject's right to contribute capital based solely on the above conditions is insufficient. Pursuant to the provisions of Point d, Clause 1, Article 34, and Point e, Clause 2, Article 37 of the 2024 Land Law, organizations and individuals leased land by the State with annual rental payments only have the right to contribute capital using assets legally owned by them that are attached to the land within the land lease term.

Thus, it can be understood that the law does not permit capital contribution using land use rights leased with annual payments. Instead, subjects using land leased with annual payments may execute capital contribution using their legally owned assets attached to the land use rights. When executing a capital contribution transaction involving assets attached to the land, the recipient of the contributed assets will continue to be leased the land by the State according to the determined purpose for the remaining term.

Based on the analysis of current land law and enterprise law regulations, it can be affirmed that the right to contribute capital using land use rights strictly depends on the form of land use and the method of fulfilling financial obligations to the State. In terms of legal nature, the form of land lease with annual rental payments only grants the land-using subject the right to exploit and use the land during the lease term without generating stable and comprehensive property rights. Therefore, restricting the right to contribute capital using land use rights in this case aligns with the principle that the State acts as the representative of the entire people's ownership of land and exercises unified state management over land. Properly understanding this legal jurisdiction is of great significance in ensuring the legality of capital contribution transactions, preventing legal risks, and contributing to enhancing the effectiveness of law application in practice.

DL PINNACLE LAW FIRM LLC