In recent times, we have continuously received information about a series of fraudulent businesses to appropriate assets by taking advantage of the trust of investors and customers to confuse public opinion. Typically “The case of fraud of trillions of dong of Alibaba Company” or most recently the case “The Hue restaurant chain of Huy Vietnam Food Processing Co., Ltd closed a series of branches in Ha Noi. Noi and Ho Chi Minh City, losing hundreds of billions of dong, but investors didn’t know.”
A worrying situation in the market today, many businesses have established many branches, diffused their brands and committed profits to create confidence for investors. However, when investors contribute capital, invest in the business, they do not control the operation of the business as well as the capital flow that they have invested in. Leading to the situation of businesses operating at a loss without investors knowing.
Based on that fact, DHP Law sends you the article “Identifying risks and notes when investors contribute capital and invest in businesses” for everyone to have an overview and draw conclusions. gain experience before starting to invest in any project or business.
I. Identify risks when investing/contributing business capital:
- When businesses attract investment capital, they will often create trust by diffusing their brand, committing profits to investors. However, after the investment, the investor/contributor has no control over the business’s operations and cannot control his capital flow when investing in the business. Taking advantage of the credibility, many businesses did not use the investment capital for the right purpose as committed, leading to losses and losses.
- In case the enterprise intentionally defrauded and appropriated assets from the very beginning, it took advantage of the trust of investors/capital contributors to carry out their actions.
II. Ways for Investors to identify risks when investing/contributing business capital:
Capital contribution is the contribution of two or more partners to create a certain amount of capital. Because it is related to private and public interests, this has many complicated issues. If not careful, investors/capital contributors will face risks such as unprofitable capital, deficit, even loss of capital. Therefore, the risks when investing/contributing business capital are expressed in the following forms:
- Enterprises that commit fraud to appropriate investors’ capital contributions will often register a very large charter capital, proceed to establish many branches, develop brands massively without following closely. capacity of enterprises and changes in the market.
- Those businesses will create confidence for investors in committing to a very high profit distribution, not close to the actual revenue and profit of the business.
- The revenue and profit situation of the business will fluctuate in the following direction: The enterprise will plan very high revenue/profit when starting a business to attract investment, but the revenue will decrease gradually. time. However, in the internal report, the enterprise still reported a profit, leading to investors not fully understanding the operation situation of the enterprise as well as the capital flow that they contributed to the enterprise.
III. What should investors do to limit risks when investing in Enterprises:
- When contributing capital to a business, the first thing that an investor should understand and choose a partner to invest in is carefully. The parties should sign a clear and transparent contract and profit sharing agreement.
- Investors should not be interested in the charter capital of that enterprise but must learn and analyze the existing assets of the enterprise;
- Investors should participate in the titles of the enterprise to keep a close eye on the operation of the enterprise (Board of Directors, Board of Members, Supervisory Board,…);
- Investors should exercise their shareholder rights in requesting the enterprise to provide documents such as accounting records, financial statements to check the operation of the enterprise as well as control capital flow. own when investing in the business.
Above are the risks and ways to identify risks that DHP Law has drawn from practical consulting experiences for businesses. Investors should prepare in advance plans to solve problems that may arise to avoid legal risks but still ensure the legitimacy when investing in businesses.
And to limit unnecessary risks when conducting investment cooperation, you should find yourself a lawyer or a legal advisor who regularly advises right from the very beginning.
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For legal assistance and/or enquiries, please contact: DHP LAW LAW – DHP LAW Address: L4-09.OT06 Landmark 4 Building , Vinhomes Central Park, 720A Dien Bien Phu, Ward 22, Binh Thanh District, Ho Chi Minh City.
