What is capital in business? How does the law regulate capital in enterprises?
Capital in an enterprise is considered as money, tangible assets, intangible assets with legal value and is allowed to participate in investment, production and business activities. In other words, the capital in the business is a material with legal value and that is measured by money, and at the same time, this material is brought into the business.
Currently, in business and legal relations, there are six commonly mentioned types of capital: charter capital, legal capital, investment capital, project capital, equity and owner's investment capital. We take a turn through the basic concept, the six contents of the capital types as follows:
First, charter capital:
Charter capital of an enterprise is the total amount of capital contributed or committed to contribute by members or shareholders within a certain period and recorded in the charter of the enterprise. The capital contribution period is ninety days from the date of issuance of the business registration certificate.
Second, legal capital:
Legal capital is the minimum capital that an enterprise must have enough when registering a conditional business line or supplementing a business line. The amount of legal capital is large or small that has depended on each business line. Such as:
- Commercial bank, legal capital is 3,000 billion VND
- Trading in life insurance, health insurance, unit-linked insurance and retirement insurance, legal capital is 1,000 billion VND
- Securities brokerage business, legal capital is 25 billion VND.
- Auditing service business, legal capital is 5 billion VND
Third, Investment capital: Investment capital is all capital resources spent to use for the purpose of maintaining and developing production and business. Investment capital may include such items as: charter capital, loan capital, capital mobilized from organizations and individuals by direct or indirect form.
The concept of investment capital is used a lot for foreign enterprises. In the world, the corporate law of developing countries that including Vietnam, creates a legal corridor to attract foreign investment capital into their country, because this is an important financial resource to promote the development of National economy.
Fourth, project investment capital:
Project investment capital is the total of capital sources contributed to an investment project to implement that project. Project investment capital may include: charter capital of the enterprise which the enterprise may contribute part or all, loan capital from the bank, capital contributed by other investors to that project.
An enterprise may have many investment projects or only one investment project, depending on the financial potential of the enterprise and business calculations.
Example: A real estate enterprise A has a charter capital of 30 billion VND, of which legal capital is 20 billion VND. Enterprise building and trading an apartment B with implemented capital of 35 billion VND, including: participating enterprise capital of 20 billion VND, bank loan capital is 10 billion VND and personal appeal is 5 billion VND. So we call the total 35 billion VND as the investment capital of project B of enterprise A.
Fifth, Equity:
Equity is understood more in terms of accounting than in the concept of capital. Equity includes: contributed charter capital, undistributed business profit and loss, share premium, treasury shares, reserve funds and asset revaluation difference.
Value of equity equals total assets of the business minus all liabilities, that has equal to the code no.400 in the balance sheet.
The meaning of value of equity shows that the overall ability of the business to cover debt and accumulate business value, to form business assets.
Sixth, owner's investment capital:
Owner's investment capital is the amount of capital actually contributed by the owner according to the actual amount in the enterprise. Does not include committed capital but not yet contributed, or does not include amounts receivable from owners. In accounting, the owner's investment capital is reflected in the account code no.411.
Currently, there are many statistical accounting reports bearing the name of the equity, but the content presented is the owner's invested capital or the report's name is the owner's investment capital, but the reflected content is the equity. Please note this point.
