“EQUITY” OR “BUSINESS FUNDING” – NAVIGATING THE LEGAL SUBSTANCE

As we embrace the Year of the Fire Horse 2026, a season of speed and strategic growth, many investors are moving forward with the spirit of “Hope for the best.” At THE LAM LAW LLC – Your legal need, Our Mission, we advocate for a balanced perspective: “Prepare for the worst” by ensuring your legal foundations are unassailable.
Precedent No. 78/2025/AL, adopted by the Supreme People’s Court, serves as a critical case study on the “Substance over Form” principle in corporate disputes.

⚖️ THE LEGAL COMPASS: EQUITY VS. BUSINESS COOPERATION
The core of this Precedent centers on whether a contribution creates a Member status or merely a Contractual relationship.

🔹The Burden of Liability: True equity contribution (Charter Capital) requires the member to be liable for company debts and obligations within the scope of that capital. If an agreement focuses only on profit-sharing without mentioning debt liability, it may be viewed as business funding rather than equity.

🔹The Exercise of Governance: A key indicator is whether the investor participates in the Members’ Council or influences business strategies. In this case, the investor’s lack of management involvement was a decisive factor in denying member status.

🔹The Final Barrier – Registration: While internal minutes (such as a 2017 meeting record) might acknowledge a contribution, the failure to update the Certificate of Enterprise Registration (ERC) or the Member Register leaves the investor’s status legally vulnerable.

🛠️ STRATEGIC SAFEGUARDS FOR 2026
To avoid the “silent partner” trap highlighted in this case, THE LAM LAW LLC – Your legal need, Our Mission recommends:

1. Precise Legal Instrumenting: Ensure your investment agreement explicitly states whether the funds are intended to increase “Charter Capital” or are for “Business Cooperation”.

2. Audit Your Internal Records: Confirm that your name appears in the Member Register and the Company Charter.

3. Strict Statutory Compliance: Promptly execute procedures with the Department of Planning and Investment (DPI) to reflect capital changes on the ERC.

“In the Year of the Fire Horse, momentum is key—but a solid legal anchor is what prevents a drift into litigation.”

📍 Reference Source: Precedent No. 78/2025/AL on determining the purpose of capital contribution to a company

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