Current forms of capital mobilization for businesses

Article overview

Capital mobilization is an important activity for every business, helping to provide the necessary financial resources to develop and expand production and business. Businesses can access many different forms of capital mobilization such as issuing stocks, bonds, bank loans, or calling capital from investment funds. In the following article, Long Phan will analyze in detail effective methods of raising capital for businesses.

Current forms of capital mobilization
Current forms of capital mobilization

Understand what is capital mobilization?

Capital mobilization is the process by which businesses seek financial sources to serve production and business activities. According to the Law on Enterprise 2020, businesses have the right to mobilize capital from legal sources, with appropriate mobilization forms for each type of business.

Mobilized capital can be cash, assets, land use rights, intellectual property rights, technology or valuable papers. Each form of capital mobilization has its own advantages and limitations, requiring businesses to choose carefully.

According to Article 111 of the Law on Enterprise 2020, businesses can mobilize capital through forms such as: issuing stocks, bonds, borrowing capital from credit institutions, individuals, contributing capital to joint ventures, partnerships, and other forms of capital. Other forms of mobilization as prescribed by law.

Forms of capital mobilization for businesses

Initial contributed capital

Initial capital contribution is the first basic source of capital for a business. According to Article 47 of the Law on Enterprise 2020, members must contribute in full and of the right type of assets as committed, and capital contributions must be recorded in minutes, with confirmation from the company of the amount of capital contributed.

For joint stock companies, charter capital is divided into shares, each shareholder must contribute the full number of shares registered to buy within the commitment period. Contributed capital can be in money, foreign currency, gold, land use rights, intellectual property rights, technology, or other assets.

Mobilize capital from undivided profits

This capital is formed from retaining a portion of undistributed profits. According to the provisions of Article 135 of the Law on Enterprise 2020, the appropriation of funds from after-tax profits is decided by the General Meeting of Shareholders. These funds are used to reinvest and expand production and business.

The advantage of this form is that businesses do not have to bear financial costs such as loan interest. However, not sharing all profits can affect the rights of shareholders, especially small shareholders who wish to receive regular dividends.

Mobilize capital from issuing shares

Issuing shares is a common form of capital mobilization for joint stock companies. According to Article 128 of the Law on Securities 2019, to issue shares to the public, businesses must meet the conditions on charter capital, business operations, financial situation and legal documents.

Businesses can issue additional shares to existing shareholders or issue them to the public. Each form has its own processes and procedures and must comply with the regulations of the State Securities Commission.

Mobilize capital using bank credit

Bank loans are the most common form of capital mobilization. According to the provisions of Circular 39/2016/TT-NHNN, businesses must meet the conditions of legal capacity, feasible capital use plan and financial ability to repay debt.

The advantage of this form is simple procedures and quick disbursement. However, businesses must bear interest costs and often must have collateral. Loan interest rates often fluctuate with the market, creating risks in financial costs.

Mobilizing capital using commercial credit

Trade credit is a form of short-term capital mobilization through deferred payment purchases from suppliers. According to international practice and regulations of the Ministry of Finance, payment terms are usually from 30 to 90 days.

This form helps businesses take advantage of commercial reputation without needing collateral. However, commercial credit costs are often higher than bank interest rates and payment terms are short.

Mobilize capital by issuing bonds

Issuing corporate bonds is regulated in Decree 153/2020/ND-CP. Enterprises must meet the conditions of operating time, business results, financial situation and capital use plan.

The advantages of bonds are lower costs than bank loans and longer terms. However, the issuance process is complicated, requiring credit ratings and periodic information disclosure.

Some forms of capital mobilization
Some forms of capital mobilization

Benefits and risks when raising capital for businesses

According to Vietnamese law and international practices, capital mobilization brings many benefits but also potential risks for businesses. According to the Law on Enterprise 2020 and the Law on Securities 2019, the conditions, rights and obligations of businesses when mobilizing capital are clearly defined.

Key benefits when raising capital include:

  • Increase financial resources according to Article 111 of the Law on Enterprise 2020;
  • Investing in expanding production and business scale;
  • Improve competitiveness in the market;
  • Optimize corporate capital structure;
  • Take advantage of business and market opportunities;
  • Reduce pressure on short-term cash flow;
  • Increase negotiation ability with partners.

Potential risks to note:

  • High capital costs due to market fluctuations;
  • Exchange rate risk when borrowing foreign currency;
  • Pressure to pay principal and interest on time;
  • Legal risks when not complying with regulations;
  • Risk of losing control of the business;
  • Reputation risks when not fulfilling commitments;
  • Market risk when business conditions change.
Benefits and risks when raising capital for businesses
Benefits and risks when raising capital for businesses

Consulting on choosing the optimal form of capital mobilization at Long Phan

With a team of consultants with many years of experience, Long Phan provides professional and effective consulting services on choosing capital mobilization methods, including:

  • Consulting on choosing the appropriate form of capital mobilization.
  • Support in determining the appropriate form of capital mobilization for the type of enterprise (joint-stock enterprises, limited liability companies, state-owned enterprises, etc).
  • Explain regulations related to each form of capital mobilization, including conditions, procedures, and related risks.
  • Drafting loan contracts, stock and bond issuance contracts, and contracts related to capital mobilization.
  • Guide businesses in the negotiation process with credit institutions, investors or joint venture partners.
  • Consulting on how to resolve when a dispute occurs.

Choosing the appropriate form of capital mobilization is a key factor to help businesses maintain and develop production and business activities in a sustainable way. Long Phan will assist customers in choosing the most suitable capital mobilization method for each stage of development. Customers can contact the hotline 0906735386 for detailed advice on optimal capital mobilization solutions, ensuring compliance with regulations and bringing the highest efficiency to businesses.