Companies in the Vietnam do not all operate in the same structure. A company’s classification depends, among other things, on how many people own the company and the extent to which those people are responsible for the company’s liabilities. The distinction between the different types has important ramifications for the legal status of the company, particularly with regards to ownership and management system. Here, I would like to introduce you the list of company types and its features under Vietnam Enterprise Law 2014, then what they mean for your business.
Individual Business Household
This type of business is the smallest size and only apply for Vietnamese citizens. Therefore, foreign investors are not allowed to open Individual Business House (see Article 6.1, Decree 78/2015/ND-CP)
Private Enterprise is an enterprise owned by one individual who shall be liable for all activities of the enterprise to the extent of all personal assets. Enterprise law does not prohibit foreign investor set up Private Enterprise. The point is that, the owner shall be unlimited liability for all debts of enterprise. However since it is foreign owner, most of his or her personal assets are in other countries. So what is the mechanism to protect creditors in this case?
In fact, there is no administrative procedures which guides to set up Private Enterprise for foreign investors so far. Department of Planing and Investment (DPI) will deny the your application dossier which choose type Private Enterprise.
Single Member Limited Liability Company (“Single Member LLC”)
If the company has only one owner – investor (an individual or an organization), then its company’s type shall be a Single – Member LLC.
The features of Single – Member LLC are: one owner; not allowed to issue shares; the owner may enjoy limited liability; and has legal status. It means that the company’s liabilities are the legal responsibility of the company and the owner will not be liable for the company’s debts. No personal liability will arise for the owner in addition to the full capital already contributed or in the the value of the guarantee pledged.
Since this is one owner company, the owner has full rights to decide all matters of company by issue the decision, without any meeting or decision of other non-member, such as: contents of Company Articles, business plans, appoint directors, restructuring company, enjoy profit and dissolving company. Single – Member LLCs also have fewer corporate formalities and greater tax flexibility. The company owner (the President) can be the director (legal representative) or hiring other man to be company’s director.
However, it can not raise fund by issue shares or invite other investors to become members of company (otherwise, it needs to convert type of company into Multiple – Member LLC or Joint Stock Company). The owner can not withdraw contribute capital (except few special cases).
Multiple – Member Limited Liability Company (“Multiple – Member LLC”)
If the number of investors are TWO and NO MORE. Once again, your company shall be in the form of Multiple – Member LLC. In case there are 3 investors or more, investors can consider between Multiple – Member LLC or Joint Stock Company (“JSC”)
In Multiple – Member LLC, the number of members are from 02 up to 50 people and it has a status as a legal person. The members may enjoy limited liability. It means that, the company’s liabilities are the legal responsibility of the company, the members will not be liable for the company’s debts. No personal liability will arise for the members in addition to the full price of the shares already purchased. Company can easily raise fund by increasing the contributed capital of members or raising the contributed capital of new members. The Members’ Council shall be composed of all members and is the highest decision-making body of the company. Members can quit company by transfer his/her capital contribution in the partnership to another person
If there are more than 50 members, company shall convert to JSC form. Multiple – Member LLC are not allowed to issue shares or join the Stock Market. The advantages of Multiple – Member LLC, however, are huge. For example, it has simple management structure; members can easily come in or go out company without difficult rules like in JSC. So if your business may have stable members amount and no need to call capital from public, Multiple – Member LLC would be the best choice!
Joint – Stock Company (“JSC”)
JSC is a company whose stock is owned jointly by minimum 3 shareholders. JSC has legal status. So in order to set up JSC, you need at least 3 investors and unlimited maximum. The shareholders may enjoy limited liability in the scope of contributed capital. This type of company is really suitable for medium or big size enterprise. The shareholders who are these first men establish company, are called founding shareholders. They have some exclusive rights, such as, their names will stay forever in company record as the founding shareholders; in the first 3 years of company, they will be prioritized to buy other shareholder’s shares in case that shareholder wants to transfer shares. JSC can be organized as a normal enterprise; or can be a public company by enter in the Vietnam Stock Market. In this case, company may call the big capital from the public.
A JSC has quite complex and complete manager structure, which is: General Meeting of Shareholders, General Assembly, Supervisory Board and Directors or General Director. The attendance rate of General Meeting of Shareholders shall be at least 51% of shareholders. The resolutions of the General Meeting of Shareholders shall be adopted when the number of shareholders representing at least 51% of the total number of votes of all shareholders attending the meeting is approved by the shareholder.
Partnership Company, Public JSC, Business Cooperation Contract
A Partnership Company (“PC”) is a form of enterprise set up by at least two partners and has legal status. A PC is akin to a limited liability partnership in other jurisdictions. A PC must have two general partners and may also have limited partners (literally, “capital contributing members”). General partners are liable for 13 Forms of Doing Business in Vietnam all obligations of the PC with their own property, while limited partners are only liable to the extent of their capital contribution. To date, PCs have not been a common vehicle for foreign investment in Vietnam
Public JSC is a JSC that was issued shares to public, or stock listed, or has very huge shareholders quantity. This company’s type is the biggest one and it is not suitable for start-up business, so I don’t write in detail about Public JSC.
A Business Cooperation Contract (“BCC“) is a contractual relationship akin to a partnership which does not create a new legal entity but which is licensed to engage in business activities in respect of a specific project in Vietnam. BCCs are most commonly used in the oil industry, where production sharing contracts have traditionally been structured as BCCs, and in telecommunications and advertising projects. This is changing as LLCs and JSCs are being allowed into these fields
How to choose the right type of company for your start-up business
Here are the elements that you should consider:
1. Procedures, costs to set up and operate company
If only based on type of company, there is no big difference on price, dossiers, time and procedures to set up company
To operate company, the Single – Member LLC has the simplest structure. The Multiple – Member LLC has member council and advisory board, so it will more costly than Single – Member LLC. JSC is the most expensive cost to operate, since it has complex structure. Basically, a JSC has a General Meeting of Shareholders, General Assembly, Supervisory Board and Directors or General Director. For example, fees to have a meeting, then send invitation letters, rent place for meeting… such things are not cheap and need to do regular…
2. The number of investors
Some investors would like to set up and manage business by themselves, and do not want the participation of other investors. Later when the business develops and need more capital, inevitably, company will have more owners. The statutory number of investors is very important aspect. For example, even though you are very like the JSC model, but your business just can has 1 investor maximum, you can not set up JSC no matter how much you like it.
3. The operation manager structure
Type of company leads to the type of operation manager structure, the separation between ownership rights and management rights. The more separative between ownership rights and management rights, the more chance owner will lose the control to company. If company has many owners, the manager structure will be more complicated. In case, the owner doesn’t want relinquish management rights, single-member LLC is the best choice. Multiple-member LLC has more members and it needs to have Member Council, and supervisory board is compulsory when company has more than 11 members. In general, JSC has many owners and manager boards to share and control the management rights. The strictly distinction between ownership rights and management rights is the outstanding features of JSC compares with other company’s types.
4. Shares transferability and sell company
The owners may freely want to shares transfer or sell company to others, without notification or acceptance from another owners. From this point of view, JSC is the most suitable type. The ordinary shareholders can freely transfer shares to others (except few restriction to founding shareholders within first 3 years). Members of Multiple – LLC just can transfer their capital to the third parties after offer for sale capital for members of company. Transfer capital in single – member LLC often leads to 2 cases: convert type of company or sell company and change all the Articles of company
5. Ability to raise capital
A company can not just be dependent on owners’ equity. When new stage comes, company needs to raise capital from many sources, in general, that is loan from bank and/or issue shares. There is no limit on bank loan under laws apply to all companies, as long as company meets the conditions of bank. Only JSC can issue shares, so JSC has the most choice to raise capital.
Enterprise income tax affects to divided profit of investors. However, general enterprise income tax is applied to profit of all types of company. So the different of company’s type doesn’t make the different of tax.
SHOULD YOU ENGAGE IN A LAWYER AND AN ACCOUNTANT
Company registration may seem like a major step in a new business venture for many people. Like anything, it can be daunting if you haven’t done it before and you definitely to make sure that it’s done correctly. Otherwise, you may waste a lot of time and pay fines if you do mistake, even a little one.
The process is generally quite smooth if you involve a professional to help you out. Every one wants to spend less time administering their business and more time running it. In Feline Legal, with many years experience in corporate services, lawyers and accountants will assist you and provide advance with forming your company. We also complete the paperwork, register your company and follow steps after that. You can save a lot of time and enjoy good services with reasonable price
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