TYPICAL TYPES OF ENTERPRISES IN VIETNAM FOR FOREIGN INVESTORS
Vietnam has attracted many foreign investors in recent times thanks to its economic development and diplomatic reform. In order to establish an enterprise in Vietnam, foreign investors have to comply with regulations under the laws of Vietnam and meet the requirements for charter capital, asset and human resources…. However, foreign investors also cope with challenges such as complicated administrative procedures, limitations on regulations or fierce competition from domestic enterprises. Therefore, to gain success when investing in Vietnam, foreign investors need to have a strategic orientation and choose the type of business that is suitable for their business lines and orientation. Below is an article by Dai Ha Thanh Law Firm about Vietnam's regulations on some typical types of enterprises for foreign investors.
1. Limited liability company
According to Clause 7 Article 4 Enterprise Law 2020, Limited liability companies include two types: Single-member limited liability company and Multiple-member limited liability company. Capital contributors can be individuals or organizations. Capital contributors who own partial or total charter capital of the company are called limited partners.
1.1. Single-member limited liability company
Members of the company: The company is owned by an individual or an organization. In general, the company owner must meet the requirements mentioned under Article 17 Enterprise Law 2020.
For the reason that the company has only one individual or an organization as the owner, this subject shall have the power to operate, manage and control directly the activities of the company.
Charter capital: Article 75 of Enterprise Law 2020 stipulated that the charter capital of a single-member limited liability company is the total assets committed by the owner and shall be written in the company's charter.
The owner must contribute in full and with the right type of assets as committed when applying for enterprise registration within 90 days from the issuance date of the Certificate of Enterprise Registration. In case the charter capital is not fully contributed, the owner shall register the contributed capital as charter capital.
Asset liability: The owner of a single-member limited liability company is responsible for the company’s debts and other liabilities equally to the company’s charter capital.
Ability to raise capital: A single-member limited liability company is not able to issue shares. However, the company’s capital raising activities are also quite diverse. The company can raise capital through the owner of the company contributing more capital, issuing bonds or borrowing capital from other organizations and individuals.
Legal status: A single-member limited liability company has legal status from the date of issuance of the Certificate of Enterprise Registration. As a result, the company may act on its own behalf in business transactions and activities.
Structure:
+ A single-member limited liability company owned by an individual has a President, Director or General Director. The owner of the company is the President of the company and may concurrently or hire another person to act as the Director or General Director.
+ A single-member limited liability company owned by an organization shall be managed and operated by the organization under one of the following two models: (i) President, Director or General Director; (ii) Board of Members, Director or General Director.
1.2. Multiple-member limited liability company
Members of the company: Members of a multiple-member limited liability company are in the limitation of a minimum of 02 and a maximum of 50 members.
Members of a multiple-member limited liability company are individuals or organizations that have Vietnamese or foreign nationality. Nevertheless, these subjects are not prohibited from establishing, contributing capital, buying shares, buying contributed capital, and managing enterprises specified under Article 17 of Enterprise Law 2020.
Charter capital: Under Article 46 of Enterprise Law 2020, the charter capital of a multiple-member limited liability company is the total capital contributed or committed by the members.
The members shall contribute fully and with the right types of assets as committed when applying for enterprise registration within 90 days from the issuance date of the Certificate of Enterprise Registration.
In case a member fails to contribute or fully contribute capital as committed, the company shall register the change in charter capital and the members’ holdings within 60 days from the deadline for contributing capital.
Asset liability: The company is solely responsible with all its assets because it has legal status.
A member’s liability for the enterprise’s debts and other liabilities shall be equal to the amount of capital that member contributed to the enterprise.
Legal status: A multiple-member limited liability company has legal status from the day on which the Certificate of Enterprise Registration is issued. As a result, the company can act on its own behalf in business transactions and activities.
Ability to raise capital: Multiple-member limited liability companies may not issue shares, however, the following methods of capital raise can be applied: (i) Receiving additional capital contributions from new members; (ii) Increase in capital contribution of members; (iii) Borrowing capital and credit from individuals and organizations; (iv) Issuance of bonds.
Structure: The structure of a multiple-member limited liability company consists of the Board of Members, the President of the Board of Members, the Director or the General Director. A limited liability company with 11 or more members must establish a Board of Controllers; In case there are less than 11 members, the Board of Controllers may be established in accordance with the requirements of corporate governance. The rights, obligations, standards, conditions and working regime of the Board of Controllers and the Chief Controllers are stipulated in the company's Charter.
3. Joint-stock company
Shareholder: Shareholders are those who own at least one share of the company.
The law only stipulates that the minimum number of shareholders of a joint-stock company is 03 and there is no limit to the maximum number. This helps a joint-stock company to expand the number of members depending on its needs.
Charter capital: The initially registered charter capital of a joint-stock company is the total face value of subscribed shares and shall be written in the company's Charter.
The charter capital of a joint-stock company is divided into equal parts called shares. Organizations or individuals participating in the company by buying shares, can buy one or more shares.
Types of shares: Article 114 Enterprise Law 2020 noted a list of types of shares including:
- Ordinary shares;
- Preference shares which consists of:
+ Super-voting shares: Only organizations authorized by the Government and founding shareholders are entitled to hold super-voting shares.
+ Participating preference shares;
+ Redeemable preference shares;
+ Other types of preference shares prescribed by the company's Charter and securities laws.
The subjects that may purchase participating preference shares, redeemable preference shares and other preference shares shall be specified in the company's Charter or decided by the General Meetings of Shareholders.
Asset liability: The liability regime of a joint-stock company is a limited liability regime, the company will be responsible with the entire company's assets, shareholders are responsible for debts equal to the amount of capital contributed to the company.
Legal status: A joint-stock company has legal status from the day on which the Certificate of Enterprise Registration is issued. As a result, the company can act on its own behalf in business transactions and activities.
Ability to raise capital:
Compared with other types of companies, a joint stock company has a flexible capacity for capital mobilization. Like other types of companies, a joint stock company can raise capital from loans of both domestic and foreign organizations and individuals. In addition, a joint stock company can raise capital by issuing stocks and bonds.
+ A share certificate is a certificate issued by a joint stock company, a book entry or electronic data that certifies the ownership of one or a number of shares of the company. Issuing shares is a strength that only a joint stock company has.
+ A joint-stock company has the right to issue bonds, convertible bonds and other types of bonds in accordance with law and the company's Charter.
This flexible capital mobilization mechanism is one of its advantages for individuals and organizations establishing a joint-stock company to be more proactive about capital when needed.
Structure:
Unless otherwise provided by the Law on Securities, a joint-stock company has the right to choose an organization to manage and operate under one of the following two models:
(i) General Meetings of Shareholders, Board of Directors, Board of Controllers and Director or General Director. In case a joint-stock company has less than 11 shareholders and the shareholders are organizations holding less than 50% of the total shares of the company, it is not required to have a Board of Controllers;
(ii) General Meetings of Shareholders, Board of Directors and Director or General Director. In this case, at least 20% of the members of the Board of Directors must be independent members and have an Audit Committee under the Board of Directors. The organizational structure, functions and tasks of the Audit Committee are specified in the company's charter or the operation regulations of the Audit Committee issued by the Board of Directors.
4. Partnership
Members of the company: A partnership has at least 02 general partners that are joint owners of the company. There can be limited partners in addition to general partners.
A general partner must not be the owner of a sole proprietorship; must not be a general partner of another partnership unless it is accepted by the other general partners.
A general partner must not, in their own names or others’ names, do business in the same business lines as those of the partnership for personal gain or to serve the interests of another organization or individual.
A general partner must not transfer part or all of his/her capital in the company to another organization or individual unless it is accepted by the other general partners.
Asset liability: General partners must be individuals, responsible with all their assets for the obligations of the company. Limited partners are organizations or individuals and are only responsible for the company's debts within the amount of capital they have committed to contribute to the company.
Legal status: Pursuant to Clause 2, Article 177 of the Enterprise Law 2020, a partnership has legal status from the date of issuance of the Certificate of Enterprise Registration.
Ability to raise capital: A partnership shall not issue any type of securities. However, a partnership can increase the charter capital by obtaining additional capital from new members, increasing each member's capital, or borrowing from other individuals or organizations.
Structure and business management:
The organizational structure of a partnership includes: The Board of Partners, the Director, or the General Director.
The Board of Partners includes all members. If there are no other provisions in the Charter, The Board of Partners shall elect a general partner to serve as the President of the Board of Partners, while also electing the Director or the General Director of the company. The Board of Partners has the power to decide on all the business of the company.
General partners have the right to be a legal representative and organize the daily business operations of the company. Any restriction on a general partner in conducting the company's daily business becomes effective against a third party only when that person is made aware of such restriction.
In running the business of a partnership, the general partners assign each other to take on the positions of management and control of the company.
When some or all of the general partners carry out some business, the decision is passed by majority.
Activities performed by general partners outside the scope of business activities of the company are not the responsibility of the company, unless such activities have been approved by the remaining members.
5. Sole proprietorship
Under Article 188 Enterprise Law 2020, a sole proprietorship is an enterprise owned by a single individual whose liability for its entire operation is equal to his/her total assets.
A sole proprietorship does not have the legal status and must not contribute capital upon establishment or purchase shares or stakes of Partnerships, Limited liability companies or Joint-stock companies.
An individual may only establish one sole proprietorship.
However, the current law does not have any documents specifically guiding the procedures for the establishment of a sole proprietorship for foreigners. In addition, there are no regulations guiding measures to ensure the liability with the entire property of foreigners when their assets are abroad. In order for foreign investors to establish a sole proprietorship, they can apply for Vietnamese citizenship before setting up a private enterprise. However, this approach is not recommended because of many problems with procedures as well as capital of the enterprise.
In addition, foreigners cannot invest in a sole proprietorship, due to the characteristics of this type of enterprise: the capital of a sole proprietorship is the property of the enterprise. Foreigners can invest through a contract to lend money or property directly to the business owner, but this does not seem to be a legal form of investment.
Above is an overview of the legal issues related to some typical types of enterprises in Vietnam for foreign investors. Dai Ha Thanh Law Firm, with a team of professionally trained lawyers, legal advisors at home and abroad, is committed to providing professional legal services to our clients. If you need detailed advice, please contact us to receive professional and effective legal advice.
