Form of entity in Vietnam – DLA Piper Guide to Going Global

Vietnamese corporate laws introduce 5 entity types, being a joint stock company (JSC), a limited liability company with 2 or more members (LLC2), a limited liability company with 1 member (LLC1), a partnership and a private enterprise. The LLC1 is the most popular and widely used type by foreign investors when they intend to set up and wholly own and control a legal entity in Vietnam. Partnerships and private enterprises are more suitable for local and small investors. In addition, the form of partnership may only be designed and appropriate for a limited number of specific professional businesses, such as legal or auditing businesses. Therefore, we will only cover the first 3 entity types: JSC, LLC2 and LLC1.

Joint stock company (JSC)

At least, 3 shareholders and no restriction to the maximum number.
Generally, no personal financial liability of shareholders as it is limited to their capital contribution in a JSC.
Earnings of a company are subject to corporate income tax and shareholders (only individuals) are taxed on any distributed dividends.
Typical corporate documents generally include an Enterprise Registration Certificate (ERC), the charter (which is usually called the articles of incorporation in certain jurisdictions), organizational resolutions of the general shareholders meeting (GSM) and the board of management (BOM), shareholders’ registration book and share certificates.
The GSM makes decisions on the most important affairs of the JSC. The BOM has overall responsibility to implement the GSM’s decisions and makes decisions on certain, less important affairs of the JSC. The general director (or CEO) has day-to-day management responsibilities.
Shareholders typically purchase shares in the JSC, either ordinary shares or preference shares.
Individual shareholders are required to file tax returns (personal income tax) with local tax authorities upon receiving dividends (where they would like to declare tax by themselves). With respect to corporate shareholders, the distributed dividends would be included in their tax finalization returns (corporate income tax) at the end of the relevant fiscal year.

Limited liability company with 2 or more members (LLC2)

Must have at least 2 members and no more than 50; can be both individuals and legal entities
Generally, no personal financial liability of members as it is limited to their capital contributions in an LLC2.
Earnings of a company are subject to corporate income tax and members (only individuals) are taxed on any distributed profits
Typical corporate documents generally include:
- Enterprise Registration Certificate (ERC)
- Charter (which is usually called articles of incorporation in certain jurisdictions)
- Organizational resolutions of the Members’ Council (MC)
- Members registration books and
- Capital contribution certificates
The MC makes decisions on the most important affairs of the LLC2 and has overall management responsibility. General Director (or CEO) has day-to-day management responsibilities.
Members contribute capital to the charter capital of LLC2 or purchase paid capital contributions from former members.
Individual members are required to file tax returns (personal income tax) with local tax authorities upon receiving profits (where they would like to declare tax by themselves). With respect to corporate members, the distributed profits would be included in their tax finalization returns (corporate income tax) at the end of the relevant fiscal year.

Limited liability company with 1 member (LLC1)

Only 1 member is required, either an individual or a legal entity
Generally, no personal financial liability of a member as it is limited to its capital contribution in an LLC1.
Company’s earnings are subject to corporate income tax, but the sole member (either a corporate or an individual) is not taxed on any distributed profits
Typical corporate documents generally include:
- Enterprise Registration Certificate (ERC)
- Charter (usually called the articles of incorporation in certain jurisdictions) and
- Decisions of the sole member, which may be made directly by a member or indirectly through either the member’s council or the company president.
Either the member’s council or the company president has overall management responsibility. The General Director (or CEO) has day-to-day management responsibility.
Member contributes capital to the charter capital of the LLC1 or purchase paid capital contribution from the former member.
Where the company owner is a legal entity, its distributed profits would be included in its tax finalization return (corporate income tax) at the end of the relevant fiscal year.

Partnership

At least 2 unlimited liability partners (only individuals) and no restriction to the maximum number; no restriction to the minimum and maximum number of limited liability partners
Generally, no personal financial liability of limited liability partners as it is limited in their capital contributions in the partnership. However, unlimited liability partners are liable for the obligations of the partnership to the extent of all of their assets.
Earnings of a partnership are subject to corporate income tax and partners (only individuals) are taxed on any distributed profits
Typical corporate documents generally include Enterprise Registration Certificate (ERC), charter (which is usually called articles of incorporation in certain jurisdictions), decisions of the Partners’ Council and capital contribution certificates.
Partners’ Council has overall management responsibilities; unlimited liability partners have day-to-day management responsibilities
Partners contribute capital to the charter capital of a Partnership. The limited liability partners can purchase paid capital contribution in the Partnership from former limited liability partners.
Individual partners are required to file tax returns (personal income tax) with local tax authorities upon receiving profits (where they would like to submit a self-declaration of their tax). With respect to corporate limited liability partners, the distributed profits would be included in their tax finalisation returns (corporate income tax) at the end of the relevant fiscal year.

Private enterprise

Only a sole individual owner
The owner has personal liability for all activities of the private enterprise to the extent of all of their assets.
Earnings of an enterprise are subject to corporate income tax, but the sole individual owner is not taxed on any distributed profits
Typical corporate documents generally include an Enterprise Registration Certificate (ERC) and internal rules issued by the owner.
Owner has overall and day-to-day management responsibilities
Owner registers the investment capital of a private enterprise.