Advantages and Disadvantages of business entities in Vietnam – PLF LAW FIRM | Vietnam International Law Firm
Understanding the characters of every single form of enterprise provides the investors advantages in raising capital, managing business, minimize their liabilities, etc.
There are 4 forms of enterprises to be established in Vietnam, including:
- Single-member limited liability company
- Multiple-member limited liability company
- Joint-stock company
- Partnership company
Joint-stock company
Quantity of members
At least 3 members, no restrictions on the maximum members
Responsibility
Being responsible within the scope of their contributed capital.
Right to transfer capital
In the first 3 years since establishment, the founding shareholders are entitled to:
- Freely transfer the shares to other founding shareholders
- Transfer common shares to persons who are not founding shareholders if approved by General Shareholders Meeting
After 3 years, founding shareholders are free to transfer shares, except for voting preference shares.
Methods of raising capital
- Issue shares.
- Issue bonds.
Management structure
General Shareholders Meeting;
Board of Management, Director or General Director;
Control Board (if the company has more than 11 members)
Advantages
High capacity in raising capital.
Operate in various business sectors.
Shareholders are entitled to transfer shares (except for shareholders holding preference voting shares and restrictions of ordinary shares of founding shareholders within the first 3 years).
Disadvantages
Complicated in management and operation since the important decisions which affect the company’s rights and obligations must be approved by Board of Management, General Shareholders Meeting.
Administrative expenses are much greater than other models.
Governed by regulatory framework, especially in financing and accounting, publishing information, etc
Single-member limited liability company
Quantity of members
Only one member who is the company owner.
Responsibility
Being responsible within the scope of their contributed capital.
Right to transfer capital
The owner is entitled to transfer the capital partially or wholly.
Methods of raising capital
Increase charter capital.
Management structure
If the company owner is an individual:
- The company’s President
- Director or General director.
- If the company owner is an organization, the management structure shall apply one of the two following models:
First model:
- The company’s President;
- Director or General; director;
- Controller.
Second model
- Board of members;
- Director or General Director;
- Controller.
Advantages
The company owner is entitled to decide all matters in connection of business operation.
Simple management and cost saving.
Disadvantages
Limited liability within the scope of the capital causes the doubt in the company capacity by clients, partners, particularly for small-sized companies;
Not allowed to reduce the charter capital during the operating time.
It is required to convert the form of company into multiple-member limited liability company when transferring a part of the capital to others or admitting new members
Multiple-member limited liability company
Quantity of members
At least 2 members, 50 members at most.
Responsibility
Being responsible within the scope of their contributed capital.
Example:
Peter and Mary are two foreign investors, jointly contribute capital to establish a limited liability company with charter capital of 200,000 USD (Peter contributes 150,000 USD and Mary contributes 50,000 USD)
After 2 years since establishment, the company is in the loss of 400,000 USD.
At this scenario, the debt amount to be paid by Peter is maximum 150,000USD and 50,000 USD by Ms. Jane.
Likewise, in single-member limited liability company and joint-stock company, each investor is only responsible within the scope of his committed capital contribution.
Right to transfer capital
Each member is entitled to transfer partially or wholly their capital by ways of:
- Offer to the remaining members in proportion to their capital in the company under the same conditions;
Only transfer to non-menber under the same conditions applied to the remaining members if it is not bought or fully bought by the remaining members within 30 days from the offering date.
Methods of raising capital
Increase charter capital:
- Increase the capital of members
Contributed by new members
Management structure
Board of members;
Chairperson of the Board of members;
Director or General Director;
Control Board (if the company has more than 11 members).
Advantages
Investors are able to control the change of members.
Disadvantages
It is hard to gain the partners or clients’ trust in case of low charter capital.
Not allowed to reduce the charter capital during the operating time
Partnership company
Quantity of members
At least 2 members being the co-owner of the company.
The partnership members are individuals.
May have capital contributing members.
Responsibility
Partnership members are liable within the scope of all of their personal properties.
Example:
Capital contribution members are liable within the scope of their contributed capital.
Right to transfer capital
Partnership members are entitle to transfer partially or wholly their stake if agreed by other partnership members.
Methods of raising capital
Increase charter capital:
- Increase the capital of members
Contributed by new members
Management structure
Board of members;
The company’s President cum Director or General Director.
Advantages
Gaining trust easily from partners, clients due to the unlimited liabilities within the scope of all properties.
Gather the prestige of many people.
Disadvantages
Being liable within the scope of all properties is a huge risk for partnership members.
Not allowed to issue securities to raise capital.
Article 47, 53, 55, 73, 75, 78, 85, 110, 116, 119, 134, 172, 175, 177, 183, 185, 187 of Enterprise Law 2014.
Level of popularity of enterprise forms in Vietnam
Forms of enterprise
New registration through 8 months in 2017
Single-member limited liability company
48,766 enterprises
Multiple-member limited liability company
20,063 enterprises
Joint-stock company
14,279 enterprises
Partnership company
20 enterprises
Source: National Portal on Business Registration