Types of business in Vietnam

Vietnam offers a lot of choices when setting up a business in the country. Each one has both advantages and disadvantages which investors and business owners should get deep understanding to optimize business structure and make it most effective. According to VIETNAM ENTERPRISE LAW 2014, there are 5 types of business:

1. Single Member Limited Liability Company (LLC)

• Legal Characteristics

  • Own by a personal/organization
  • Limited liability
  • Legal
  • Can not issue shares

• Charter Capital

  • Assets to contributed capital: VND, foreign currencies, gold, real estate, intellectual property rights, land use right….
  • Assets used to contributed capital must be transferred the ownership/ user right to the company…..
  • Time of contribution: 90 days
  • Can reduce the charter capital after 2 years but still ensure the payment of debt obligations

• Form

  • Time of capital contribution: 90 days

• Not inject full charter capital

  • Not inject full charter capital after 90 days, will be no longer member, or only present for the paid capital %. The company has to reduce its charter capital according to the actual contributed amount.

• Capital transfer

  • The company can increase/ decrease its charter capital. If transferring, it is possible to replace the owner or change the type of business (from one member limited liability to 2 or more members).

• Internal management

  • If the owner is an organization, there are 2 types of internal governance:
    • Company President – Director (General Director) – Board of supervision; or
    • Board of Members – Director (General Director) – Board of supervision (All appointed)
  • If the Owner is an individual: management model: President of the company (is the Owner) – Director

2. Multiple Member Limited Liability Company (LLC)

• Legal Characteristics

  • From 2 up to 50 members.
  • Member can be personal or organization
  • Limited liability
  • Legal
  • Can not issue shares

• Charter Capital

  • Assets to contributed capital: VND, foreign currencies, gold, real estate, intellectual property rights, land use right….
  • Assets used to contributed capital must be transferred the ownership/ user right to the company…
  • Time of contribution: 90 days
  • Can reduce the charter capital after 2 years but still ensure the payment of debt obligations

• Form

  • Time of capital contribution: 90 days

• Not inject full charter capital

  • Not inject full charter capital after 90 days, will be no longer member, or only present for the paid capital %. The company must reduce its charter capital according to the actual contributed amount.

• Capital transfer

  • Company can increase/ decrease charter capital.
  • Priority transfer internally; If the remaining members do not buy or not buy enough, then offer to outsiders.

• Internal management

  • Board of members, Chairman of Board of Members, Director (General Director), and Supervisory Board (required for companies with 11 or more members).
  • Member Council elects Chairman of Board of Members and appoints Director.

• Conditions for proceeding Meeting

  • Council meeting at least once a year.
  • Members’ Council is the highest decision-making body.
  • The meeting is valid when the number of attendees represents at least 65% of the charter capital.
  • The second time> 50%, the third time does not depend on the number of members

• Voting rate

  • Key decision: 75% capital, 65% remaining, or charter.

• Board of supervision

  • From 11 members or more, Board of supervision must be established.
  • Rights, obligations,… of the Supervisory Board are stipulated in the company’s charter.

3. Joint Stock Company (JSC)

• Legal Characteristics

  • At least 3 shareholders and no maximum limit.
  • Shareholders can be personal or organization
  • Limited liability
  • Legal
  • The right to issue securities under the securities law

• Charter Capital

  • Assets to contributed capital: VND, foreign currencies, gold, real estate, intellectual property rights, land use right….
  • Assets used to contributed capital must be transferred the ownership/ user right to the company…..
  • Time of contribution: 90 days
  • Can reduce the charter capital after 2 years but still ensure the payment of debt obligations

• Form

  • Common shares > Common shareholders; Preferred shares (voting, dividend, refunds)
  • Founding shareholders buy together at least 20% common shares.

• Not inject full charter capital

  • Shareholders who have not paid for the registered shares will no longer be a shareholder of the company and cannot transfer the right to purchase shares.
  • Shareholders who only pay for a part of the registered shares will have the right to vote, receive dividends and other rights equivalent to the number of paid shares.
  • The unpaid shares are considered unsold shares and the Board of Directors is entitled to sell.
  • The company has to register for an adjustment of its charter capital equal to the par value of the paid shares up to the end of the payment period.

• Capital transfer

  • Founding shareholders: Within 3 years (from the date of business registration), it is not allowed to transfer to a person who is not a Founding Shareholder if approved by the General Meeting of Shareholders (but can transfer freely to other Founding Shareholders. .
  • After 3 years, it will be freely transferrable

• Internal management

  • It is possible to choose one of two models:
    • General Meeting of Shareholders – Board of Directors-Director- Board of supervision or
    • General Meeting of Shareholders – Board of Directors – Director
  • The General Meeting of Shareholders is the highest decision-making body.
  • The election of the Board of Directors / Supervisory Board must follow cumulative voting (if the charter does not provide otherwise).
  • Members of the Board of Directors are not necessarily shareholders of the company.

• Conditions for proceeding Meeting

  • Meeting at least once a year.
  • A meeting of the Board of Directors has at least 3/4 of the members attending the meeting.
  • General Meeting of Shareholders:1^st : 51% of total voting shares2^nd : 33% (or according to the charter),3^rd  depends on the number of shareholders and representative shares

• Voting rate

  • Important decisions: 65% of the votes of attending shareholders,
  • Other problems: 51%.

• Board of supervision

  • Supervisory Board 3-5 people (or according to the charter), has at least 1 accountant or auditor, more than half of the members of the Supervisory Board must permanently reside in Vietnam. The term of a controller does not exceed 5 years, and may be re-elected for an unlimited number of terms.

  • Not a relative of the Board member, Director, CEO, other managers

  • Not required to be an employee or a shareholder of the company.

  • The Supervisory Board member cannot be the manager of the company.

4. Partnership

• Legal Characteristics

  • At least two partnership, and may have member as shareholder
  • Partnership have unlimited responsibility.
  • Shareholder: Limited liability
  • Legal
  • Can not issue shares

• Charter Capital

  • Assets to contributed capital: VND, foreign currencies, gold, real estate, intellectual property rights, land use right….
  • Assets used to contributed capital must be transferred the ownership/ user right to the company…..
  • Time of contribution: 90 days

• Not inject full charter capital

  • General partners and Limited Partner must contribute in full according to the commitment. If a general partner does not contribute enough and on time, causing damage to the company, he / she must compensate. As for Limited Partner, the unpaid capital amount is considered a debt and may be deducted under a decision of the Members’ Council.

• Capital transfer

  • General partners are not allowed to transfer part or all of them without the consent of the remaining general partners.

• Internal management

  • Board of Members elected 1 general partner as Chairman cum Director (if the charter does not stipulate otherwise)
  • A general partner has the right to convene a Board of Members.

• Conditions for proceeding Meeting

  • The Board of Members has the right to decide all the business issues of the company. Each general partner has 01 vote.

• Voting rate

  • With important decisions, it must be accepted by 3/4 of the general partners. (or according to the company charter).
  • Other issues must be accepted by at least 2/3 of the general partners (or according to the company charter).

5. Private Company

• Legal Characteristics

  • Individual Ownership (1 individual can only establish 1 private company)
  • Unlimited liability
  • No legal status
  • Can not issue shares

• Charter Capital

  • Business owner self – register. Have the right to increase/ decrease investment capital. If the capital reduction is lower than the registered level, the only can reduction after register with Business Register Dept.
  • Company can use the assets contributed by the business owner without transferring ownership/ use rights.

• Form

  • Can be converted to company limited under some conditions

• Capital transfer

  • Entire private businesses can be rented or sold.

• Internal management

  • The owner of the private enterprise can directly or hire another person to manage and run the business. In case of outsourcing, the owner of the private enterprise is still responsible for all the business activities of the enterprise.

It can be seen that there is no better business type, and there is no business type without drawbacks. When choosing the type of business to set up a company, the business owner must clearly and fully define his or her purpose. That way, the new enterprise can bring into play the strength and efficiency of that type of enterprise.

For more consulting or support to set up your company, please contact us via hotline: (+84) 24 2217 6060 or email: info@gaaccounting.net