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How does the 2020 Enterprises Law affect foreign companies in Vietnam?

How does the 2020 Enterprises Law affect foreign companies in Vietnam?

Wednesday 28, 07 2021
The 2020 Enterprise Law, effective from January 1, 2021, has new and revised clauses that affect foreign companies operating in Vietnam.

The 2020 Enterprise Law has many new regulations, supplements, and replacements for the old ones. Although there are no provisions that directly affect foreign companies in Vietnam, there are many new points that affect the operation and management of said enterprises.

Enterprises are not required to notify seal samples when establishing

According to Article 44 of the 2014 Enterprise Law, before using, the enterprise is obliged to submit the seal sample to the business registration authority for public posting on the National Business Registration Portal.

However, this regulation has been abolished officially in the 2020 Enterprise Law. Specifically, Article 43 of the 2020 Enterprise Law has re-stipulated as follows:

Enterprises are not required

- The enterprise’s seals can be physical or digital as prescribed by e-transaction laws (new regulations added in the Law 2020);

- The enterprise shall decide the type, quantity, design and content of its seal and the seals of its branches, representative offices and other units (additional);

- The management and preservation of the seal shall comply with the company's charter or regulations issued by the enterprise, branch, representative office, or other units of the enterprise that owns the seal (additional);

Foreign enterprises do not need to send notices of seal samples to the Business Registration Office after being granted an enterprise registration certificate. Enterprises can decide on the form and number of seals themselves.

Limited companies are allowed to issue bonds

Clause 4, Article 46, Clause 1, Article 74 of the Law on Enterprises 2020 has stipulated that limited liability companies with two or more members and one-member limited liability companies can issue bonds. Compared to the old regulations, the 2020 Enterprise Law allows limited companies to raise capital by issuing bonds.

Limited companies

Thus, a foreign company operating in the form of a limited liability company will be able to raise capital in the following forms:

- Increase the capital contribution of members;

- Receive new members;

- Change to a joint-stock company;

- Issue bonds.

Change of conditions to conduct the General Meeting of Shareholders

The General Meeting of Shareholders shall be conducted when it is participated by a number of shareholders that represent more than 50% of the votes (Article 145 of the 2020 Enterprise Law) instead of 51% previously.

This regulation is very beneficial for large-scale foreign companies, especially corporations or parent companies since the difference between the new regulation and the old one is only 1% of the total number of votes, but for foreign companies with many shareholders, this is a relatively large percentage of votes.

Responsibilities of the executives for the damage of the company

Clause 2, Article 165 of the 2020 Enterprise Law stipulates: A member of the Board of Directors, Director or General Director and other managers violates regulations on responsibilities of a company manager specified in Clause 1, Article 165 of the 2020 Enterprise Law shall be personally or jointly responsible for compensation for lost benefits, return of benefits received and for all damages to the company and third parties.

Responsibilities of the executives

Besides, Article 12 of the 2020 Enterprise Law also stipulates: In case the division of rights and obligations of each legal representative has not been clearly stated in the company's charter, each legal representative of the company must be a competent representative of the enterprise to a third-party; all legal representatives must be jointly responsible for damages caused to the enterprise in accordance with the provisions of the civil law and other relevant laws.

Thus, all enterprise managers and legal representatives of the enterprise must be jointly responsible for the damage caused to the enterprise. That is a new regulation of the 2020 Enterprise Law, directly impacts the managerial positions of enterprises. Foreign enterprises in general and foreigners in managerial positions or legal representatives of the company need to update this regulation.

Three working days in advance for business suspension

According to Article 200 of the 2014 Enterprise Law, the time to notify business suspension is at least 15 days before the date of business suspension.

However, Clause 1, Article 206 of the 2020 Enterprise Law stipulates: Enterprises must notify the business registration authority in writing at least three working days before the suspension or resumption date.

In case a foreign enterprise wants to suspend its business in Vietnam, it only needs to notify three working days in advance.



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