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LEGAL TYPES OF BUSINESS IN VIETNAM

Thursday 13, 12 2018
There are many legal business forms in Vietnam, therefore, in order to be able to choose the most suitable type of company, the business owner should know well about characteristics, advantages and disadvantages of each type. Below is a detailed anal
LEGAL TYPES OF BUSINESS IN VIETNAM
There are many legal business forms in Vietnam, therefore, in order to be able to choose the most suitable type of company, the business owner should know well about characteristics, advantages and disadvantages of each type. Below is a detailed analysis of popular business types in Vietnam.

1/ Private enterprise

A private enterprise is an economic organization which is permitted to register business and conduct business activities in accordance with regulations. Privately Owned Enterprises need to have assets and transaction office. The owner is also the legal representative who has full control over all business activities of the company. The owner may directly operate all activities of their company or hire another person to do this job. A private enterprise is unlimited liability company and has no legal status.
Advantages:
- Private enterprises have the right to completely decide matters relating to the business operation.
- Private businesses are less bound by the law.
-Private businesses make assure their partners and customers with their unlimited liability in characteristic.
Disadvantages:
- The risk of owners is high due to the fact that this is not a legal entity
- Unlimited liability of private enterprises means that not only the company's assets but also the business owner’s are responsible for the debts of the company.

2/ Limited Liability Company (LLC)

LCC is a legal entity recognized by the law (Vietnamese business law). Company’s owner and company are two separate legal entities. According to the law, the company has the legal status from the date in the business registration certificate, the company’s owner is the person with the rights and obligations corresponding to the ownership of the company.

LCC has no more than 50 shareholders. It is only liable for debts and other financial obligations within the scope of the company's property obligations. LCC is not allowed to issue shares to raise capital.

Advantages:

- Limited Liability: Company is only liable for debts within the amount of company capital so that it is less risky for the capital contributor.

- The transfer of capital is strictly regulated so it is not easy to change shareholders. This type helps investors to manage the number of members and limit the penetration of strangers into the company.

Disadvantage:
- The prestige of the company is partly affected by the limited liability.

- It is more strictly regulated by the law than a private enterprise or partnership.

- It has no right to issue shares to raise capital.

3/ One member limited liability company

One member limited liability company is a special form of LLC. According to the law of Vietnam, it is owned by an organization and the owner shall be responsible for the debts and other property obligations of the enterprise within its charter capital.

The company’s owner may not directly withdraw but can transfer all or parts of the charter capital to another organization or individual. This type of company has the legal status from the date of the business registration certificate. One-member limited liability companies are not allowed to issue shares.

The owner of the company is not allowed to receive profits of the company if the company fails to pay all the debts and other property obligations.

Depending on the size and lines of business, the internal management structure of a one-member limited liability company may either include: the Board of Directors and the Director or the Chairman and the Director.

4/ Joint Stock Company.

A joint stock company whose charter capital is divided into equal parts called shares is established and existed independently. It is allowed to have a shareholder meeting, a Board of Management and a Director (General Director). In the case of a company with more than eleven shareholders, there must be a Board of Controllers. 

Shareholders are only responsible for the debt and other property obligations of the company within the amount of charter capital. They also have the right to freely transfer their shares to others, the minimum number of shareholders is three and the maximum number is unlimited. Companies of this type have the right to issue securities in accordance with the law on securities.

Advantages:

- Limited Liability: Company is only liable for debts within the amount of company capital so that it is less risky for shareholders.

- The Joint Stock Company operates in most areas/ sectors.

- The capital structure is flexible which enables many people to contribute capital to the company.

- The capital mobilization ability of the joint stock company is very high.

- The transfer of capital in joint stock company is relatively easy, so the scope of participation is very broad, even civil servants have the right to buy shares of joint-stock companies.
Disadvantages:

- The management and operation of a joint stock company is complicated by the fact that the number of shareholders can be very large, people do not know each other and there may be group interest conflicts.

- Establishment and management of joint stock companies are also more complex than other types of companies because they are tightly bound by the law, especially in the financial and accounting regulations.

5/ Partnership companies

Partnership companies must have at least two members who will act as partners in the company. Capital contributers are optional. They are only responsible for the debts of the company within the amount of capital which they contributed to the company.

Members are shared profits according to the proportions of the contribution to the company charter capital and partnership members have equal power when deciding on the business activities. 

Advantages:

- Partnership company is a combination of personal prestige of many people. Due to the unlimited liability of partners, this type of business easily receive partners’ and customers’s trust.

- The management of the partnership companies is not complicated because most of the managers are prestigious people who trust each other.

Disadvantages:

- Due to the unlimited liability of partnership, the level of risk of members is very high.

- This type of company is defined in the 2005 Company Law but in practice it is not popular.

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