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Most popular business forms in Vietnam

Most popular business forms in Vietnam

Friday 15, 05 2020
Vietnam has a diverse range of business forms. Therefore, in order to be able to choose the right type of business in accordance

With the current situation and development orientation, business owners need to understand the characteristics, advantages and disadvantages of each type of business. Below is the detailed analysis of common types of legal entities in Vietnam prepared by experts from VietnamCredit.

1. Private enterprise

A private enterprise is an economic organization that is allowed to register its business and conduct business activities. A private enterprise is owned by an individual, has assets, and has a transaction office. The owner of a private enterprise is the legal representative who has full power to make business decisions. Normally, the owner of a private business will directly manage and run all activities of the company. However, this owner can also hire others to do this job on his behalf. A private enterprise is an unlimited liability company and has no legal status.

Advantages:

  • Private enterprise owners are completely proactive in deciding on issues related to their business operations.

  • Private enterprises are less bound by laws.

  • Private enterprises create trust for partners and customers by the unlimited liability regime.

Disadvantages:

  • Because the company has no legal status, the owner of a private company may face a lot of risks.

  • ​Unlimited liability: not only the company's assets but also the property of the business owner is responsible for the company's debts.

2. Limited liability company

Limited liability company has legal status recognized by the law (Enterprise Law). The company owner and the company are two separate legal entities. The company has the legal status from the date of being granted the business registration certificate. The company owner is the natural person with the rights and obligations corresponding to the company ownership.

A limited liability company must have no more than 50 members who contribute capital, and the company is only liable for debts and other financial obligations within the scope of its asset obligations. Limited liability companies are not allowed to issue shares to raise capital.

Advantages:

  • Limited liability regime: Shareholders are only responsible for debts within the amount of capital contributed to the company.

  • The capital transfer regime is tightly monitored so investors can easily control the change of members, limiting the penetration of strangers into the company.

Disadvantages:

  • ​The company's creditworthiness is partly affected by the limited liability regime.

  • Being more strictly regulated by law than private enterprises or partnerships.

  • ​Not allowed to issue shares to raise capital.

3. Single-member limited liability company

Most popular business forms in Vietnam

Single-member limited liability companies is a special form of limited liability companies. Under Vietnamese law, a single-member limited liability company is an enterprise owned by an organization or individual. The owner is responsible for the debts and other property obligations of the business to the extent of the charter capital of the business.

The company owner has the right to transfer all or part of the company's charter capital to other organizations and individuals. A one-member limited liability company has the legal status from the date of issuance of the business registration certificate. Single-member limited liability companies are not allowed to issue shares.

The company owner must not directly withdraw part or all of the capital contributed to the company. The company owner is only allowed to withdraw capital by transferring a part or all of the capital to other organizations or individuals. The company's owner must not enjoy the company's profit when the company fails to pay all debts and other property obligations which are due.

4. Joint stock company

A joint stock company is a type of company whose charter capital is divided into parts called shares that exist independently. A joint-stock company must have a General Meeting of Shareholders, a Board of Directors and a Director (General Director). For a joint-stock company with more than eleven shareholders, it must have the Control Board. Shareholders are only responsible for debts and other property obligations of the company within the amount of capital contributed to the company, have the right to freely transfer their shares to other people. The minimum number of shareholders in a joint stock company is three and there is no maximum number. A joint stock company has the right to issue shares in accordance with the law on securities.

Advantages:

  • The Company is only responsible for debts within the capital contribution, so the level of risks for shareholders is not high.

  • Joint stock companies can operate in almost all fields and industries.

  • The capital structure of a joint stock company is very flexible, enabling many people to contribute capital to the company.

  • Joint stock companies are allowed to issue shares to raise capital.

  • ​The transfer of capital in a joint stock company is relatively simple, so the scope of participants in the joint stock company is very wide, even officials and civil servants have the right to buy shares of joint stock companies.

Disadvantages:

  • The management and operation of joint stock companies is complicated because the number of shareholders can be very large.

  • The establishment and management of joint stock companies is also more complicated than other types of companies due to the strict regulations of the law, especially laws on financial and accounting regimes.

5. Partnership

A partnership is a company in which at least two general partners are the co-owners of the company. In addition to members, partnerships may have capital-contributing members who are only liable for the debts of the company within the amount of capital contributed to the company. A partnership has legal status, the members have the right to manage the company and conduct business activities on behalf of the company, and are jointly responsible for the company. Capital-contributing members are entitled to share profits in accordance with the provisions of the company's charter, and general partners have equal rights when deciding on corporate management issues.

Advantages:

  • A partnership is a combination of the personal reputation of many people. Due to the unlimited liability regime, partnerships can easily create trust with customers and business partners.

  • The management of partnerships is not too complicated due to the small number of members.

Disadvantages:

  • Members of partnerships may face many risks.

  • Partnership is stipulated in the 2005 Enterprise Law, but in practice, this type of bussiness has not been popular.

>> Most popular financial analysis methods

Alice Hoang Thao - VietnamCredit

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Business VietnamCredit

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