Type of enterprise under the law of Vietnam

When starting a business in Vietnam, apart from developing a marketing strategy, hiring staff and raising money, one essential thing to do is to choose a proper legal entity that works well for their business, solves tax issues, provides liability protection for owners as well. There are several entities for founders to select from when launching a business in Vietnam.

According to the Investment Law 2020, foreign investors can invest in Vietnam through the following forms: establishing legal entities; capital contribution, share/stakes purchase; BCC contract; implementing investment projects and investing in new forms according to the Government’s regulations. For the establishing legal entities options, the foreign investors need to choose a suitable legal entity type.

According to the Enterprise Law 2020, there are 05 types of legal entities in Vietnam, which include:

• Sole proprietorship
• Partnerships
• Joint-stock companies
• Single-member limited liability companies
• Multi-member limited liability companies

Each type of legal entity mentioned above has its advantages and disadvantages. Thus, for more detail, the following table analyzes the specific advantages and disadvantages of each kind of legal entity: 

No	Types of legal entities	Definition	Advantages	Disadvantages
1	Sole proprietorship	The sole proprietorship is an enterprise owned by a single individual whose liability for its entire operation by his/her total assets.	The owner of the sole proprietorship has the right to decide on the amount of capital invested.   The owner of the sole proprietorship has the right to enjoy all profits earned from business activities.	Private enterprise does not have legal status The owner can only be an individual and has unlimited liability for all of the enterprise’s business activities with all his/her assets Each individual is only entitled to set up one sole proprietorship. The sole proprietorship cannot contribute capital or purchase shares/ stakes in other companies.
2	Partnerships	A partnership is an enterprise in which:   a) There are at least 02 partners that are joint owners of the enterprise, doing business under the same name (hereinafter referred to as “general partner”). In addition to general partners, the partnership may have limited partners who contribute capital to the company;   b) The general partners shall be the individual whose liability for the enterprise’s obligations is equal to all of his/her assets;   c) A limited partner can be an organization or an individual whose liability for the enterprise’s debts is equal to the committed capital contribution.	The members of a partnership are individuals with professional qualifications and reputation, which is advantageous in business management as well as creating trust in partners A partnership has the legal status from the issuing date of the enterprise registration certificate Because the general partners’ have liability for the company obligations is equal to all of his/her assets, it is easier to convince partners and customers to do business with the company.	The investors must bear high risks due to unlimited liability for the enterprise’s obligations in case the investor is a general partner;  Partnerships are not allowed to issue shares to raise capital.
3	Joint stock enterprise	A joint stock enterprise is an enterprise in which:   a) The charter capital is divided into units of equal value called shares;   b) Shareholders can be organizations and individuals; the minimum number of shareholders is 03; there is no limit on the maximum number of shareholders;   a) A shareholder’s liability for the enterprise’s debts and liabilities is equal to the amount of capital contributed to the enterprise;	Shareholders are only responsible for the debts and liabilities of the enterprise up to the amount of capital contributed to the company Shareholders have the right to freely transfer their shares to others except for shareholders who own voting preference shares and founding shareholders within the first 3 years from the issuing date of the enterprise registration certificate The joint-stock enterprise has a legal status from the date of issuing date of the enterprise registration certificate The joint-stock enterprise has the right to issue securities to raise capital.	Because the joint stock enterprise does not limit the number of shareholders, so it is easy to arise conflicts of interests, which would create certain difficulties in the management of an enterprise.
4	Single-member limited liability enterprises	A single-member limited liability enterprise is an enterprise owned by a single organization or individual (hereinafter referred to as the “owner”). The owner’s liability for the enterprise’s debts and liabilities shall be equal to the enterprise’s charter capital.	The owner has the right to decide all matters related to the company’s operations Single-member limited enterprise has legal status. Members of single-member limited liability enterprise are only responsible for the debts and liabilities of the enterprise up to the amount of capital contributed to the enterprise	Single-member limited liability enterprises have difficulty in raising capital.  Single-member limited liability enterprises when wishing to increase or decrease its charter capital by transferring contributed capital to another person or mobilize capital of a new member, must proceeding adminitrative procedures to convert into a multi-member limited liability enterprise Single-member limited liability enterprise is not allowed to issue shares to raise capital.
5	Multi-member limited liability enterprises	A multiple-member limited liability enterprise is an enterprise that has from 02  to 50 members that are organizations or individuals.	Multiple-member limited liability enterprise have legal status A member’s liability for the enterprise’s debts and liabilities shall be equal to the amount of capital contributed to the enterprise, except for the cases there are members who promise to contribute capital, but they have not contributed capital or have not fully contributed. The purchase of contributed capital among members of the enterprises are strictly regulated by law, so the  managers can easily control the contributed capital of members.	A multi-member limited liability enterprise is not entitled to issue bonds In some cases, because members of the enterprise are only responsible for the debts and liabilities of the enterprise up to the amount of contributed capital, many partners and customers do not want to cooperate because of risk.

From the above analysis, when foreign investors desire to establish a sole proprietorship or being a general partner in a partnership company, their liability for the enterprise’s obligations is equal to all of his/her assets. However, at the present, Vietnamese laws do not have specific guidance documents on measures to ensure full liability of foreign investors when their assets are abroad, leading to difficulties for investors wishing to establish these two types of enterprises. Therefore, according to the actual situation, when foreign investors invest in Vietnam through the establishment of economic organizations, they should establish joint-stock enterprises or limited liability enterprises. These forms of enterprise have a specific and clear legal background, which can minimize legal risks in the process of implementing investment activities in Vietnam.

By: Quynh Nguyen | LinkedIn