Types of enterprises in Vietnam according to current regulations (Enterprise Law 2020), there are 5 main types of enterprises including:
– Joint stock company,
– Single-member limited liability company,
– Limited liability company with two or more members,
– Partnership,
– Private enterprise.
Private enterprise
A private enterprise is an enterprise owned by an individual who is personally responsible for all activities of the enterprise with all of his/her assets. The sole owner of a private enterprise is an individual. A private enterprise does not have legal status.
Advantages of private enterprises
- As the sole owner of the enterprise, a private enterprise is completely proactive in deciding on issues related to the business activities of the enterprise.
- The unlimited liability regime of private business owners creates trust for partners and customers and helps businesses to be less tightly bound by law than other types of businesses.
Disadvantages of private businesses
- Because there is no legal status, the risk level of private business owners is high, private business owners must be responsible for all assets of the business and the business owner, not limited to the amount of capital that the business owner has invested in the business.
- Unlike LLCs and joint stock companies, each individual is only allowed to establish one private business. The owner of a private business cannot be a business owner or a general partner of a general partnership.
- Private businesses are not allowed to contribute capital to establish or purchase shares or capital contributions in a partnership, limited liability company or joint stock company.
Partnership
A partnership is an enterprise in which:
- There must be at least two general partners; In addition to general partners, there may be capital contributors;
- General partners must be individuals with professional qualifications and professional reputation and must be responsible for all of their assets for the obligations of the company;
- Capital contributors are only responsible for the company’s debts within the scope of the capital contributed to the Company.
A general partnership has legal status from the date of issuance of the Certificate of Business Registration.
Advantages of a general partnership
- The advantage of a general partnership is that it combines the personal reputations of many people.
- Due to the unlimited joint liability regime of general partners, a general partnership can easily create trust with customers and business partners.
Disadvantages of a general partnership
- The limitation of a general partnership is that due to the unlimited joint liability regime, the risk level of the general partners is very high. Capital contributors do not have the right to manage the enterprise, so there are many restrictions on capital contributors.
- Usually only applied to enterprises operating in specialized fields such as Law Firms.
- Partnerships are not allowed to issue any type of securities.
Single-member LLC
- A single-member LLC is an enterprise owned by an organization or an individual (hereinafter referred to as the company owner).
- A single-member LLC has legal status from the date of issuance of the Certificate of Business Registration.
Advantages of a single-member LLC
- Due to its legal status, company members are only responsible for the company’s activities within the scope of the capital contributed to the company, so it poses little risk to the owner;
- The company’s organizational structure is the simplest among all types of enterprises;
- The company owner has full authority to decide all matters related to the company’s operations without being influenced or having difficulty in making decisions related to the company’s operations.
Disadvantages of a single-member LLC
- The capital mobilization of a limited liability company is limited because it has only one member and does not have the right to issue shares, except in the case of converting into a joint stock company.
- The owner’s salary is not included in the company’s expenses.
Limited liability company with two or more members
- A limited liability company with two or more members is an enterprise with from 02 to 50 members who are organizations or individuals.
- A limited liability company is not allowed to issue shares to raise capital, except in the case of converting into a joint stock company.
- A limited liability company with two or more members is not allowed to issue shares.
Advantages of a limited liability company with two or more members
- Because it has legal status, the company members are only responsible for the company’s activities within the scope of the capital contributed to the company, so it poses little risk to the capital contributors;
- The number of members of a limited liability company is not large and the members are often acquaintances and trust each other, so the management and operation of the company is not too complicated;
Disadvantages of LLCs with 2 or more members
- LLCs are subject to stricter legal regulations than private enterprises or partnerships;
- LLCs’ capital mobilization is limited because they do not have the right to issue shares.
Joint Stock Company
A joint stock company is an enterprise in which:
- The charter capital is divided into equal parts called shares;
- Shareholders can be organizations or individuals; the minimum number of shareholders is three and there is no limit on the maximum number.
Advantages of joint stock companies
- The capital structure of a joint stock company is extremely flexible, creating conditions for many people to contribute capital to the company;
- The ability to mobilize capital of a joint stock company is very high through the issuance of shares for sale or shares to the public, this is a unique feature of a joint stock company;
- Transferring capital in a joint stock company is relatively easy, without having to carry out procedures to change shareholders with the Department of Planning and Investment, so the scope of subjects participating in a joint stock company is very wide, even civil servants have the right to buy shares of a joint stock company.
Disadvantages of a joint stock company
- Management and operation of a joint stock company is very complicated because the number of shareholders can be very large, many of whom do not know each other and there may even be differentiation into groups of shareholders with opposing interests;
- Founding shareholders may lose control of the company.
- For a joint stock company, when transferring shareholders, the personal income tax rate according to securities transfer is 0.1% (even if the company does not make a profit), this personal income tax rate is still applied.
Above is the distinction between business types. If you need more detailed advice to choose the right business model, please contact VNNA for detailed advice and guidance.
