HOW TO ESTABLISH A LIMITED COMPANY IN VIETNAM

With the development of the economy in the era of the influence of the Covid epidemic as well as the remarkable recovery of Vietnam in the face of the challenges of the new strain, despite the data of businesses shutting down or going bankrupt, there have been many companies that have announced their recovery after the pandemic and returned to normal operations, in addition, many start-ups also have the intention of establishing and developing their own businesses, expecting to meet up with the needs of the people returning to society after each long-term quarantine. By establishing a business, the owners not only ensure that the needs related to production, logistics, and economic development are met but also create jobs for many people who have to stay home and cannot performing work due to the impact of the epidemic, this plays a huge role in recovering the economy as well as creating opportunities for workers to return to work or find new job opportunities with a better income. Among the forms of business entity in Vietnam Limited liability company and a Joint-stock company are the two most popular forms of business, they are highly favored for many of their legal as well as business benefits. This article aims to provide information regarding the matter of establishing a limited company in Vietnam. Let’s unravel the procedures with Doanh Tri Law Firm.

Legal basis

• Law on Enterprise 2020
• Circular 01/2021/TT-BKHDT Guidance on Enterprise Registration
• Decree 01/2021/ND-CP on Enterprise Registration

I. What is a limited liability company (LLC)

Before we jump into the procedures for establishing a limited liability company in Vietnam, we must first understand what is a limited liability company and how many types of LLC there are incordance with Vietnam’s regulations, and their advantages and disadvantages.

• There are no specific definitions as to what is an LLC, according to the Law on Enterprise, an LLC consists of a Single-member Limited Liability Company and Two or more members Limited Liability Company.

1. What is a Single-member LLC?

• A single-member limited liability company is an enterprise owned by an organization or individual (hereinafter referred to as the company owner). The company owner is responsible for the company's debts and other property obligations to the extent of the company's charter capital.
• A single-member limited liability company has legal status from the date of issuance of the Certificate of Business Registration.
• A single-member limited liability company may not issue shares, except in the case of conversion into a joint-stock company.
• A single-member limited liability company may issue bonds in accordance with the Law on Enterprise and other relevant laws; the private placement of bonds under the provisions of Articles 128 and 129 of the Law on Enterprise.
• Advantages of operating a Single-member LLC: The biggest advantage of this type is that the company owner will have full control over all matters related to the company's operations. An individual can also set up a business. It is not necessary to find a partner to establish a business together. Or some organizations can separate capital and invest in other fields. The owner of a single-member limited liability company is only responsible for the company's activities to the extent of the amount of capital contributed to the company, thereby the lesser risk for the owner. This can be seen as a superior advantage compared to the type of private enterprise. Has a compact and flexible organizational structure. The establishment procedure is much simpler than that of a two-member limited liability company and a joint-stock company. Regulations on capital transfer are strictly regulated.
• Disadvantages of operating a Single-member LLC: This type of business is not allowed to issue shares. Therefore, the company's capital mobilization will be limited. The company will not have a large amount of capital to be able to implement big business plans. Because a single-member limited liability company is owned by only one individual or organization. So when mobilizing more capital contributed by other individuals and organizations. It will have to carry out procedures for converting the type of business. Become a two-member limited liability company or a joint-stock company. Single-member limited liability companies are not allowed to withdraw capital directly. It must be by transferring part or all of the capital to another organization or individual.

2. What is a Two or more member LLC?

• A limited liability company with two or more members is an enterprise with between 02 and 50 members who are organizations and individuals. Members are responsible for debts and other property obligations of the enterprise within the amount of capital contributed to the enterprise, except for the case specified in Clause 4, Article 47 of the Law on Enterprise. A member's capital contribution may only be transferred according to the provisions of Articles 51, 52, and 53 of the Law on Enterprise.
• And like a single-member limited liability company, a limited liability company with two or more members has legal status from the date of issuance of the Certificate of Business Registration.
• A limited liability company with two or more members may not issue shares, except in the case of conversion into a joint-stock company.
• A limited liability company with two or more members may issue bonds in accordance with this Law and other relevant laws; the private placement of bonds must comply with the provisions of Articles 128 and 129 of the Law on Enterprise.
• Advantages of operating a Two or more members LLC: Company members are only responsible for the company's activities within the amount of capital contributed to the company, so they pose little risk to capital contributors. The capital transfer regime is strictly regulated, so investors can easily control the change of members, limiting the penetration of strangers into the company. There are more owners than the sole proprietorship, so it can have more capital. Therefore, having a financial position creates growth potential for the business. Comprehensive management as more people are involved in running the business. The members inherently have different levels of knowledge. They can complement each other in terms of administrative skills.
• Disadvantages of operating a Two or more members LLC: Due to the limited liability regime, the reputation of a limited liability company with two or more members is not highly appreciated by banks and lending partners. This is also one of the types of businesses that do not have the right to issue shares to the market, so the ability to raise capital is still very limited. A limited liability company is more strictly regulated by law than a sole proprietorship or partnership. The limited liability company's capital mobilization is limited because it does not have the right to issue shares. Difficulty in control, each member is responsible for the decisions of any other member. All activities in the name of the company of any member are bound to other members (although they are not known in advance). An understanding, friendly relationship between members is a very important and necessary factor since the authorization between members is implicit and has a very wide scope.

In conclusion, there are many similarities between the two forms of business still each has its own advantages and disadvantages, it is up to the company owner to decide what form best suits their field of business as well as bringing in lots of profit.

II. Application for Business Registration

1. Application for registration of establishment of a single-member limited liability company

• An application for enterprise registration.
• The company's charter.
• Copies of the following papers:

a) Legal documents of the individual for the legal representative of the enterprise;

b) Legal papers of an individual, for the company owner being an individual; Legal papers of the organization for the company owner being an organization (except for the case where the company owner is the State); Legal papers of individuals for authorized representatives and documents on the appointment of authorized representatives.

For the company owner is a foreign organization, the copy of the legal papers of the organization must be consular legalized;

c) Investment registration certificate, in case the enterprise is established by a foreign investor or a foreign-invested economic organization according to the provisions of the Investment Law and guiding documents.

2. Application for registration of establishment of two or more members limited liability company

• An application for enterprise registration.
• The company's charter.
• List of members, for limited liability companies with two or more members; the list of founding shareholders.
• Copies of the following papers:

a) Legal documents of the individual for the legal representative of the enterprise;

b) Personal legal papers for company members, founding shareholders, shareholders being foreign investors who are individuals; Legal papers of the organization for members, founding shareholders, shareholders being foreign investors being organizations; Legal documents of individuals for authorized representatives of members, founding shareholders, shareholders being foreign investors being organizations and documents on the appointment of authorized representatives.

For members and shareholders being foreign organizations, copies of legal papers of the organization must be consular legalized;

c) Investment registration certificate, in case the enterprise is established or participated in the establishment by a foreign investor or a foreign-invested economic organization in accordance with the provisions of the Investment Law and other legal documents; implementation manual.

3. Filling the application documents at the competent authority

• An enterprise founder or an authorized person shall register an enterprise with the business registration authority by the following methods:

a) Register the business directly at the business registration agency;

b) Business registration via postal service;

c) Enterprise registration via electronic information platform.

• Business registration via an electronic information network means that the founder of an enterprise submits an application for enterprise registration via the electronic information network at the National Enterprise Registration Portal. An enterprise registration dossier via an electronic information network includes data as prescribed by this Law and is presented in an electronic document. An enterprise registration dossier via an electronic information network has the same legal value as a paper business registration dossier.
• Organizations and individuals have the choice to use digital signatures in accordance with the law on electronic transactions or use business registration accounts to register businesses via electronic information networks.
• A business registration account is an account created by the National Information System on Business Registration, granted to individuals to carry out business registration via an electronic information network. Individuals who are granted a business registration account are responsible before the law for the registration to be granted and the use of the business registration account for business registration via the electronic information network.
• A business registration account is an account created by the National Information System on Business Registration, granted to individuals to carry out business registration via an electronic information network. Individuals who are granted a business registration account are responsible before the law for the registration to be granted and the use of the business registration account for business registration via the electronic information network.
• Within 03 working days from the date of receipt of the application, the business registration agency shall consider the validity of the application for enterprise registration and grant the enterprise registration; In case the application is not valid, the business registration agency must notify in writing the contents that need to be amended and supplemented to the enterprise founder. In case of refusal to register an enterprise, it must notify in writing the enterprise founder and clearly state the reasons therefore.

 III. Issue a certificate of business registration

• An enterprise shall be granted an enterprise registration certificate when it fully meets the following conditions:

a) The registered business lines are not banned from business investment;

b) The name of the enterprise is placed in accordance with the provisions of Articles 37, 38, 39, and 41 of the Law on Enterprise;

c) Having a valid enterprise registration dossier;

d) Fully pay the business registration fee in accordance with the law on fees and charges.

• In case the Certificate of Business Registration is lost, damaged, or otherwise destroyed, the Enterprise shall be re-granted the Certificate of Business Registration and must pay the fee as prescribed by law.

The above article provides information regarding the matter of “How To Establish A Limited Company in Vietnam”. For further information relating to Business, Corporate and Investment, please contact Doanh Tri Law Firm through the following means of communication.

Hotline: (+84) 911.233.955

Email: [email protected]

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