Type 1: Establishing economic organizations.
This is a type of direct investment in which investors directly invest their capital and directly participate in management activities. This type of investment is relatively complicated, requiring stricter investment procedures than other types of investment. There are four common business forms:
- Single-member limited liability company.
- Multiple-member limited liability company.
- Joint stock company.
- Partnership company.
Type 2: Capital contribution investment, share purchase, equity purchase.
Type 3: Implementation of investment projects.
Type 4: Investment in the form of BCC (business
cooperation contract).
Type 5: New investment forms and economic organizations
according to the Government’s regulations.
- Establishing economic organizations
Foreign investors implementing investment projects through economic organizations established in accordance with the provisions of the 2020 Law on Investment. Before establishment, foreign investors must have an investment project and carry out procedures to attain an Investment
Registration Certificate.
The 2020 Law on Investment contains new regulations on investment and establishment of foreign-invested economic organizations as follows:
- Domestic investors establishing economic organizations
in accordance with the provisions of the law on enterprises and the law governing respective type of economic organization. - Foreign investors establishing economic organizations
shall meet the market access conditions for foreign investors in terms of the percentage of foreign investors’ charter capital ownership in economic organizations; form of investment; scope of investment activities; investor’s capacity; partners participating in investment activities; other conditions prescribed in laws and resolutions of the National Assembly, ordinances and resolutions of the Standing Committee of the National Assembly, decrees
of the Government and international treaties to which the Socialist Republic of Vietnam is a contracting party.
Before establishing an economic organization, the foreign investor must have an investment project, carry out procedures for attainment and adjustment of Investment Registration Certificates, except in the case of setting up small and medium-sized enterprises with innovative start-up investment funds in accordance with the provisions of the law on provision of assistance for small and medium-sized enterprises. If a foreign investor’s economic organization falls into one of the following cases, it must satisfy the conditions and carry out investment procedures as prescribed for foreign investors when investing to establish an economic organization with:
- A foreign investor holding more than 50% of the charter capital or the majority of general partners being foreign individuals for economic organizations that are partnerships;
- An economic organization specified at Point (a) of this Clause holding more than 50% of charter capital;
- A foreign investor and economic organization specified at Point (a) of this Clause holding more than 50% of the charter capital.
In other cases, if the economic organization does not fall into the above cases, it is only required to comply with investment conditions and procedures as prescribed for domestic investors when investing in establishing other economic organizations. If a foreign-invested economic organization already established in Vietnam has a new investment project, it shall carry out the procedures for implementation of that investment project without necessarily establishing a new economic organization.
From the date of issuance of the Enterprise Registration Certificate or another document of equivalent legal validity, the economic organization established by the foreign investor is the investor implementing the investment project as prescribed in the Investment Registration Certificate.
The company has legal entity status from the date of issuance of the Enterprise Registration Certificate.
Capital contribution and/or share purchase and stake purchase in other enterprises.
A single-member limited liability company has the right to contribute establishment capital and/or purchase shares and stakes in other enterprises, specifically applied for: partnership company, limited liability company, joint-stock company.
- Advantages and disadvantages of a single-member limited liability company.
+ Advantages:
- The owner has full authority to decide on all issues related to the company’s operations.
- Owners have limited liability up to their capital contribution to the company, so they can limit risks.
- Compact, streamlined and easy-to-manage organizational structure.
- An individual or organization can easily set up an enterprise to carry out business activities without depending on other members.
- Procedures for setting up a company are simple and easy to carry out.
- Regulations related to capital transfer are set very strictly. The company owner can easily control the entire transfer process of the business.
+ Disadvantages:
- Due to its inability to issue shares, the company’s ability to raise capital is limited. It will be more difficult for the company to raise large amounts of capital to expand its business.
- When the company wants to raise capital, it will have to change the type of business.
- The capital of a single-member limited liability company cannot be withdrawn directly. It can only be done through a partial or full transfer.
- Wages paid to the company owner are not reasonable expenses to be exempted or reduced from corporate income tax.