b) Multi-member limited liability company
A multi-member limited liability company has legal status, whose members can be organizations or individuals. Capital contributors are responsible for the liabilities and other property obligations of the enterprise up to the amount of contributed capital to the enterprise.
Among the types of enterprises permitted to operate in Vietnam, a limited liability company with two or more members is the type of enterprise most chosen by foreign investors when implementing a direct investment project in Vietnam because it has certain characteristics and
advantages.
– Regulations on membership:
Number of members: minimum two and maximum no more than 50 members.
Membership: A company member is an individual or an organization that owns the charter capital of the company.
Members of the company include domestic investors and/or foreign investors.
A multi-member limited liability company can be a counterpart company and/or a partner company and have a close association among members.
- Regulations on contributed capital:
Charter capital is the total value of capital contributed by members committed to contribute to the company.
Within 90 days from the date of issuance of the Enterprise Registration Certificate, a member must contribute correctly and in full the amount of capital committed.
In case there are members who have not contributed or have not fully contributed the committed capital, the company must register to adjust the charter capital and the member’s stakeholding within 60 days, from the deadline for making sufficient capital contribution.
- Legal status
A multi-member limited liability company is an organization with its own name, assets, transaction office, and registered establishment in accordance with the provisions of law for busmess purposes; has legal entity status from the date of issuance of the Enterprise Registration
Certificate, can act on its own behalf in business transactions and activities.
- Obligations capital-contributing members
Capital-contributing members are obliged to contribute the full amount of capital to the enterprise within the time limit prescribed by law.
The transfer of capital of members in a limited liability company is more restricted than the transfer of capital of members in a joint stock company.
- Advantages and disadvantages of a multi-member
limited liability company.
+ Advantages:
- Abundant capital source due to mobilization from many different capital contributors.
- Having legal entity status, limited liability within the capital contribution of members should ensure investment safety for capital contributors.
- Business activities are carried out at the discretion of capital contributors.
- The number of members is moderate, so it is easy to control and manage.
- The capital contribution management mechanism and capital transfer regime are strictly regulated, thereby investors can easily control the change of members in the company.
+ Disadvantages:
- The number of members is limited to 50.
- Not being able to issue shares, so it is more limited in raising capital.
- Some rights such as: transferring capital, deciding on a business plan, etc., depending on different contents,need to be approved by a meeting of the members’ council and need at least 51-81% approval of the total contributed capital of the company’s members.
- Subject to strict regulation of the law.
- Joint stock company
c) Joint stock company
– Definition: Joint stock company is a type of enterprise in which:
- Charter capital is divided into equal parts called shares.
- Shareholders can be organizations or individuals;
The minimum number of shareholders is 3 and there is no limit to the maximum number. - Shareholders are only responsible for the liabilities and other property obligations of the enterprise up to the amount of contributed capital to the enterprise.
- Shareholders have the right to freely transfer their shares to others.
- The profits that shareholders receive from owning shares are dividends.
- Joint stock companies can raise capital by issuing shares.
- A joint-stock company has all the elements to be considered a legal entity immediately after the issuance of the Enterprise Registration Certificate.
Joint Stock Company is one of the types of companies most chosen by foreign investors when investing in Vietnam. Foreign investors can invest directly by establishing joint stock companies with 1 -100% foreign capital in Vietnam, or indirectly through the stock and bond market on the stock exchange.
– Shareholder status
A shareholder is a person who owns at least one share of a joint-stock company and is only liable for liabilities and other financial obligations up to the contributed capital.
The company must have a minimum of 3 founding shareholders and there is no limit to the maximum number of shareholders. There are 3 types of shareholders in a joint-stock company:
- Founding shareholders: must own at least one share and sign on the list of founding shareholders. Founding shareholders are also common shareholders.
- Common shareholders: are the owners of common shares.
- Preferred shareholders: the owner of preference shares is a preferred shareholder.Capital and ability to raise capital
– Capital and ability to raise capital
Charter capital of a joint-stock company at the time of enterprise registration is the total par value of shares of all kinds which have been registered for purchase and recorded in the company’s charter. Charter capital is divided into equal parts called shares, and buying shares is a way to contribute capital to a joint-stock company.
– Types of shares of the company:
+ Common shares.
+ Preferred shares:
- Voting preference shares: Only organizations authorized by the Government and founding shareholders are entitled to hold voting preference shares.
- Dividend preference shares.
- Redeemable preferred shares.
- Other preferred shares as stipulated in the company’s charter.
Joint stock companies have the ability to mobilize capital flexibly. Like other types of companies, joint stock companies can raise capital from loans from domestic and foreign organizations and individuals. In addition, joint stock companies can raise capital by issuing stocks and bonds.
– Property liability
Shareholders’ property liability regime: is a mode of limited liability, i.e. being responsible for liabilities and other property obligations up to the amount of capital contributed Io the company without regard to independent assets.
The property liability regime of a joint-stock company: a joint-stock company is responsible for the company’s liabilities with all of the company’s assets.
– General Meeting of Shareholders and Board of Directors
The General Meeting of Shareholders and the Board of Directors are two specific and mandatory bodies in a joint-stock company, specifically:
- General Meeting of Shareholders: is the highest decision-making body of the company, consisting of all shareholders with voting rights. The General Meeting of Shareholders holds an annual meeting once a year. In addition to the annual meeting, extraordinary meetings may be held on irregular basis.
- Board of Directors: As a management body of the company, it has full authority on behalf of the company to decide and exercise the rights and obligations of the company, except for the rights of the General Meeting
of Shareholders. The Board of Directors has from 3 to 11 members. The Chairman of the Board of Directors is elected, relieved of duty or dismissed from among the members by the Board of Directors.
– Regulations on share transfer
In principle, shareholders are free to transfer their shares. However, there are still specific transfer restrictions:
- The transfer is restricted according to the provisions of the company’s charter and such restriction must be dearly stated on the respective shares.
- Shares of founding shareholders can only be transferred to other founding shareholders within the first 3 years after the establishment; if transferred to a person who is not a founding shareholder, it must be approved by I he general meeting of shareholders.
- Voting preference shares are not transferable.
The transfer of shares is relatively flexible, can be done through a transfer contract or trading on the stock market.
– Advantages and disadvantages of a joint stock company
+ Advantages:
- Self-responsibility for liabilities and other property obligations of the company up to the contributed capital, so the level of risk in business activities is not high.
- High ability to raise capital by issuing shares to the public. This is an advantage unique to the type of joint stock company.
- There is no limit on the number of shareholders and wirh the ability to raise capital from organizations and individuals around the world, so a joint stock company is the most widely available type of enterprise to raise capital.
- Freedom to transfer, buy, sell and inherit shares of shareholders through the sale of shares on the stock market.
- Ability to expand business and operate in most industries.
- The independence between management and ownership will bring high operational efficiency.
- The salary and bonus of shareholders contributing capital in management positions are included in the company’s operating expenses to reduce corporate income tax payable.
- Transparency in management and administration because every decision in business is made by shareholders.
+ Disadvantages:
- The management and operation of a joint-stock company is very complicated because the number of shareholders can be very large, potentially dividing into groups of shareholders with conflicting interests as many of them do not know each other.
- Transparency and openness in operations with shareholders will limit business and financial security.
- The financial and accounting regime and the management and administration of a joint stock company are also more complicated than that of other types of business.
d) Partnership
A partnership is an enterprise in which at least two members are joint owners of the company, conducting business together under a common name. General partners are responsible with their entire assets for the obligations of the company. In addition to general partners, the company may have additional capital contributors. Capital contributors can be individuals and/or organizations. Capital contributors are only liable for the liabilities of the company up to the amount of contributed capital to the company (Article 177 of the 2020 Law on Enterprises).
A partnership is a type of company in which the members Jointly conduct business activities under a common firm and are jointly and severally liable for all liabilities of the company. A partnership company, also known as a partner company, is a typical type of partnership.
Partnership is also a type of business that foreign investors can choose when making investment in Vietnam. However, this type of partnership company is rarely chosen by foreign investors.
– Regulations on membership
A partnership must have at least two members who are common owners of the company, called general partners. In addition, there may be capital contributing members.
+ General partner:
- Must be an individual.
- Directly participate in the management and operation of the company; has the right to represent the company in conducting business activities.
- Because it is a typical type of partnership company, general partners associate with each other mainly based on personal identity, while capital connection is a secondary factor.
- Partnerships are usually established based on the professional qualifications and reputation and prestige of the general partners. This shows that the connection between members in a partnership is tight, and thus alsolimits the number of people who can become general partners of the company.
- Not to be the owner of a private enterprise or a general partner of another partnership, unless otherwise agreed by the remaining general partners.
- Not having the right to conduct business in the name of an individual or in the name of another person in the same line of business as that of that company for personal gain or to serve the interests of other organizations or individuals.
- Not allowed to transfer part or all of their capital contribution in the company to another person without the consent of the remaining general partners.
A partnership is only suitable for business sectors that require the expertise, experience and reputation of Ils members, such as: medical examination and treatment, legal consultation, accounting and auditing consultation, about design, construction, etc. However, because of this connection, when a general partner dies, loses civil act capacify or withdraws capital from the company, etc., the company may risk terminating its existence without being able to continue operating.
+ Capital-contributing members:
- Can be an individual or an organization; may or may not be in a partnership.
- Capital-contributing members do not have an Important role as general partners, but their participation enhances the partnership’s capital-raising ability.
- Capital-contributing members are also responsible lor the liabilities of the company up to the amount of contributed capital to the company.
- The members who have contributed capital will not be entitled to participate in the management of business activities on behalf of the partnership.
- To receive part of the remaining asset value of the company in proportion to the contributed capital in the charter capital of the company when the company is dissolved or goes bankrupt; and receive annual profits in proportion to the contributed capital in the charter capital
of the company.
– Regulations on contributed capital
Charter capital of a partnership is the total value of assets that members have contributed or committed to contribute when establishing the company.
General partners who fail to contribute in full and on time the committed capital, causing damage to the company, must be responsible for compensating the company for damage. The amount of capital that has not been fully contributed is considered a debt of that member to the company; in this case, the relevant capital contributor may be expelled from the company by decision of the members’ council. At the time of fully contributing capital as committed, the member is granted a certificate of capital contribution.
– Raising capital
A partnership shall not issue securities of any kind to publicly raise capital.
When there is a need to increase charter capital, the company will mobilize capital by admitting new members, increasing the capital contribution of each member or recording an increase in the value of assets of the company; or mobilize capital by borrowing from organizations, individuals and other sources. This limits the partnership’s ability to raise capital compared to other types of businesses.
– Partnership assets
Consist of:
+ Assets contributed as capital by members that have been transferred to the company.
+ Assets created in the name of the company.
Assets obtained from business activities performed by general partners in the name of the company and from business activities of the company performed by general partners on behalf of individuals.
+ Other assets.
– Legal representative
General partners have the right to represent at law and organize day-to-day business operations of the company.
In operating the business of a partnership, the general partners assign one another to take on the positions of management and control of the company. When some or .ill of the general partners carry out some business, the decision is adopted by majority rule.
Activities performed by general partners outside the scope of business activities of the company are not the responsibility of the company, unless such activities have been approved by the remaining members.
– Obligations of general partners and capital contributors
+ General partners:
Must be jointly and severally liable for all debts incurred in the business activities of the enterprise.
When a general partner enters into a contract on behalf of a partnership with an outsider, the other general partners, even if they do not directly enter into it, still have Io bear the responsibilities arising from that contract.
These obligations closely bind the general partners of the partnership company to one another, making the connection between members more difficult because it is based on trust and mutual understanding in the course of business operations.
+ Capital-contributing members:
Responsible for the amount of contributed capital to the company.
In case the company is dissolved or goes bankrupt but I he remaining assets of the company are not enough to nettle the liabilities, the capital-contributing members are hot required to use their own assets to settle the liabilities on behalf of the company.
Capital-contributing members in a partnership have limited liability up to the their contributed capital, thereby limiting investment risks.
– Advantages and disadvantages of a partnership
+ Advantages:
- Being liable for the property.
- A partnership company combines, the personal reputation of many people due to the co-responsibility and unlimited liability of the general partners. Partnerships easily create the trust of customers and business partners.
- Due to the small number of members who have close relationships with each orther before, the managerment of the company is not too complicated.
- Banks are easier to lend capital and delay debt due to unlimited liability regime.
- Compact organizational structure, easy to manage; suitable for small and medium businesses.
+ Disadvantages:
- Conditions for establishing a partnership are more complicated than other types of businesses.
- A partnership has a more complex organizational structure than other types of businesses: includes two types of members with two different modes of property liability.
- The executive officer, chief executive officer and legal representative are required to be general partners, so they ore more limited in actively hiring management personnel.
- Having multiple legal representatives makes it more difficult to assign responsibility. When there is disagreement among general partners, not reaching the statutory ratio will make it difficult to make a final decision.
- Due to the joint and unlimited liability regime, the level of risk for general partners is very high.
- In case the company’s assets are not enough to fulfill the debt repayment obligation, the general partners must take personal responsibility with their own assets.
- Despite its legal status, a partnership cannot issue any securities.
Because of the above provisions, the capital mobilization of the partnership will be limited when members can only contribute their own assets or accept new members to increase the value of capital contribution to the enterprise.
- A general partner who withdraws from the company is still liable for the liabilities of the partnership arising from the company’s commitments prior to his/her withdrawal from the company.
- Partnerships do not have a clear distinction between company assets and personal assets.
- Capital contribution investment, share purchase, equlty purchase
a) Forms of capital contribution investment
Investors contribute capital to economic organizations In the following forms:
- Purchase initial shares or additionally issued shares of a joint-stock company.
- Contribute capital to limited liability companies and partnerships.
- Contribute capital to other economic organizations.
b) Forms of share and equity purchase
Investors purchase shares or stakes in the following forms:
- Purchase shares of a joint stock company from the company or the shareholders.
- Purchase equity of a member of a limited liability company to become a member of a limited liability company.
- Purchase equity of capital-contributing members in a partnership to become a capital-contributing member of a partnership.
- Purchase equity of members of other economic organizations.
- Investors are required to carry out the procedures for registration of capital contribution, share purchase, stake purchase of in the following cases:
- The contribution of capital, share purchase, equity purchase increase the foreign investor’s ownership ratio in economic organizations engaged in business sectors with conditional market access for foreign investors.
- The contribution of capital, share purchase, equity purchase lead to foreign investors holding more than 50% of the charter capital of an economic organization in the following cases: increasing the percentage of charter capital ownership of foreign investors from below or equal to 50% to above 50%; increase the rate of ownership of charter capital of foreign investors when foreign investors already own more than 50% of charter capital in economic organizations.
- Foreign investors contribute capital, purchase shares, purchase equity from economic organizations with land use right certificates in islands and border communes, wards and townships; coastal communes, wards and towns; other areas with national defense and security relevance.
- Implementation of investment projects
An investment project is a set of proposals to use medium-term or long-term capital to carry out investment and business activities in a specific area within a defined period of time. Depending on the nature, scale and conditions of each project, an investment project shall follow one or several of the following procedures:
- Decide on investment guidelines and issue Investment
Registration Certificates according to regulations. - Establish an economic organization in accordance with regulations applicable to foreign investors investing in the form of an economic organization.
- Carry out procedures for land allocation, land re-allocation, land lease, land sub-lease, permission to change land use purpose according to the provisions of land law (if any).
- Carry out construction procedures in accordance with the law on construction (if any).
The investor who wins the auction of land use rights or wins the bidding for an investment project that uses land to implement the investment project as prescribed in the decision approving the auction winning result, the document approving the results investor selection and regulations of law on investment, construction and other relevant laws without having to carry out procedures for deciding on investment guidelines.
- Investment in the form of BCC
BCC (business cooperation contract) is a contract signed between investors for business cooperation, profit sharing, product distribution according to the provisions of law without establishing an economic organization (2020 Law on Investment).
As this is considered a flexible and cost-effective form of investment, the increasingly number of investors are t housing it in the process of doing business and developing cooperation. The parties to the BCC have the right to agree on the contents according to the actual business needs of their enterprises; the cooperation contents must be within the legal framework.
- New investment forms and economic organizations according to the Government’s regulations
The 2020 Law on Investment further foresees “New forms of investment and economic organizations according to the Government’s regulations”, demonstrating the proactiveness, openness and willingness to adopt new investment forms and economic organizations in the future, in the context of continuous development of the economy, and the departure from previously stereotyped and restricted investment forms.