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COMPANY LIMITED
Limited liability company (LLC) is one of the business models chosen by many organizations and individuals when investing in establishing a company due to the advantages of organizational structure and way of operation. In the following article, Siglaw would like to delve into the characteristics of the types of limited liability companies to help organizations and individuals have an overarching view, from which they can choose the type of business that suits their goals.
LEGAL BASIS
- Enterprise Law 2020;
- Decree 01/2021/ND-CP on business registration.
WHAT IS A LIMITED LIABILITY COMPANY?
In accordance with current Vietnamese law, a limited liability company is a type of enterprise with legal status. The owner and the company are two separate legal entities, the owner is a natural person and the company is a legal entity.
Clause 4, Article 7 of the 2020 Enterprise Law stipulates that a limited liability company includes: a one-member limited liability company and a limited liability company with two or more members.
GENERAL CHARACTERISTICS OF LIMITED LIABILITY COMPANIES
Limited liability company with legal status
A limited liability company has legal status, has independent assets, has its own seal, its own head office and can independently participate in legal relations on its own behalf without being dependent on the status of the owner.
Limited Liability
Capital contributors to a limited liability company are only responsible for debts and other property obligations of the company to the extent of the amount of capital they have contributed. This is a great advantage that individuals and organizations often consider when investing in establishing a limited company because this type of company has a separation between personal assets and company assets, thereby ensuring certain asset safety for business participants.
Capital raising
The limited company raises capital through borrowing and credit activities from individuals and organizations. Limited companies also have the right to issue bonds but are not allowed to issue shares to raise capital. In addition, a limited liability company is not allowed to issue securities in the form of certificates, book entries or electronic data like a joint stock company.
Capital contributors
Individuals or organizations can contribute capital to a limited liability company and are called capital contributing members. They may own part or all of the charter capital of the Company.
For the type of limited liability company, one member has only one member contributing capital, concurrently acting as the owner of the company. If another member contributes additional capital, a one-member limited liability company must be converted into a limited liability company with two or more members or a joint-stock company.
For a limited liability company with two or more members, there will be at least 2 and a maximum of 50 capital contributors. If the number of capital contributors exceeds 50, a limited liability company with two or more members will have to convert into a joint stock company.
DISTINCTIVE CHARACTERISTICS OF A ONE-MEMBER LIMITED LIABILITY COMPANY
Company owner
According to Clause 1, Article 74 of the Enterprise Law 2020, a one-member limited liability company is owned by an organization or an individual (hereinafter referred to as the company owner). The company owner is responsible for the debts and other property obligations of the company to the extent of the amount of the company’s charter capital. A one-member limited liability company has legal status from the date of issuance of the Certificate of Business Registration.
Organizational structure
The company owner will have the right to make decisions over the company’s activities. A one-member limited liability company has a strict organizational structure. If the company owner is an individual, the organizational structure of the company includes: company president, director or general director. If the company owner is an organization, the company organization can be chosen according to the following two models:
- Company President, Director or General Director;
- Members’ Council, Director or General Director
For a company whose owner is a state-owned enterprise as prescribed in Clause 1, Article 88 of the Law on Enterprises in 2020, a Control Board must be established, in other cases decided by the company.
Capital contribution
When registering the establishment of a one-member limited liability company, the charter capital is the total value of assets committed by the company owner and stated in the company’s charter.
Within 90 days from the date of issuance of the Certificate of Business Registration, the company owner must contribute fully and correctly the type of assets committed when registering for business establishment, excluding the time for transporting and importing assets contributed as capital, carrying out administrative procedures to transfer ownership of assets. During this period, the company owner has rights and obligations corresponding to the committed capital contribution.
If the company owner does not contribute enough capital within the above-mentioned time limit, he must carry out procedures for registration of change of charter capital equal to the value of the contributed capital within 30 days from the last day of full charter capital contribution. At the same time, the company owner must also be liable in proportion to the committed capital contribution with the company’s financial obligations arising before the last day the company must register to change its charter capital.
DISTINCTIVE CHARACTERISTICS OF A LIMITED LIABILITY COMPANY WITH TWO OR MORE MEMBERS
Capital contributors
Limited liability companies with two or more members have at least 2 members and a maximum of 50 capital contributing members. Members are only liable for the debts and other property obligations of the company to the extent of the amount of capital they have contributed.
Organizational structure
The organizational structure of a limited liability company with two or more members includes: Members’ Council, Chairman of the Members’ Council, Director or General Director. If the company has 11 or more members, it must establish a Supervisory Board.
Capital contribution
The charter capital of a limited liability company with two or more members when registering for business establishment is the total value of the contributed capital of the members committed to contribute and stated in the company’s charter.
Within 90 days from the date of issuance of the Certificate of Business Registration, capital contributors must contribute to the company in full and in accordance with the type of assets committed to contribute when registering for business establishment. During this period, capital contributors shall have rights and obligations corresponding to the percentage of capital contributed to them.
Members may only contribute capital to the company with assets other than the committed asset type if approved by the remaining 50% of members.
In case the time limit has passed, but a member has not yet contributed capital or has not contributed enough capital, the following shall be handled:
- Members who have not contributed capital as committed are no longer members of the company;
- Members who have not fully contributed the committed capital contribution have rights corresponding to the contributed capital;
- The uncontributed capital of members shall be offered for sale according to resolutions and decisions of the Members’ Council.
In case there are members who have not contributed capital or have not fully contributed the committed capital, the company must register to change the charter capital, the percentage of capital contribution of members equal to the contributed capital within 30 days from the last day of full capital contribution. Members who have not yet contributed capital or have not fully contributed the committed capital must be liable in proportion to the committed capital contribution ratio for the company’s financial obligations arising in the period before the date the company registers to change its charter capital and the percentage of capital contribution of members.
COMPARISON OF A SINGLE-MEMBER LIABILITY COMPANY AND A LIMITED LIABILITY COMPANY WITH TWO OR MORE MEMBERS
| One-member limited liability company | Limited liability companies with two or more members | |
| Number of members | Owned by an organization or an individual who contributes capital at the same time | Because many members are individuals and organizations contributing capital. Number of members from 2 to 50 members |
| Organizational structure | – The organizational structure of a one-member limited liability company is owned by an individual: company president, director or general director.
– If the company owner is an organization, the company organization can be chosen according to the following two models:
– A Members’ Council is not required |
– A limited liability company with two or more members has a Members’ Council, Chairman of the Members’ Council, Director or General Director |
| Transfer of contributed capital | The company owner has the full right to transfer and dispose of all or part of the charter capital of the company | – Members of the company must offer their contributed capital to the remaining members if they want to transfer that capital to others
– Within 30 days from the date of offering, the remaining members have the priority right to buy and then if they do not buy, that member has the right to transfer to a third party on the same terms and conditions offered to the remaining members |
| Increase or decrease of charter capital | Owners contribute additional capital to increase charter capital or can mobilize additional capital contributed by others. In case of increasing capital through the form of mobilizing capital contributed by others, the company must be reorganized in the form of a limited liability company with two or more members or a joint stock company | – The company may increase its charter capital in the following cases:
– The company can reduce capital by buying back the contributed capital of members |
PROS AND CONS OF LIMITED LIABILITY COMPANY TYPE
Advantage
- A member of an LLC is responsible for debts and other property obligations to the extent of the contributed capital, the member’s personal assets will be separate from the company’s assets and therefore will not be affected if the company goes bankrupt or encounters other legal risks. Therefore, when choosing this type of business, the level of personal asset risk of company members will be much lower than other types of businesses.
- Limited liability companies are allowed to issue bonds, so they have the ability to raise capital easily.
- The law strictly controls the transfer of contributed capital of a limited liability company with two or more members, so the capital of the enterprise will be guaranteed.
- The owner of a one-member limited liability company has the right to decide all issues of the company such as direction, goals, business plan; organization, personnel; allocate profits in accordance with the provisions of law…
Shortcoming
- Limited liability companies with two or more members are limited in the number of members when the law stipulates that there is only a maximum of 50 members.
- The type of limited company is not allowed to issue shares, so the ability to raise capital has been somewhat limited.
- Because of the limited liability regime, it will affect the reputation problem with customers and partners.
- Limited liability companies are governed more strictly by the Enterprise Law in 2020 compared to other types such as private enterprises or partnerships.
SOME NOTES WHEN ESTABLISHING A LIMITED LIABILITY COMPANY
When establishing a limited company, individuals and organizations need to pay attention to factors such as business lines, charter capital, naming, head office address…
About business investment lines
Limited liability companies are free to do business in industries not prohibited by law. According to the provisions of Article 6 of the 2020 Investment Law, industries prohibited from business investment include:
- Trading in narcotic substances; chemicals and minerals; specimens of plants and wild animals of natural origin; specimens of endangered, precious and rare species of forest plants, forest animals and aquatic products of Group I originating from natural exploitation;
- Prostitution business;
- Buying and selling people, tissues, corpses, human body parts and human fetuses;
- Business activities related to human cloning;
- Firecracker business;
- Business debt collection services.
In addition, when doing business in conditional lines as prescribed in Article 7 of the 2020 Investment Law, a limited liability company must meet certain conditions to ensure national defense, security, social order and safety, social morality and health of the community.
Charter capital
Charter capital is the amount of capital that a member or company owner commits to contribute in full within 90 days from the date of issuance of the Certificate of Business Registration.
Most of Vietnam’s business lines do not have minimum or maximum capital requirements, except for some industries with minimum capital regulations, also known as legal capital such as banking, insurance, etc.
How to name a Limited Company
When choosing a limited company name, enterprises need to ensure compliance with the company naming regulations according to the Enterprise Law 2020. An LLC has the following structure: Company + limited liability (or limited) + proper name.
Proper names are guaranteed to be characters of the Vietnamese alphabet, letters F, J, Z, W, numbers and symbols. Proper names should be easy and clear to pronounce, not confusing with the name of another company or organization.
DOSSIERS AND PROCEDURES FOR ESTABLISHING A LIMITED LIABILITY COMPANY
Establishment Profile
To establish a limited company, enterprises need to prepare a dossier including the following documents:
- Application for registration of a limited company;
- List of members;
- Charter of a limited company;
- Copies of CCCD legal documents, passports or other lawful personal identification for individual members; establishment decision, Business Registration Certificate or other equivalent document proving the legal status of a member being an organization. For members who are organizations, it is necessary to prepare additional CCCD, passport or other lawful personal identification of the authorized representative. Note that documents of foreign organizations and individuals must be consular legalized.
- Investment registration certificate for foreign investors.
Establishment procedure
Step 1: Prepare all establishment documents for each type of limited company.
Step 2: Apply
Businesses can choose to apply in two ways:
- Option 1: Submit directly at the Business Registration Office – Department of Planning and Investment where the enterprise is headquartered.
- Option 2: Submit online through the National Business Registration Portal at https://dangkykinhdoanh.gov.vn/vn/Pages/Trangchu.aspx.
The business registration agency shall issue the Certificate of Business Registration within 03 working days from the date of receipt of a valid dossier. If refusal to grant a grant, there must be a written statement stating the reason.
Step 3: After obtaining the Certificate of Business Registration, the Co., Ltd. proceeds to engrave the seal and carry out initial tax and legal procedures for the enterprise.
SIGLAW’S COMPANY FORMATION SERVICE
Siglaw’s preferential policies for customers using consulting services to establish a new company:
- Free regular legal advice for the first 12 months for businesses after establishment.
- Free regular tax advice for the first 12 months for businesses after establishment.
- Free consultation on industries and professions enjoying incentives and developing in accordance with customer needs.
- Free consultation and initial tax procedures for newly established companies.
- Free consultation and tax declaration and reporting in the first 03 months after establishment.
- Donate a set of labor contract templates to newly established enterprises.
Siglaw’s commitment when performing services:
- 100% complete the work on schedule.
- Committed to the most reasonable and economical cost in the market.
- Commit to the fastest time to complete the job.
- No additional costs: Commitment not to incur costs when performing the service.
- Free consultation of business advantages: Analyze the strengths of businesses with current legal regulations.
- Free consultation 24/7: Free legal consultation support for businesses.
- Control legal risks for businesses.
- Support customers and partners enthusiastically, dedicatedly, thoughtfully, creating trust and peace of mind when using the service.
Siglaw is proud to provide customers with the best service with fast time, the most reasonable price. Siglaw’s team of lawyers and legal experts are confident with a solid legal knowledge base, financial and tax knowledge with many years of experience in implementing legal procedures for businesses.
For a comprehensive advice, please contact:
Phone: (+84) 961 366 238
Email:
- vphn@siglaw.com.vn
- vphcm@siglaw.com.vn
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