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What is a Limited Liability Company? Characteristics & procedures for establishing an LLC
Limited liability company (LLC) is one of the business models chosen by many organizations and individuals when investing in establishing a company due to its advantages in organizational structure and operation. In the following article, Siglaw would like to delve into the characteristics of different types of LLCs to help organizations and individuals have an overview, thereby being able to choose the type of business that suits their goals.
What is a limited liability company?
A limited liability company, abbreviated as LLC, is a type of enterprise with legal status in which the owner and the company are two separate legal entities, the owner is an individual and the company is a legal entity. Clause 4, Article 7 of the 2020 Enterprise Law stipulates that limited liability companies include: One-member LLCs and LLCs with two or more members.
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General characteristics of LLCs
Having legal status
A LLC has legal status, independent assets, its own seal, its own headquarters, and can independently participate in legal relations in its own name without being dependent on the status of the owner.
Limited liability
Members contributing capital to an LLC are only responsible for the debts and other financial obligations of the company within the scope of the capital they have contributed. This is a great advantage that individuals and organizations often consider when investing in establishing an LLC because this type of company has a separation between personal assets and company assets, thereby ensuring a certain level of asset security for business participants.
Capital mobilization
A LLC raises capital through borrowing and credit activities from individuals and organizations. An LLC also has the right to issue bonds but is not allowed to issue shares to raise capital. In addition, LLCs are not allowed to issue securities in the form of certificates, book entries or electronic data like Joint Stock Companies.
Capital contributors
Individuals or organizations can contribute capital to LLCs and are called capital contributors. They can own part or all of the charter capital of the Company.
For a single-member LLC, there is only one capital contributor who is also the owner of the company. If another member contributes additional capital, the single-member LLC must be converted into a two-member or more LLC or a Joint Stock Company.
For a two-member or more LLC, there will be at least 2 and a maximum of 50 capital contributors. If the number of capital contributors exceeds 50, the two-member or more LLC must be converted into a Joint Stock Company.
Specific characteristics of each type of limited liability company
Single-member LLC
Company owner
According to Clause 1, Article 74 of the 2020 Enterprise Law, a single-member LLC 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 within the scope of the company’s charter capital. A single-member LLC has legal status from the date of issuance of the Certificate of Enterprise Registration.
Organizational structure
The company owner will have the right to decide on the company’s activities. A single-member LLC has a tight organizational structure. If the company owner is an individual, the company’s organizational structure includes: Company Chairman, Director or General Director. If the company owner is an organization, the company can be organized according to the following two models:
- Company Chairman, Director or General Director;
- Members’ Council, Director or General Director
For companies whose owners are state-owned enterprises as prescribed in Clause 1, Article 88 of the 2020 Enterprise Law, a Supervisory Board must be established; in other cases, the company shall decide.
Capital contribution
When registering to establish a single-member LLC, the charter capital is the total value of assets committed by the company owner and recorded in the company charter.
Within 90 days from the date of being granted the Enterprise Registration Certificate, the Company Owner must contribute in full and in the correct type of assets as committed when registering to establish the enterprise, excluding the time for transporting and importing contributed assets, and performing administrative procedures to transfer ownership of assets. During this period, the company owner has the rights and obligations corresponding to the committed capital contribution.
If the company owner fails to contribute enough capital within the above-mentioned period, he/she must complete the procedure for registering a change in the charter capital equal to the value of the contributed capital within 30 days from the last day for which the charter capital must be fully contributed. At the same time, the company owner must also be responsible corresponding to the committed capital contribution for the company’s financial obligations arising before the last day for which the company must register a change in the charter capital.
Documents for establishing a limited liability company
To establish a limited liability company, the enterprise needs to prepare a set of documents including the following:
- Application for registration of a limited liability company;
- List of members;
- Limited liability company charter;
- Copies of legal documents such as ID card, passport or other legal personal identification for individual members; decision to establish a limited liability company, Enterprise Registration Certificate or other equivalent documents proving the legal status of the member being an organization. For members being an organization, it is necessary to prepare additional ID cards, passports or other legal personal identification of the authorized representative. Note that documents of foreign organizations and individuals must be consularized.
- Investment registration certificate for foreign investors.
Procedures for establishing a limited liability company
Step 1: Prepare a complete set of documents for each type of LLC.
Step 2: Submit documents
Enterprises can choose to submit documents in two ways:
- Method 1: Submit directly to the Business Registration Office – Department of Planning and Investment where the enterprise has its head office.
- Method 2: Submit online through the National Business Registration Information Portal at https://dangkykinhdoanh.gov.vn/vn/Pages/Trangchu.aspx.
The business registration authority shall issue an Enterprise Registration Certificate within 03 working days from the date of receipt of a valid application. If the application is refused, a written document stating the reasons must be issued.
Step 3: After obtaining theEnterprise Registration Certificate , the LLC shall engrave a seal and carry out initial tax and legal procedures for the enterprise.
| One Member LLC | Limited liability company with two or more members | |
| Number of members | By an organization or individual contributing capital and also being the owner | Because many members are individuals and organizations contributing capital. The number of members is from 2 to 50 members. |
| Organizational structure | Organizational structure of a single-member LLC owned by an individual: Chairman, Director or General Director.
If the company owner is an organization, the company can be organized according to the following two models:
Board of members is not required |
A limited liability company with two or more members has a Board of Members, Chairman of the Board of Members, Director or General Director. |
| Transfer of capital contribution | The company owner has full rights to transfer and dispose of all or part of the company’s charter capital. | A member of the company must offer his/her capital contribution to the remaining members if he/she wishes to transfer that capital to another person
Within 30 days from the date of offering, the remaining members have the right of first refusal to purchase and thereafter if they do not purchase, the member has the right to transfer it to a third party under the same terms and conditions as offered to the remaining members |
| Increase, decrease charter capital | The owner contributes additional capital to increase the charter capital or can mobilize additional capital contributions from others. In case of increasing capital through the form of mobilizing capital contributions from 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 can increase its charter capital in the following cases:
The company can reduce its capital by buying back the capital contribution of members |
Advantages and disadvantages of establishing a limited liability company
Advantages
- Members of a limited liability company are responsible for debts and other financial obligations within the scope of their contributed capital. The personal assets of members will be separate from the assets of the company and therefore will not be affected if the company goes bankrupt or encounters other legal risks. Therefore, when choosing this type of enterprise, the level of personal asset risk of company members will be much lower than other types of enterprises.
- Limited liability companies are allowed to issue bonds, so they can easily mobilize capital.
- The law strictly controls the issue of transferring capital contributions of LLCs with two or more members, so the capital of the enterprise will be guaranteed.
- The owner of a single-member LLC has the right to decide on all issues of the company such as orientation, goals, business plans; organization, personnel; profit allocation according to the provisions of law…
Disadvantages
- A limited liability company with two or more members is limited in the number of members when the law stipulates that there can only be a maximum of 50 members.
- The LLC type is not allowed to issue shares, so the ability to raise capital is somewhat limited.
- Because of the limited liability regime, it will affect the issue of reputation with customers and partners.
- A limited liability company is subject to stricter regulations under the 2020 Enterprise Law compared to other types such as private enterprises or partnerships.
Notes when establishing a limited liability company
When establishing a limited liability company, individuals and organizations need to pay attention to factors such as business lines, charter capital, naming, head office address, etc.
Regarding business investment lines
Limited liability companies are free to do business in lines that are not prohibited by law. According to Article 6 of the Investment Law 2020, prohibited business investment lines include:
- Trading in narcotics; chemicals, minerals; specimens of wild plants and animals of natural origin; specimens of endangered, precious and rare forest plants, forest animals, and aquatic products of Group I of natural origin;
- Prostitution;
- Buying and selling people, tissues, corpses, human body parts, and human fetuses;
- Business activities related to human asexual reproduction;
- Trading in explosives;
- Debt collection services.
In addition, when doing business in conditional industries as prescribed in Article 7 of the Investment Law 2020, LLCs must meet certain conditions to ensure national defense, security, social order and safety, social ethics, and community health.
Charter capital
Charter capital is the amount of capital that members and owners of a company commit to contribute within 90 days from the date of issuance of the Enterprise Registration Certificate .
Most business sectors in Vietnam do not have a minimum or maximum capital requirement, except for some sectors that have regulations on minimum capital, also known as legal capital, such as banking, insurance, etc.
How to name a limited liability company
When choosing a name to establish a limited liability company, the enterprise must ensure compliance with the regulations on naming the company according to the Enterprise Law 2020. The structure of a limited liability company is as follows: Company + limited liability (or LLC) + proper name.
The proper name must be characters in the Vietnamese alphabet, the letters F, J, Z, W, numbers and symbols. The proper name should be easy to pronounce, clear, and not be confused with the name of another company or organization.
The most prestigious and quality LLC establishment service in Vietnam
Siglaw Law Firm is proud to provide customers with the best LLC establishment service with the fastest time and the most reasonable price in Vietnam. 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.
Siglaw’s preferential policy for customers using the service of establishing a new LLC:
- Free regular legal consultation for the first 12 months for businesses after establishment.
- Free regular tax consultation for the first 12 months for businesses after establishment.
- Free consultation on industries and professions that enjoy incentives and develop in accordance with customer needs.
- Free consultation and initial tax procedures for newly established companies.
- Free consultation and tax declaration and reporting for the first 3 months after establishment.
- Free set of labor contract templates for newly established businesses.
Siglaw’s commitment when performing the service
- 100% completion of work on schedule.
- Commitment to reasonable costs, the most economical on the market.
- Commitment to the fastest completion time.
- No additional costs: Commitment to no additional costs when performing the service.
- Free consulting on business advantages: Analyze the strengths of the business in relation to current legal regulations.
- Free consulting 24/7: Support free legal consulting for businesses.
- Control legal risks for businesses.
- Support customers and partners enthusiastically, wholeheartedly, thoughtfully, creating trust and peace of mind when using the service.
For comprehensive advice, please contact Siglaw Law Firm:
Phone: (+84) 961 366 238
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