CONSULTING THE LATEST BUSINESS TYPES AND CONSULTS 2022
According to the law on enterprises, Vietnam has many different types of enterprises. Each type of business has its own characteristics and advantages and disadvantages.
As a result, each individual or organization can base on their needs, conditions and development orientation to choose the right type when they want to set up their own business.
Articles below ABA VISA will analyze for readers more clearly about the characteristics of different types of businesses. Hopefully, entrepreneurs understand the characteristics of each type to choose to establish a company accordingly.
Types of enterprises according to corporate law
According to the Enterprise Law 2020 effective from January 1, 2021, there are currently 5 main types of enterprises:
- Private enterprise.
- One member limited liability company.
- Limited liability company with two or more members.
- Joint Stock Company.
- Partnerships.
Each type of business will have its own advantages and characteristics. So if you are looking to set up a business, please read this article carefully to understand before becoming a Business Owner.
Advantages and disadvantages of different types of businesses
1. One-member Limited Liability Company (LLC)
“Citation in Articles 74, 75, 79 of the Enterprise Law 2020 on the type of one member limited liability company” as follows:
One member limited liability company is an enterprise owned by an organization or individual.
The company owner is responsible for the company's debts and other property obligations to the extent 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. It is not allowed to issue shares or issue bonds in accordance with the Law on Enterprises and other specialized laws.
Charter capital of a one-member limited liability company when registering for business establishment is the total value of assets committed by the owner to contribute and stated in the company's charter.
During the operation, the company may increase or decrease the charter capital based on the needs and operation situation of the company and according to the provisions of law.
The company owner must identify and separate the assets of the individual from the assets of the company, separate the expenditure of the individual and his family from the expenditure of the company president, director or general director.
The company must have at least one legal representative. Unless otherwise provided in the company's charter, the chairman of the Members' Council or the company's president shall be the legal representative of the company.
⇒ Reviews Advantages of the business type One member limited liability company
▶ The company owner only has limited liability for the company's activities to the extent of the contributed capital, thus limiting the risk for the owner.
▶ Simple organization and management structure.
▶ The company has one member, so the owner has full authority to decide on all issues related to the company's activities without being dominated or having difficulty making decisions related to the company's activities. .
▶ It is allowed to issue bonds to raise capital.
⇒ Reviews Defect of the business type One member limited liability company
▶ The company has legal status and is bound under a strict legal system.
▶ The mobilization of capital for enterprises is more limited because there is only one member and no shares are issued.
▶ The company owner is not allowed to directly contribute the entire amount of capital contributed to the company, only has the right to withdraw capital by transferring it to another organization or individual.
▶ The company owner may not withdraw the company's profits when the company fails to fully pay its debts and other property obligations that are due.
2. Procedures for establishing a two-member limited liability company
“Citations in Articles 46, 47, 48, 54 of the Enterprise Law 2020 on the type of enterprise Limited liability company with two or more members” are as follows:
Limited liability company with two or more members is an enterprise with from 02 to 50 members who are organizations and individuals. Members are responsible for the debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise.
Having legal status from the date of issuance of the Certificate of Business Registration, not allowed to issue shares or issue bonds in accordance with the Law on Enterprises and other specialized laws.
Charter capital of the company 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. During its operation, the company may increase or decrease its charter capital based on the needs and operation situation of the company and according to the provisions of law.
Limited liability companies with two or more members have a Members' Council. Chairman of the Members' Council, Director or General Director. The company must have at least one legal representative. Unless otherwise provided for in the company's charter, the Chairman of the Members' Council is the legal representative of the company.
⇒ Reviews Advantages of the business type Two member limited company
☗ Company members only have limited liability for the company's activities within the scope of contributed capital, thus limiting risks for capital contributors.
☗ The number of responsible company members is not much, so the management and operation of the company is not as complicated as a joint stock company.
☗ The law strictly regulates the transfer of capital, so investors can easily control the change of members, limiting the penetration of strangers into the company.
☗ Members can withdraw all capital from the company through capital transfer. In the case of equity transfer, the personal income tax due to the transfer is zero.
☗ Allowed to raise capital by accepting new members. Issuing bonds to mobilize capital.
⇒ Reviews defect type of business Two member limited company
☗ The company has legal status and is bound under a stricter legal system.
☗ Fundraising is limited due to the lack of stock issuance rights.
☗ Business activities, investment and development of the company must be approved by the Members' Council.
☗ The approval of the Members' Council must convene a meeting with a sufficient number of members as prescribed.
3. Joint Stock Company
“Citation in Articles 111, 112, 137 of the Enterprise Law 2020 on the type of joint stock company enterprise” is as follows:
Joint stock company is an enterprise in which:
Charter capital is divided into equal parts called shares.
A joint stock company has at least 03 shareholders. Shareholders can be organizations or individuals.
Shareholders are only responsible for the debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise.
Shareholders have the right to freely transfer their shares to other people, except where shareholders own voting preference shares; or otherwise provided for in the company's charter.
A joint-stock company has legal status from the date of issuance of the business registration certificate.
A joint-stock company has the right to issue shares, bonds and other securities of the company.
The charter capital of a joint-stock company is the total par value of shares of all types sold. Charter capital of a joint-stock company when registering for business establishment is the total par value of shares of all kinds which have been registered for purchase and recorded in the company's charter.
A joint stock company must have a General Meeting of Shareholders, a Board of Directors, a Supervisory Board and a Director or General Director.
In case a joint-stock company has less than 11 shareholders and shareholders are organizations holding less than 50% of the total number of shares of the company, it is not required to have a Supervisory Board.
A joint-stock company has at least one legal representative. If the company has only one legal representative, the Chairman of the Board of Directors or the Director or General Director shall be the legal representative.
Unless otherwise provided in the Charter, the Chairman of the Board of Directors is the legal representative of the company.
In case a company has more than one legal representative, the Chairman of the Board of Directors and the Director or General Director are automatically the legal representative of the company.
⇒ Reviews Advantages of the business type Share
✿ Shareholders only have limited liability for debts within their contributed capital, so the risk level of shareholders is not high.
✿ A joint stock company has a very high ability to raise capital through a public offering of shares or shares, which is a unique characteristic of a joint stock company.
✿ The transfer of capital is relatively easy, there is no need to carry out procedures for changing shareholders with the Department of Planning and Investment, so the scope of subjects allowed to join a joint stock company is very wide.
⇒ Reviews defect of the business type Share
✿ The management of a joint-stock company is relatively difficult and complicated due to the large number of members, and there is a great conflict of interest among members that may affect the company's operations.
✿ Founding shareholders easily lose control of the company.
✿ The establishment and management of joint stock companies is more complicated and difficult than other types due to the strict management of many legal systems.
✿ The transfer of shares between shareholders is subject to personal income tax even if it is a capital parity transfer.
4. Partnerships
“Citation in Article 177 of the Law on Enterprises 2020 on the type of partnership company” is as follows:
A partnership is an enterprise in which:
There must be at least 02 general partners who are common owners of the company, doing business together under a common name.
In addition to general partners, the company may have additional capital contributors.
General partners must be individuals, responsible with all their assets for the obligations of the company.
Capital contributors are organizations or individuals and are only liable for the company's debts to the extent of the amount of capital committed to contribute to the company.
A partnership company has legal status from the date of issuance of the Certificate of Business Registration.
Partnerships may not issue securities of any kind.
⇒ Reviews Advantages of the business type Partnerships
⌲ A partnership is a combination of the personal reputations of many people. Due to the unlimited liability of ⌲ of the partners, it is easy to build trust with partners and customers.
⌲ The operation of the company is simple. The members have a certain trust in each other.
⇒ Reviews disadvantagesm of the business type Partnerships
⌲ General partners must be jointly and severally liable with all their assets, so the risk is high.
⌲ Capital-contributing members are not allowed to participate in the management of the company's business activities.
⌲ The type of partnership is an uncommon type of business, usually only required to apply to some specific professions such as Law, Notary, Notary, etc.
⌲ Partnerships are not allowed to issue any type of securities, restricting capital mobilization.
5. Private enterprise
“Citation in Articles 188, 189, 190 of the Enterprise Law 2020 regulating the type of private enterprise” is as follows:
A sole proprietorship is an enterprise owned by an individual who is solely responsible for all his/her assets for all activities of the business. A private enterprise has no legal status and cannot issue securities of any kind.
The owner of a private enterprise is the legal representative of the enterprise, has full decision-making power over all business activities of the enterprise, the use of profits after paying taxes and fulfilling financial obligations. otherwise prescribed by law.
The owner of a private enterprise may directly or hire another person to manage and operate the business; In case of hiring another person to act as the Director or General Director, the owner of the private enterprise is still responsible for all business activities of the enterprise.
⇒ Reviews Advantages of the business type private:
➦ The owner of a private business is fully active in deciding all issues related to the business activities of the Enterprise.
➦ The legal system is less binding for private enterprises compared to other types.
⇒ Reviews defect of the business type private:
➦ The business owner's level of risk is higher because the business has no legal status.
➦ The owner of a sole proprietorship has unlimited liability for the business with all of the individual's assets, not just within the scope of capital contribution.
What are the most common types of businesses to set up a company?
As analyzed by ABA VISA above, usually the most commonly established types of enterprises are One Member Limited Liability Company and Two Member Limited Company. Because the procedure and operation method is easier, it is also suitable for the number of people participating in capital contribution from 1-5 people.
Tips for you to choose the right type of business:
Usually, when it comes to shares or joint stock companies, it is still larger than a Limited Liability Company (Limited Company).
However, there are also many advantages and disadvantages that in our experience often advise customers, especially entrepreneurs starting a business, in the same boat to sail to the sea.
The following ABA VISA analyzes the advantages and disadvantages between limited liability and joint stock enterprises as follows:
Company Limited Two members:
♦ Advantages: The establishment procedure as well as the way it works, changing papers is simple. For tax procedures such as: VAT, CIT, License tax are the same as other businesses.
When more members contribute capital to the company, the company only needs to carry out procedures to change or add more members, it is not required to change the type of business.
♦ Disadvantages: On the Certificate of Business Registration, the names of all members participating in this capital contribution will be shown.
Only those who contribute capital and are recognized by law based on the list of members recorded on the Business Registration Certificate have the rights and obligations as prescribed.
For capital contributors who are not on the list of members on the License, they will not have any rights and obligations as prescribed by law.
Joint Stock Company:
♦ Advantages: On the Certificate of Business Registration, only the amount of capital and shares owned by founding shareholders is shown. The names of the Shareholders above are not shown and only the legal representative information.
When there are activities such as buying, selling and transferring shares, shareholders do not have to carry out procedures to change the Certificate of Business Registration, but only need to make a Transfer Contract.
Then must declare personal income tax arising from the transfer of shares with the tax office.
Referring to shares, hearing the name of the company is somewhat larger, so customers also feel more trust.
Note:
Particularly for joint-stock companies, shareholders transfer capital freely but must ensure that there are at least 03 shareholders contributing capital in accordance with the provisions of Article 111 of the Law on Enterprises 2020 on types of enterprises. .
In case the shareholders who contribute capital do not meet the minimum requirement of 03 people, the company is required to carry out the procedures for converting the corresponding type of enterprise according to the Enterprise Law 2020.
♦ Disadvantages: As we have analyzed the advantages, the company must clearly identify the shareholders contributing capital and must be recorded and adjusted when there is a change in shareholders.
The accounting and bookkeeping regime must be clear. Avoid the case that when changing related procedures, the company cannot clearly identify which shareholders include, when it was transferred.
Epilogue: The above is the analysis of specific characteristics of each type of business, hopefully entrepreneurs before deciding to establish a company will understand each type of company.
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