Business structure in Vietnam

General understanding of business structure in VietnamForms of business in VietnamDissolution of an enterpriseRe-structuring of a company in VietnamDefinition of an enterpriseCharacteristics of an enterpriseFormation of an enterprise

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Topic 2 Business Structures

Ha, Thi Thanh Binh (LLD)

Outlines

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in Vietnam.

General understanding of Business

structures in Vietnam

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Definition of an enterprise

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• Enterprise means an economic organization that has its own name, assets, permanent transaction office, and has been lawfully registered for the purpose of conducting business

(Art 4.1 of the LOE)

• Business means the continuous implementation of one, several or all of stages of an investment process, from the production to sale of products or provision of services on the market for profit purposes

Characteristics of an enterprise

• has its own name.

• has its own asset separated from other’s.

• has a permanent registered office.

• has to be established in accordance with the law.

• carry out business for the purpose of making profits.

Formation of an enterprises

• The right to set up a business

• The procedures to set up a business

• Business name

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The right to set up a business

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Founders and managers of an

enterprise

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• Founder means anyone who owns a private enterprise or who formulates, approves and signs the original charter of the company.

• Manager means the owner or director of a private enterprise, general

a company, member of the management board, director or general company’s charter.

• Who?

– Every individual and organization (having legal entity status) except those who are listed in Art 13.2 of the LOE.

Capital contributors to an

enterprise

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(charter) capital of an enterprise.

– Every individual and organization (having legal

entity status) except those who are listed in Art

13.4 of the LOE.

Forms of capital contribution

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• Vietnamese currency,

• Freely convertible foreign currency,

• Gold,

• Value of land use rights,

• Value of intellectual property, technology, technical know how,

• Other assets as provided for in the charter of the company.

The procedures to set up a

business

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• Prepare and submit the business registration

application dossier as required under the LOE to a

competent business registration authority.

• Business registration certificate to be issued within

10 days from the date of receiving sufficient

documents.

• Announcement of the establishment within 30 days

from the date of receiving the business registration

certificate as required in Art 28 of the LOE.

Conditions for the grant of a business registration certificate

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• Business lines to be registered are not prohibited;

• The name of the proposed enterprise complies with the provisions of Art 31, 32, 33, 34 of the LOE;

• The proposed enterprise has its business registered office in accordance with Art 35 of the LOE;

• Business registration dossier is sufficient as required by law

• Business registration fee is fully paid

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Prohibited lines of business

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- Trading in weapons, ammunition, military equipment, military items and

specialist military technical equipment of the armed forces;

- Trading in explosives, poisonous chemicals and radioactive substances;

- Trading in drugs of addiction;

- Prostitution, organizing prostitution services and trading in women and

children;

- Providing gambling services or operating gambling venues;

- Trading in chemical substances of high toxicity.

- Trading in any items which belong to the historical, cultural or museum

heritage;

- ….others provided in Art 7 of Decree 102/2010/NĐ-CP.

Conditional lines of business

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- In the form of a business license issued by the relevant authority body.

- In the form of fulfillment of regulations (such as requirement on foods hygiene and safe, by means of regulations on fire prevention and fire-fighting

….(business conditions that do not require a license).

- In the form of legal capital requirements.

- In the form of practicing certificates.

Business name

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– Components (Art 31)

– Vietnamese and foreign name (Art 33)

– Prohibitions (Art 32)

– Identical and confused names (Art 34)

Selected forms of business structure in Vietnam

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• Private enterprise

• Partnership

• Company – One member limited liability company – Two or more member limited liability company – Joint stock company

Private Enterprise

Definition

A private enterprise is an enterprise owned by one individual who shall be liable for all activities of the enterprise to the extent of all his or her assets (Art.141 of the LOE).

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- is an independent business, it has freedom of carrying on its business

and it can conduct business autonomously.

- is formed by an individual who is owner and manages the business.

- Does not have legal entity status.

- The owner shall be unlimited liable for all activities of the enterprise.

Management of enterprise

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• The owner shall have

– total discretion in making all business decisions;

– total discretion in deciding on the use of profits after payment of taxes and performance of other financial obligations as stipulated by law.

• The owner may manage and administer the business operation or employ other person to do so.

• Where another person is employed as the director managing the enterprise, the owner must

– declare this with the business registration body and – remain responsible for all business activities of the enterprise.

Special rights of owner of a private enterprise

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- Lease of enterprise

 A written report and a notarized copy of the lease contract must be submitted to

the business registration body and the tax authorities.

- Sale of private enterprise

• No later than 15 days prior to the date of transferring the enterprise to the

body.

• The purchaser and seller of an enterprise must comply with the provisions of the

law.

- Suspension of operation

• A written notice must be submitted to the business registration body and the tax

suspension of the business operation of the enterprise.

PARTNERSHIP

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Definition

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According to Art 130 of the LOE, a partnership is a business in which:

•There must be at least two unlimited liability partners doing business together under a common name In addition to whom there may be limited liability partners (the literal translation is “capital contributing partners”)

•Unlimited liability partners must be individuals who have professional qualifications and credibility and shall be liable for the obligations of the partnership

to the extent of all their assets

•Limited liability partners shall only be liable for the debts of the partnership to the extent of the amount of the capital they have contributed to the partnership Ha, Thi Thanh Binh (LLD)

Characteristics

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– There are two types of partnership One is the partnership with all unlimited liability partners, the other is the partnership with both unlimited and limited liability partners.

– It is compulsory that a partnership must have unlimited liability partners A partnership may have limited liability partners.

– Only unlimited liability partners shall be directly involved in the management of the partnership’s business operation, limited liability partners shall not be involved in the management of the partnership.

– Partnership has a legal status separated from its partners.

– Partnership is not entitled to issue securities to the public.

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Management

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partners in the charter of the partnership.

right upon making decisions on issues of

management of the partnership unless

otherwise provided for in the Charter.

Management Structure

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The Partners’ Council

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+ comprise all unlimited liability partners.

+ is the highest decision-making body of the

partnership.

+ make decisions on all activities of the partnership.

+ when voting, each unlimited liability partner shall

have one vote unless otherwise provided for in the

Charter.

The Partners’ Council (cont.)

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+ Resolutions on the following issues must be approved by at least three-fourth of all unlimited liability partners unless otherwise provided for by the charter:

– Business plan of the partnership;

– Admission of unlimited liability partners;

– Dismissal of unlimited liability partners;

– Amendments of and additions to the charter of the partnership;

– Dissolution of the partnership, – Decision on the sell or purchase of assets valued at or more than the charter capital of the partnership…

+ Other matters shall be decided by at least two-third of all unlimited liability partners

The Partners’ Council (cont.) + All resolutions of the Partners’ Council must

be recorded in a meeting minutes book.

A director of a partnership shall have the

following duties:

+ To delegate, regulate and coordinate the tasks

of the unlimited liability partners;

+ To manage the business affairs of the partnership;

+ To perform other duties as authorized by unlimited liability partners.

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Admission of partners

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• A person shall be admitted as an unlimited liability

partners or as a limited liability partner of the

partnership upon agreement of the Partners’

Council.

• An unlimited liability partner admitted to the

partnership shall only be liable for the obligations of

the partnership arising after such partner has been

registered with the business registration body.

Termination of status as partner

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• The status as an unlimited partner shall be terminated in the following circumstances:

+ Death or death declaration by a court;

+ Disappearance declaration by a court or reduction or loss of capacity for civil acts;

+ Voluntary withdrawal from the partnership;

+ Dismissal from the partnership.

+ Other cases provided for in the partnership’s charter

• The status of a limited liability partner shall be terminated when:

+ Death or death declaration by a court;

+ Assignment of his or her share of equity to other;

+ Leave his or her share of equity at will to others.

Rights and obligations of partners

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Unlimited liability partners

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- share managerial positions and inspect all activities of the partnership

- appoint one of themselves to the position of director

- on their own initiative, perform their duties in order to achieve the objectives of the partnership;

- represent the partnership in negotiating and signing contracts;

- represent the partnership before the law and before State bodies within the scope of their respective duties

Unlimited liability partner (cont.)

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• shall not concurrently act as unlimited liability partner of

other partnerships or as the owner of private enterprise

unless otherwise agreed by other unlimited liability partners;

• shall not, on their own behalf or on behalf of a third party,

conduct business activities in the same line of business as the

partnership;

• shall not, on behalf of the partnership, sign contracts or

establish and conduct other transactions for their own benefit

or for the benefit of other persons

• shall have other obligations as stipulated in the charter of the

partnership

Unlimited liability partners (Cont.)

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• Contribute in full their amount of capital to partnership as undertaken;

• Accept liability for the obligations of the partnership to the extent of their own assets;

• Bear losses in the event of failure of business operations in accordance with the principles stipulated in the charter of the partnership;

• Act honestly and diligently for the lawful interests of the partnership when managing or conducting business on behalf

of, or when representing the partnership;

• Comply strictly with the internal regulations of the partnership;

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Limited liability partners (Rights)

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• Participate in discussions and vote on amendment of and

addition to the rights and obligations of limited liability

the reorganization and dissolution of the partnership;

• Receive distribution of profits and distribution of residual

stipulated in the charter of the partnership;

• Assign their shares of equity in the partnership to others;

• Be informed of the business operation and management of the

partnership; sight the accounting books and other records of

the partnership;

• Other rights as provided for in the charter of the partnership

Limited liability partners (Obligations)

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• Contribute the amount of capital as undertaken and to be liable for the liabilities of the partnership to the extent of the amount of capital undertaken to contribute to the partnership

• Not to be involved in the management of the partnership or conduct business activities in the name of the partnership

• To comply strictly with the internal regulations and decisions

of the partnership;

• Other obligations as provided for in the charter of the partnership

ONE- MEMBER LIMITED LIABILITY COMPANY

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Definition

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A one member limited liability company is an enterprise owned by an organization or an individual (hereinafter referred to as company owner); the owner shall be liable for all debts and other property obligations of the enterprise within the amount of the charter capital of the enterprise (Art 63)

Characteristics

• is owned by either an organization or an individual

• The owner of the company has limited liability.

• is not entitled to issue shares.

• shall have legal entity status from the date of

issuance of the enterprise registration certificate.

Management

organization

individual

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One member limited liability owned by an

organization

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• The first model of management structure shall

comprise the Member’s Council, the director

(general director) and controller(s)

• The second model of management structure shall

comprise the president of the company, the director

(general director) and controller(s).

One member limited liability owned by an

individual

44

Rights of the company owner (Art 64)

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• To make decisions on the contents of the amendment of and addition

to the charter of the company;

• To make decisions on the organizational and management structure of

the company.

• To make decisions on adjustments of charter capital of the company;

• To make decisions on investment projects valued at 50% or more of the

total value of the assets recorded in the accounting books of the

company;

• To organize supervision and assessment of the business operation of

the company;

• To make decisions on the use of profits;

• To make decisions on reorganization of the company…

Obligations of the company owner (Art 65)

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• To contribute capital in full and on time as registered.

• To comply with the charter of the company;

• To keep assets of the company and that of the owner separated The expenditures of himself or herself and that of the director if he or she acts

as the director of the company;

• To comply with the laws on contracts and relevant laws on any purchase, company and the owner;

• To perform other obligations in accordance with the law.

Restrictions on the rights of the company

owners (Art 66)

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• Must not directly withdraw part or all of the capital

already contributed to the company.

• May only withdraw capital by way of assignment of

part or all of the capital to other organizations and

individuals.

• Must not withdraw profits of the company in case

the company has not paid in full all debts and other

property obligations due and payable.

LIMITED LIABILITY COMPANY WITH TWO OR

MORE MEMBERS

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A limited liability company is an enterprise which has two or more members contributing

to its capital A limited liability company has legal entity status A member shall be liable for the debts and other property obligations of the enterprise within the amount of capital that it has undertaken to contribute to the enterprise.

A limited liability company must not issue shares.

Characteristics

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• The company has legal entity status

• A member may be an organization or an individual, the number of the members shall be at least two and shall not exceed fifty (50)

• A member shall be liable for the debts and other property obligations of the company within the amount of capital that it has undertaken to contribute to the company (limited liability)

• The transfer of capital contribution of each member may be conducted in accordance with Art 44 of the LOE

• The company must not issue shares

Management Structure

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Members’ Council

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• Shall comprise all members Where a member is an organization, such member shall appoint its representative

to be on the Members’ Council

• Shall be the highest decision-making authority of the company

• Shall meet at least once a year

• The Members’ Council shall pass resolutions within its authority by way of voting at meetings or obtaining written opinions

Members’ Council Meeting

• Conditions to conduct a meeting

– The participation of members representing of at

least 75% of the charter capital.

– If the 1stmeeting fails, the 2ndmeeting must be

held within 15 days and with the participation of

members representing at least 50% of the charter

capital.

– If the 2ndmeeting fails, the 3rdmeeting must be

held within 10 days regardless of the number of

participating members.

Passing of Resolutions in the Members’ Council

Meeting

• approved by the number of votes representing at least 75% of the capital the charter of the company) in respect of decisions such as those relating recorded in the accounting books of the company, or the smaller

of and addition to the charter of the company, the re-organization or dissolution of the company

• approved by the number of votes representing at least 65% of the capital specific percentage shall be stipulated in the charter of the company.

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Passing of resolutions by obtaining written

opinions

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• must be approved by members representing at least

75% of the charter capital The specific percentage

shall be stipulated in the charter of the company.

The Members’ Council’s rights and duties

(Art 47.2)

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• Include but not limited to the following:

– Decide on the development strategy and annual business plan;

– Decide on the increase or decrease of the charter capital, time and methods for mobilizing capital;

– Decide on method of investment and investment projects values at over 50% of total company or at a smaller ratio provided for in the company’s charter;

– Elect, remove or dismiss the chairman of the Members’ Council – Decide to appoint, remove, dismiss, sign or terminate contracts with director or general director;

– Decide on the management organizational structure of the company;

– Decide on opening of subsidiary companies, branches and/or representative offices;

– Decide on the company’s reorganization…

Chairman of the Members’ Council

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• shall be elected by the Members’ Council.

• may concurrently act as the director of the company.

• His or her rights and duties are stipulated in Art 49.2

of the LOE.

• The term of the chairman shall not exceed 5 years

and may be re-elected for unlimited number of

terms.

Director (General Director)

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• is the person who manages the day-to-day business operation

of the company

• is responsible to the Members’ Council for the exercise of his

or her rights and the performance of his or her obligations

• shall be the legal representative of the company if the charter

of the company does not provide that the chairman of the Members’ Council is the legal representative of the company

• The director’s rights and duties are stipulated in Art 55.2 of the LOE

Controlling Board

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• A company having eleven or more members must set

up a Controlling Board.

• Rights, obligations, criteria, conditions and working

rules of the Controlling Board and its head shall be

provided for in the company’s charter.

Ways to become a company member

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An organization or an individual may become a member of a two or more members limited liability company by one of the following ways:

•Contribute capital to the company when the company

is established

•Contribute capital to the company when the company admits new members

•Be assigned shares of equity (capital transfer) by members of the company

•Inherit shares of equity from members of the company…

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