Topic compare a one member limited liability company with a private enterprise

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY SCHOOL OF LAW TOPIC COMPARE A ONE MEMBER LIMITED LIABILITY COMPANY WITH A PRIVATE ENTERPRISE COURSE COMPANY LAW HO CHI MINH[.]

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY

SCHOOL OF LAW

TOPIC: COMPARE A ONE-MEMBER LIMITED LIABILITY

COMPANY WITH A PRIVATE ENTERPRISE

COURSE: COMPANY LAW

HO CHI MINH CITY - 2022

LIST OF MEMBERS

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TABLE OF CONTENTS

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5 Pros and cons of choosing each type of business enterprise: 14

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Dear Ms Nguyen Thi Anh,

First of all, our group would like to say thank you for the lectures in the

enterprise law course that helped us successfully build this thesis There is no

exaggeration to say that we would not have been able to complete this course without your detailed instructions and explanations We will cherish the knowledge gained from this course to continue on our upcoming path

Later, we admitted that in the process of studying and completing the essay, it

is impossible not to make mistakes and uncertain arguments Therefore, we are looking forward to receiving your comments and suggestions to supplement our knowledge, help us refine our experiences and support future essays

Finally, I wish you good health and more successful courses in the future

We sincerely thank you!

Yours sincerely,

Group 4

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One-member limited liability company is a type of enterprise recognized in the Law on Enterprise 1999, in Vietnam With the number of registered companies topping the total number of all types of enterprises, at all times, it is therefore

oriented to development by the State to promote all economic potentials in order to renew the country Equally competitive in the corporate structure in Vietnam, private enterprises are also making an indispensable contribution to the country's economy

This essay discusses the differences in capital structure, legal status, rights and operating structure of the two types of enterprises based on the aspect of Vietnamese law, specifically the Law on Enterprise 2020 In addition, the advantages, as well as disadvantages of the two, are indicated by the group of authors, based on an objective view of the provisions of the law

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1 Definition:

1.1 One-member limited liability company:

According to Article 74 of Law on Enterprise 20201, a one-member limited liability company is defined as follows:

- A one-member limited liability company [single member LLC] is an enterprise owned by one organization or individual (hereinafter referred to as company owner) The company owner is liable for all debts and other property obligations of the

company to the extent of the amount of the charter capital of the company

- A single-member LLC has legal entity status from the date of issuance of the ERC

- A single-member LLC may not issue shares, except in a case of conversion to become a shareholding company

- A single-member LLC is permitted to issue bonds in accordance with this Law and other relevant laws; the private placement of bonds shall be in accordance with articles 128 and 129 of this Law

Hence, with those regulations in this concept, Law on Enterprise 2020 still inherits its former regulations in Law on Enterprise 20142

1.2 Private enterprise:

According to Article 188 of Law on Enterprise 20203, a one-member limited liability company is defined as follows:

- 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

- Private enterprises may not issue any type of securities

- Each individual may only establish one private enterprise The owner of a private enterprise must not concurrently act as the head of a business household or an

1 Article 74 of Law on Enterprise 2020.

2 Law on Enterprise 2014 and 2020.

3 Article 188 of Law on Enterprise 2020.

unlimited liability member of a partnership

- Private enterprises are not permitted to contribute capital to establish or purchase shares or of capital contribution portions in partnerships, limited liability companies

or shareholding companies

Hence, with those regulations in this concept, Law on Enterprise 2020 still inherits its former regulations in Law on Enterprise 20144

2 Similar characteristics:

- Though differences in the type of enterprises, both one-member limited liability companies and private enterprises only have one owner5

- Both enterprises can’t issue shares for funding but can increase the charter capital

by their money6

- When the company choose to receive contributions from others, it must change its type of business7

- The director and general director may be hired by the business owner through an employment contract8

3 Different characteristics:

Besides that, there are still lots of differences between these two types of business:

One-member Limited Liability Company Private Enterprise Characteristics Article Characteristics Article

Company

owner

One organization or individual

Article 74 Clause 1 One individual

Article 188 Clause 1

Owner’s asset- Liable for all Liable for all

4 Law on Enterprise 2014 and 2020.

5 Article 74 Clause 1 and Article 188 Clause 1 of Law on Enterprise 2020.

6 Article 74 Clause 3, Article 76 Clause 1 Point h, Article 188 Clause 2 and Article 189 Clause 3 of Law on Enterprise 2020.

7 Article 87 Clause 2 and Article 188 Clause 3 of Law on Enterprise 2020.

8 Article 85 Clause 2 and Article 190 Clause 2 of Law on Enterprise 2020.

debts and other property

obligations of the company to the extent of the amount of the charter capital

of the company

(limited liability)

activities of the enterprise to the extent of all company owner’s assets

(unlimited liability)

Legal status

The enterprise

is a legal person from the date of issuance of the ERC, which fully satisfies the conditions prescribed for legal entities in Clause 1,

Article 74 of the Civil Code 2015

Article 74 Clause 2, Civil Code 2015 Article 74 Clause 1

The enterprise

is not a legal person since there is no difference between the assets of the business owner and the assets

of the business

Civil Code 2015 Article 74 Clause 1

Charter capital

contribution

- Contribution must be fully made to the company within

90 days from

Article 75 Clause 2

The invested capital of the owner of a private enterprise shall

Article 189 Clause 1

the date of issuance of the enterprise registration certificate

- Else, in the case of failure,

it shall be contributed within 30 days from the last day on which the charter capital must be fully

contributed

be registered by the company owner

Change in

charter capital

In case of raising the capital:

- The owner decides the form and the amount increases

- If the additional amount is contributed by others ->

Article 87 - The owner can

increase or reduce the capital invested

in the business operations of the enterprise and it should be fully recorded

in the books of account

- Only able to reduce the

Article 189 Clause 3

change the type

of business (multi-member LLC or

shareholder company)

In case of reducing the capital:

- Company has been established and done

business for two consecutive years, fully repaid all debts and obligations before the return

- Company owner fails to pay for the charter capital

in full and on time

invested capital below the amount of invested capital registered after registration with the BRO

Ability to

contribute

capital to other

companies

Since there is

no specified Article showing the restriction in

Article 17 Clause 3

- The owner must not concurrently act

as the head of a

Article 188 Clause 3,4

this type of business in contributing capital to other companies

Hence, based on Article 17 Clause 3, this type of

organization still has the right to contribute capital

business household or an unlimited liability member of a partnership

- Private enterprises are not permitted to contribute capital to establish or purchase shares

or of capital contribution portions in partnerships, limited liability companies or shareholding companies

Rights to issue

bond

Can issue but shall be in accordance with articles 128 and

129 of this Law

Article 74 Clause 4

Private Enterprises can’t be issued

by any type of securities

Article 188 Clause 2

Legal

representative

- Company must have at least one legal

Article 12 Clause 2, Article 79

- Only the owner of the company is a

Article 12 Clause 1,

2, 3,

representative

- A legal representative must be the chairman of the Members' Council or the chairman of the company or the director or general director

Clause 3

legal representative

- Only when the owner exits VietNam, he/she can authorize another person

to become a legal

representative

Article 190 Clause 3

Organizational

structure

- Can choose either one of the following structures:

1 Chairman of the company, director or general director

2 Members’

Council, director or general director

- If the enterprise is state-owned, the Inspection Committee is a must

Article 79 Clause 1,2

The owner can hire a director

or general director or take this position by him/herself

Article 190 Clause 2

4 Further comparisons in organization structure:

4.1 One-member limited liability company:

According to Article 79 Clause 1:“ A single-member LLC owned by an

organization shall be organized, managed and operate in either of the following models:

(a) Chairman of the company, director or general director;

(b) Members’ Council, director or general director.”

And also due to Clause 2 of this Article, the company shall need an Inspection

Committee in case the company is state-owned In addition, at least one legal

representative holding one of those following positions in Clause 1 is required

In detail, Members’ Council shall consist of three to seven members, appointed

or removed by the company owner and their periods shall not exceed five years9 Also, the chairman of the company shall be appointed by the company owner10 Thereafter, the director or the general director shall be appointed by the Members’ Council or the chairman of the company for a term not exceeding five years11 Thus, the structure of a one-member limited liability company is strict and complicated

Let’s take a look at the real organizational structure of Xo so kien thiet Tien Giang one-member limited liability company in the following model:

The chairman of the company is Mr Nguyen Minh Hieu and the company’s director is Mr Tran Van An12 Due to this company is a state-owned enterprise13 so it also has an Inspection Committee, which is taken place by Mrs Dinh Thu Ngoc14 As

we can see, this model legally follows point a of Article 79 Clause 1 which was already mentioned, making this a vivid example of a one-member limited liability company’s structure

9 Article 80 Clause 1 of Law on Enterprise 2020

10 Article 81 Clause 1 of Law on Enterprise 2020

11 Article 82 Clause 1 of Law on Enterprise 2020.

12 “Cơ cấu tổ chức của Công ty TNHH MTV Xổ số kiến thiết Thành phố Hồ Chí Minh”, Available at:

https://www.xskthcm.com/trang/gioi-thieu/so-do-to-chuc.html

13 Truc Giang (2022), “Tiền Giang vẫn chưa thể cổ phần hóa 2 doanh nghiệp nhà nước”, Investment Newspaper, Available at: https://baodautu.vn/tien-giang-van-chua-the-co-phan-hoa-2-doanh-nghiep-nha-nuoc-d167181.html

14 Article 79 Clause 2 of Law on Enterprise 2020.

4.2 Private enterprise:

A private enterprise is a type of business owned by an individual The

outstanding feature of private enterprises is the simplicity and compactness of the organizational structure It is because an individual owns it, so in the business

process, making decisions for business owners is decisive and easy15

According to Article 190 Clause 2: “The owner of a private enterprise may directly act as or employ another person to act as the director or general director to manage and administer the business operations; in this case, the private enterprise owner shall remain liable for all business activities of the private enterprise”

Moreover, in term of legal representative for this enterprise type, the owner of the enterprise is a legal representative16 Hence, there is less strict and simpler

organizational structure regulation in this type of business than in one-member

limited liability companies

5 Pros and cons of choosing each type of business enterprise:

5.1 Advantages:

5.1.1 One-member limited liability company:

- The company owner is liable for all debts and other property obligations of the company to the extent of the amount of the charter capital of the company (limited liability) Thus, it is much safer for the company owner to operate the company in his type of business17

- Though this type of business can’t raise the charter capital by issuing stock to the public, it can be done through issuing bond18

- The company has more positions to be a legal representative19 (chairman of the company or Member’s Council, general director or director, )

- This type of business has its legal status20 so as to bring the enterprise stability by

15 Bui Thi Hang Nga (Ed), Truong Ngoc Hien & Gian Thi Le Na, (2019),

Reference book on Enterprise Law: Regulations and Situations

16 Article 190 Clause 3 of Law on Enterprise 2020.

17 Article 74 Clause 1 of Law on Enterprise 2020.

18 Article 74 Clause 3 and 4 of Law on Enterprise 2020.

19 Article 79 Clause 3 of Law on Enterprise 2020.

20 Article 74 Clause 1 of Law on Enterprise 2020.

distinguishing the assets of the company and that of the company owner In addition, having legal status simplifies legal life and economic life21 Specifically, if the

enterprise does not recognize the legal entity status, all the members in the enterprise will have to participate in the establishment of transactions in the name of the

originator, which complicates the settlement of obligations arising from business activities

5.1.2 Private enterprise:

- Unlimited liability mode obliges the owner to operate the company right to avoid unlimited damages to his/her assets This creates trust for partners and customers of private enterprises, attracting business cooperation22

- Company only has one owner23 which leads to simple organization and flexible operation in this type of business Moreover, unlike one-member limited liability, this type of company doesn't have a Member's Council or Inspection Committee which leads to full authority to decide on all business activities of the enterprise

- With low management fees, this simple structure also helps avoid paying huge employment fees

5.2 Disadvantages:

5.2.1 One-member limited liability company:

- This type of business has a simple organizational structure among others but is more complicated than that of a private enterprise which leads to higher operation costs than that of private enterprise whenever a company needs to expand labor forces

- By having a legal status24, the company must be restricted by law more than the private enterprise type

- The operation of the company depends on whether the owner has good leadership or not In order for the company to operate smoothly, it requires the owner to achieve

21 Available at: https://taxplus.vn/tu-cach-phap-nhan/#:~:text=Doanh%20nghi%E1%BB%87p%20c%C3%B3%20t

%C6%B0%20c%C3%A1ch,s%E1%BB%91%20t%C3%A0i%20s%E1%BA%A3n%20c%E1%BB%A7a%20m

%C3%ACnh.

22 Article 188 Clause 1 of Law on Enterprise 2020.

23 Article 188 Clause 1 of Law on Enterprise 2020.

24 Article 72 Clause 2 of Law on Enterprise 2020.