In accordance with the 2020 Law on Enterprises, there are 5 forms of enterprises to

be established in Vietnam, including:

1. Single-member limited liability companies.

2. Multi-member limited liability companies.

3. Joint stock companies.

4. Sole proprietorships.

5. Partnerships.

Limited liability Company (“LLC”)

Features

General features of an LLC:

1. The one to establish an LLC can be either an individual or an organization.

2. The company has the status of a juridical person, the contributor(s) take(s)
responsibility for the debts and other property liabilities within their contributed
amount of capital in the company.

3. An LLC is not entitled to issue shares to raise capital.

An LLC is divided into two types, namely single-member LLC and multi-member LLC,
which have the following specific advantages and disadvantages:

Single-member LLC

Advantages

1. There is only one owner, who has the right to make all decisions in the
management and administration of the company.

2. Simple organizational structure, easy to manage.

3. The limited liability regime lessens the risk of the company owner during the
company’s operation.

Disadvantages

1. The limited liability regime, in some cases, reduces the trust of partners that
are willing to associate and cooperate with the company.

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 2. Restrictions in selecting capital increase methods. In case of increasing the
charter capital by receiving capital contribution from a new member, the
company must be converted to a multi-member LLC or a joint stock company1.

Multi-member LLC

Advantages

1. The company members have the right to request the company to redeem their
contributed capital in certain cases2.

2. Regulations on the purchase and transfer of capital contributions among

members of the company are quite strictly regulated by law. A member of the
company must prioritize offering and transferring the capital to other members
of the company over any other persons3. Accordingly, the company can easily
control the capital contribution of members, limiting the entry of strangers into
the company.

3. The company’s members only take limited liability for the debts and other
property obligations of the company within the scope of their contributed
capital.

Disadvantages

1. The limited liability regime, in some cases, reduces the trust of partners that
are willing to associate and cooperate with the company.

2. The limitation of 50 capital contributors4 restricts the ability to raise capital of

this business form compared to a joint stock company.

3. Incapable to issue shares to the public.

4. Capital transfer tax rate is high (20%5).

Joint Stock Company (“JSC”)

Features

1. Having legal person status, the shareholders only take limited liability for the
debts and other property obligations of the company within the scope of their
contributed capital in the company.

2. The charter capital is divided into equal parts called shares.

1 Under Article 87.2 of the 2020 Law on Enterprises.

2 Under Article 51.1 of the 2020 Law on Enterprises.
3 Under Article 52.1 of the 2020 Law on Enterprises.
4 Under Article 46.1 of the 2020 Law on Enterprises.
5 Under Article 11.1.b of the Circular No. 111/2013/TT-BTC guiding the Law on Personal Income Tax.

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 3. Shareholders participating in capital contribution could be individuals or
organizations; the number of shareholders ranges from 3 and there is no limit
to the maximum number6.

4. A JSC has the right to issue stocks and bonds to raise capital.

Advantages

1. A JSC can easily and flexibly raise capital because a JSC does not limit the
number of shareholders and is entitled to issue shares to the public.

2. The procedure for transferring shares in a JSC is relatively simple, thus

attracting investors to contribute capital to the company.

3. The limited liability regime lessens the risk of the shareholders during the
company operation.

4. Low capital transfer tax rate (0.1%7).

Disadvantages

1. The limited liability regime, in some cases, reduces the trust from partners that
are willing to associate and cooperate.

2. The management and operation of a JSC is very complicated due to the large
number of shareholders, in which, many shareholders might not know each
other, and there could be a division into groups of shareholders with
antagonistic interests.

3. Within 3 years from the establishment date of the JSC, the ordinary shares of
founding shareholder may not be transferred to any other person who is not a
founding shareholder of the company without the consent of the General
Meeting of the Shareholders8.

4. Lawful rights and interests of shareholders or groups of minority shareholders

are not guaranteed. In fact, in Vietnamese JSCs, the power of the company is
concentrated mainly on the major shareholders and the executives and
managers of the company, so for the JSCs with the Supervisory Board
established as a formality or without an Internal Audit Committee, the interests
of small shareholders may be affected.

5. The decision-making process is more complicated because it requires the

approval of the Board of Directors and the General Meeting of Shareholders.

6 Under Article 111.1(b) of the 2020 Law on Enterprises.

7 Under Article 11.2.b(2) of the Circular No. 111/2013/TT-BTC guiding the Law on Personal Income
Tax.
8 Under Article 120.3 of the 2020 Law on Enterprises.

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Sole Proprietorship (“SP”)

Features

1. No legal person status.

2. Owned by an individual who is solely responsible by all his/her assets for all
business activities of the enterprise.

Advantages

1. Simple establishment procedure.

2. The owner of a SP is totally active and has full decision-making power in the
management and operation of the business.

3. SPs are less subject to strict legal constraints.

4. The business owner’s unlimited liability regime strengthens the trust for
partners and customers.

Disadvantages

1. The unlimited liability regime poses great risks to private enterprise owners.

2. A SP is neither allowed to issue any type of securities, nor to sell their

contributed capital to other individuals or organizations, so they cannot raise
capital from outside.

3. The owner of a SP is only entitled to establish 01 SP and is not allowed to

contribute capital to the establishment or purchase shares or contributed
capital in any other business forms9.

Partnership

Features10

1. Having legal person status.

2. Members: There are at least 2 general partners who are joint owners of the
company and limited partners who are capital contributors (if any).

3. General partners: are individuals having unlimited liability with all their assets
for the obligations of the company.

9 Under Article 188 of the 2020 Law on Enterprises.

10 Under Article 177.1 of the 2020 Law on Enterprises.
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 4. Limited partners: are organizations or individuals who are only responsible for
the company’s debts and other property obligations to the extent of their
contributed capital.

Advantages

1. The management and operation of a partnership is not too complicated due

to limited numbers of members.

2. The unlimited liability regime of general partners creates the trust of partners.

Disadvantages

1. The risk of the general partners is high due to the unlimited liability regime.

2. A general partner may not be either the owner of a SP, or a general partner of
another partnership and is not capable to transfer his/her contributed capital
to another individual or organization without the consent of the other general
partner11.

3. The limited partners do not have the right to manage the company.

4. The company is not allowed to issue shares to raise capital.

11 Under Article 180 of the 2020 Law on Enterprises.

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