Forms of legal entity in Vietnam
A foreign entity may establish its presence in Vietnam in various forms of business, such as setting up a Limited Liability Company with one or more members, a Joint Stock Company, a Partnership, a Branch, a Representative Office or a Business Cooperation Contract. Foreign investors might contribute capital, purchase shares/stakes contribute capital, purchase shares/stakesfactors in an existing domestic enterprise.
1. Limited Liability Company (“LLC”)
Like many countries in the world, LLC is the most popular business form in Vietnam. A Limited Liability Company is established by any organization or individual through capital contributions to the company.
Foreign investors may establish a Limited Liability Company in Vietnam in the following forms:
- A 100% Foreign-Owned Enterprise (i.e. all members are foreign investors); or
- A foreign-invested Joint Venture Enterprise between foreign investors and at least one domestic investor.
LLC includes Single-Member Limited Liability Companies and Multi-Member Limited Liability Companies.
(i) Single Member LLC (“SLLC”) in Vietnam
Single Member LLC is owned by one organization or individual member (“Company Owner“) who is liable to the debts and other liabilities of the Company to the extent of the amount of the charter capital of the Company.
Transfer or assignment of capital: Where an investor transfers only part of the charter capital, the SLLC must register for conversion into a Multi-Member Limited Liability Company. The new member must also be registered in the Enterprise Registration Certificate issued by the Business Registration Office.
(ii) Multiple Member LLC (“MLLC”) in Vietnam
Multiple Member LLC is an enterprise that has over one but no more than fifty members, which may be organizations, individuals, or a combination thereof. All members of an MLLC are responsible for debts and other liabilities of the Company to the extent of the capital contributed thereto.
Transfer or assignment of capital: In case an investor or any investors would like to transfer all or part of its capital contribution, they must first offer to sell such share of capital contribution to all other investors proportionally. The new member must also be registered in the Enterprise Registration Certificate issued by the Business Registration Office.
- No minimum capital requirement statutorily are provided for foreign investors that intend to establish an LLC in Vietnam. The capital contribution of each member is treated as equity (charter capital) and must be statutorily made within 90 days from establishment of the company.
- LLC’s members are responsible for the financial obligations of the Limited Liability Company to the extent of their capital contributions having been poured into the Company. In other words, the liability of a LLC founder is restricted to the amount of capital recorded within the company’s charter.
- The organizational and management structure of an LLC would normally comprise the “Members’ Council”, the Chairman of the Members’ Council, the General Director and a Controller/Inspection Committee (or Board of Supervisors/Inspection Committee if an LLC has over 11 members).
- Every LLC in Vietnam must have one legal representative residing in the country. A limited liability company may have one or multiple legal representatives. The quantity, titles, rights and obligations of legal representative of the enterprise shall be specified in the Company’s charter.
- An LLC in Vietnam cannot issue shares.
- In general, foreign investors should pursue the following process to do business in Vietnam:
- International investors are obliged to obtain an Investment Registration Certificate (“IRC”) from the municipal/provincial Department of Planning and Investment (“DPI”) in relevant provinces in Vietnam.
- An Enterprise Registration Certificate (“ERC”), is the second mandatory document to be obtained during the registration procedure.
2. Joint-Stock Company (“JSC”)
A JSC is established through a subscription for shares in the company.
Transfer or assignment of capital: Shares can be freely assigned (unless they are subject to certain limitations on founding shareholders in the first three years, or otherwise restricted under the charter or law).Voting preference shares may not be transferred. The transfer of shares will be completed on the date the new shareholder is registered in the shareholders’ registry maintained by the company.
- A JSC must have at least 03 shareholders, but the maximum number of shareholders in such companies is unlimited.
- The charter capital of a JSC is divided into shares and each founding shareholder holds shares corresponding to the amount of capital the shareholder has contributed to the Company. No minimum requirement is provided for the charter capital of the foreign investors. A JSC must have ordinary shares. Apart from ordinary shares, a JSC may have preferred shares which comprises (i) Voting preference shares; (ii) Shares with preferred dividends; (iii) redeemable preferred shares and (iv) Other preferred shares defined by the company’s charter.
- The organizational structure of JSC would normally consist of the general meeting of shareholders, the board of management, the chairman of the board of management, the general director and a board of supervisors (where the joint stock company has at least 11 shareholders, or if a corporate shareholders holds more than 50% of the shares of the joint-stock company).
- A JSC may be 100% foreign-owned or take the form of a joint venture between both foreign and domestic investors.
- Capital or form of equity investment: Shareholders must gather capital within 90 days from establishment of the Company.
3. Partnership (“PC”)
Per Law on Enterprise: A PC is a form of enterprise set up by at least two partners and has a status of a legal person.
- A PC is akin to a limites liability partnership in other jurisdictions. A PC must have two general parners and may also have limited partners (“capital contributing members”). General partners are liable for all obligations of the PC with their own property, while limited partners are only liable to the extent of their capital contribution.
- A PC can not issue shares.
- A partnership is a very rare form of investment. It may be established between two individual general partners. The general partner has unlimited liability for the operations of the partnership.
A foreign business entity or a foreign trader is entitled to establish a branch in Vietnam to conduct business activities. A branch is a unit dependent on the enterprise and obliged to perform part or all of the enterprise’s functions, including representation under authorization. The business lines of the branch must be consistent with those of the enterprise.
Read more: How to setup a Branch
- Not all types of foreign companies are allowed to open branch offices in Vietnam (e.g. Financial companies offering accounting services are not allowed to set up branches in Vietnam; Credit rating agencies and commodities trading platforms cannot operate under branches in Vietnam.
5. Representative Office (“RO”)
A RO is a unit dependent on the enterprise and obliged to represent the enterprise’s interests under authorization and protect such interests. Thus, RO is not a separate legal entity under the laws of Vietnam. A RO’s activities in Vietnam are limited to business promotion, identification and accelerating trade opportunities, and supervising the implementation of contracts signed between its parent company and local partners. In a nutshell, a RO is only permitted to:
- Act as a liaison office;
- Conduct market research; and
- Promote its parent company’s business and investment opportunities.
Thus representative offices can provide a wide range of ancillary support to their foreign-based parent companies. This is a very common form of registered legal presence in Vietnam, particularly those in the first stage of a market entry strategy.
Read more: How to setup a Representative Office
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