Posted 28.11. 2018 by Cekindo / Last update on 20.03. 2020
When starting a business in Vietnam, apart from developing a marketing strategy, hiring staff and raising money, one very important thing to do is to choose the right legal entities.
There are several entities to choose from when launching your business in Vietnam. You need to make sure to form an entity that works well for your business, solves tax issues, as well as provides liability protection for owners.
Since the 1980s, Vietnam has welcomed foreign direct investment, and it is easy to see Vietnam’s strong desire to attract more foreign investment to the country with its legislation that is made easier these days.
The four most common types of legal entities in Vietnam are:
There are definitely advantages and disadvantages of each entity, and it is vital to understand what matters to you now and in the future, as your business grows and evolves.
In addition to that, each form of entity has its own operating mechanism and organisational structure, and rights and obligations specified under the law in Vietnam.
In this article, let’s find out what they are and how to decide what is best for you.
A limited liability company is a business entity with 1 to 50 members (single-member limited liability company or multi-member limited liability company) registered under the Vietnam Companies Act, with its liabilities limited to the amount of share capital.
It is a separate legal entity from its shareholders, i.e. owners’ liabilities are only limited to the assets of the company written in the charter of the company but their personal assets are protected.
A limited liability company can be entirely owned or partially owned by foreign individuals and companies. This type of business entity is required to obtain a licence for the sector it conducts its business activities in and must have one legal representative residing in Vietnam.
It is important to know that the licence can be acquired before or after the registration of the company. Within 90 days of receiving the business registration certificate upon approval, shareholders must complete their capital contribution.
Advantages of Limited Liability Companies
Disadvantages of Limited Liability Companies
A joint stock company is founded with the subscription of shares in the company. Its corporation is considered to be more complicated than a limited liability company.
One major difference from limited liability company is that a joint stock company is allowed to issue shares to the public and get listed on stock exchanges. Joint stock company’s charter capital is divided into shares, and shares owned by each shareholder correspond to the capital amount they put into the company.
Similar to a limited liability company, a joint stock company can also be wholly owned or partially owned by foreign individuals or companies. The minimum number of shareholders is three, and there is not a maximum number.
For this type of entity, shareholders are allowed to transfer their shares freely, except for certain circumstances prohibited by law.
Advantages of Joint Stock Companies
Disadvantages of Joint Stock Companies
When there are two or more people wish to start a business and generate profit together in Vietnam, they may opt for an incorporated partnership as their business entity.
No protection of personal assets of partners exists in an incorporated partnership. As a result, the acts of one partner will affect the whole partnership.
In Vietnam, as long as a company has been operating overseas for one year or more, it can establish a representative office in the country. A representative office is 100% foreign-owned, but it can still engage in business activities that are both production- or commercial-related without generating profit.
Branches of Company
For foreign companies that have been operating for five years or more, they can establish branches in Vietnam. For branches of foreign companies, they are required to appoint a representative in Vietnam, at the same time, they must also perform other obligations.
Shelf Company in Vietnam
In Vietnam, a shelf company is an organisation that has been registered with no assets or liabilities. Purchasing a shelf company is considered the fastest and most convenient way to possess a company in Vietnam without going through all the time-consuming procedure.
Besides, compared to a newly registered company, a shelf company already has a tax and VAT number, and credibility in the market.
Here’s one of the final steps once you have decided which type of legal entity you will go for in Vietnam. Whatever your decision is, Cekindo has the best solutions for you.
As we can see, there are several legal entities in Vietnam available to foreign investors, but each has its own challenges that foreigners need to deal with.
Cekindo can help you by providing you with full support when it comes to registering a company in Vietnam. As a result, you will be able to set up your company in a relatively short period of time, and you will be able to focus on other decisions to ensure the growth of your legal entities.