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:
- limited liability company
- joint stock company
- incorporated partnership
- representative office
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.
Limited Liability Company in Vietnam
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
- Members are responsible for property liabilities and debts with only the maximum capital they contribute to the company.
- The transfer and purchase of shares between members are controlled by law, restricting the penetration of outsiders into the company.
- A simpler organisational structure with business activities that are easier to be controlled by the management.
- Especially for single-member limited liability company, this type of business entity is safer as they have the authority on all operations in the company.
Disadvantages of Limited Liability Companies
- Limited liability company is not allowed to issue shares.
- For single-member limited liability company, the owner of the company can only withdraw his or her capital by transferring the entire or partial of the capital to another individual or organisation. If the company withdraw the capital through another method, the owner is liable for all debts.
- For multi-member limited liability company, it must have a members’ council, a chairman, and a director. A control board is also required with a limited liability company of 11 or more members.
Joint Stock Company in Vietnam
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
- The liability of shareholder is only limited to the capital he or she has put into the company, minimising the risk of loss of personal assets.
- Able to get capital via share issuance
- The capital structure is flexible and thus easier to raise capital through the transfer and purchase of shares.
Disadvantages of Joint Stock Companies
- A high number of members can cause conflicts in terms of benefits, making managing the company harder.
- The structure of the company is more complicated, i.e. it must comprise a management board and a shareholders’ meeting.
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.
Other Options You May Consider
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.
Procedure of Registering a Legal Entity in Vietnam
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.
- Registering the company name
- Obtaining the registration certificate and tax registration certificate
- Acquiring a company stamp
- Registering the seal with the police
- Opening a Vietnamese bank account
- Purchasing VAT invoice
- Registering with the Labor Federation in Vietnam
- Making payment for business license tax once the registration notice is on the National Business Registration website
- Registering with the local office in Vietnam
- Registering employees for the Social Insurance Fund.
How can Cekindo assist 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 regarding your company registration 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.