According to the Enterprise Law 2020, there are 5 main types of enterprises: joint stock companies, single-member limited liability companies, limited liability companies with two or more members, partnerships, private enterprise. Each type of business has different advantages and disadvantages that depend on the needs and capabilities of individuals and organizations to choose the appropriate establishment model.
A sole proprietorship is an enterprise owned by an individual who is solely responsible for all his/her assets for all activities of the business. The sole proprietor of a sole proprietorship is an individual. A sole proprietorship has no legal status.
The owner of a private enterprise is the legal representative of the enterprise. The owner of a private business has full decision-making power over all business activities of the enterprise; has the full right to decide on the use of profits after paying taxes and performing other financial obligations as prescribed by law. The owner of a private business can directly or hire someone else to manage and operate the business. In case of hiring another person to act as the managing director of the enterprise, the owner of the private enterprise is still responsible for all business activities of the enterprise. Advantages and disadvantages of sole proprietorship.
Advantages of sole proprietorship
- As the sole owner of the enterprise, the private enterprise is fully active in deciding issues related to its business activities.
- The unlimited liability regime of a private business owner creates trust for partners and customers and helps businesses to be less closely bound by the law like other types of businesses.
Disadvantages of a sole proprietorship
- Due to the lack of legal status, the risk level of the private business owner is high, the owner of a private business must be responsible with all the assets of the business and the business owner, not limited to the amount of capital that the business owner has invested in the business.
- Therefore, now, since there is a limited liability company owned by an individual, almost the type of private enterprise is less preferred because of the disadvantage of unlimited liability of this type of business.
A partnership is an enterprise in which:
- There must be at least two general partners; in addition to general partners, there may be capital contributors;
- General partners must be individuals, have professional qualifications and professional reputation and must be responsible with all their assets for the obligations of the company;
- Capital contributors are only liable for the company’s debts to the extent of the amount of capital contributed to the Company.
The partnership company has legal status from the date of issuance of the Certificate of Business Registration
General partners have the right to manage the company; conduct business activities on behalf of the company; jointly responsible for the obligations of the company. Capital-contributing members have the right to share profits according to the ratio specified in the company’s charter; not participate in company management and business activities on behalf of the company. General partners have equal rights when deciding on management issues of the company. Advantages and disadvantages of a partnership company.
Advantages of a partnership company
- The advantage of a partnership is that it combines the personal reputations of many people.
- Due to the joint and unlimited liability regime of the general partners, the partnership company easily creates the trust of its customers and business partners. The management of the company is not too complicated because the number of members is small and they are reputable people who absolutely trust each other.
Disadvantages of partnership
- The limitation of a partnership is that due to the unlimited liability regime, the risk level of the general partners is very high. Capital contributors do not have the right to manage the business, so there are many restrictions on capital contributors.
- Usually only applied to businesses operating in professional fields such as Law Firms.
- Partnerships may not issue securities of any kind.
- Single member limited liability company
- Single-member limited liability company is an enterprise owned by an organization or individual; The company owner is responsible for the company’s debts and other property obligations to the extent of the company’s charter capital.
One member limited liability company
- A type of enterprise established by an individual or an organization as the owner and contributed capital to establish.
- Charter capital of a one-member limited liability company at the time of business registration is the total value of assets committed by the owner to contribute and stated in the company’s charter.
- The owner must contribute in full and the right type of assets as committed when registering the business establishment within 90 days from the date of being granted the Certificate of Business Registration.
- In case of failure to fully contribute charter capital within the time limit specified in Clause 2, Article 75 of the Law on Enterprises, the company owner must register for an adjustment of charter capital equal to the value of the actual contributed capital within 30 days from the date of payment. the last day to fully contribute the charter capital. In this case, the owner shall be responsible in proportion to the committed capital contribution for the financial obligations of the company arising in the time before the company registers to change the charter capital.
- A one-member limited liability company is entitled to reduce its capital if it has operated continuously for more than 2 years from the date of business registration and ensures to pay all debts and other property obligations after the date of business registration. refunded to the owner. The company has the right to increase its charter capital by making additional investments or mobilizing other people’s contributed capital. In case of increasing charter capital by mobilizing additional capital contributed by other people, the company must convert the type of enterprise into a limited liability company with two or more members or a joint stock company.
Advantages of a one-member limited liability company
- Due to their legal status, members of the company are only responsible for the company’s activities within the amount of capital contributed to the company, so there is little risk to the owner;
- The company’s organizational structure is the simplest of all types of enterprises;
- The company owner has full power to decide on all issues related to the company’s operations without being dominated or difficult to make decisions related to the company’s activities.
- It is the owner who is in charge of the accounting of the business without hiring someone else.
- Issuing bonds to raise capital.
Disadvantages of one member limited company
- The capital raising of a limited liability company is limited because there is only one member and no right to issue shares.
- The owner’s salary is not included in the expenses of the business.
Limited liability company with two or more members
- A limited liability company with two or more members is an enterprise in which members can be organizations or individuals; the number of members does not exceed 50.
- A limited liability company with two or more members has legal status from the date of issuance of the Certificate of Business Registration. A limited liability company is not entitled to issue shares to raise capital.
- Members are responsible for the debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise. Charter capital of a limited liability company with two or more members upon enterprise registration is the total value of the contributed capital that members commit to contribute to the company. Members must contribute capital contribution to the company in full and with the right type of assets as committed when registering for business establishment within 90 days from the date of being granted the Certificate of Business Registration. During this time limit, members have rights and obligations in proportion to the amount of capital contributed as committed to contribute. In case a member has not contributed or has not fully contributed the committed capital amount, the company must register for adjustment, the charter capital, the proportion of contributed capital of the members equal to the contributed capital within 30 days from the date of registration. from the last day to contribute capital in full.
- A limited liability company with two or more members is not entitled to issue shares.
Advantages of a limited liability company with 2 or more members
- Due to the legal status, the members of the company are only responsible for the activities of the company within the amount of capital contributed to the company, so there is little risk to the capital contributors;
- The number of responsible company members is not much and the members are usually acquaintances and trust each other, so the management and administration of the company is not too complicated;
- The capital transfer regime is strictly regulated, so investors can easily control the change of members, limiting the penetration of strangers into the company.
- When transferring capital, members transferring capital must declare tax and pay personal income tax. In case of transfer of capital contribution par value, the tax payable is zero.
- Issuing bonds to raise capital.
Disadvantages of LLC with 2 or more members
- A limited liability company is more strictly regulated by law than a sole proprietorship or partnership;
- The capital mobilization of a limited liability company is limited because it does not have the right to issue shares.
Joint Stock Company
Joint stock company is an enterprise in which:
- Charter capital is divided into equal parts called shares;
- Shareholders are only responsible for debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise;
- Shareholders have the right to freely transfer their shares to other people, except where shareholders own voting preference shares;
- Shareholders can be organizations or individuals; The minimum number of shareholders is three and there is no limit to the maximum number.
- A joint-stock company has legal status from the date of issuance of the business registration certificate. Joint-stock companies have the right to issue securities to the public in accordance with the law on securities.
- Charter capital of a joint-stock company is the total par value of shares sold of all kinds. Charter capital of a joint-stock company at the time of enterprise establishment registration is the total par value of shares of all types which have been registered for purchase and recorded in the company’s charter. Shareholders must pay in full for the number of shares registered for purchase within 90 days from the date of issuance of the Certificate of Business Registration, unless otherwise provided for in the company’s charter or contract for registration of share purchase. another shorter period. The company must register to adjust the charter capital equal to the par value of the shares that have been paid in full and change the founding shareholders within 30 days from the end of the time limit for paying the full number of shares. subscribed to buy.
- Within 3 years from the date the company is granted the Certificate of Business Registration, the founding shareholder has the right to freely transfer his shares to other founding shareholders and may only transfer ordinary shares. to a person who is not a founding shareholder if approved by the General Meeting of Shareholders. In this case, the shareholder intending to transfer the shares does not have the right to vote on the transfer of those shares. The restrictions on common shares of founding shareholders are removed after 03 years from the date the company is granted the Certificate of Business Registration. The limitations of this regulation do not apply to shares that founding shareholders have after registering the establishment of the enterprise and shares that founding shareholders transfer to other people who are not founding shareholders of the company. company.
- A joint stock company must have a General Meeting of Shareholders, a Board of Directors, a Supervisory Board and a Director or General Director. In case a joint-stock company has less than 11 shareholders and the shareholders are organizations holding less than 50% of the total shares of the company, it is not required to have a Supervisory Board;
The company may change its charter capital in the following cases:
- According to the decision of the General Meeting of Shareholders, the company will return a part of the contributed capital to the shareholders in proportion to their share ownership in the company if the company has operated continuously for more than 2 years, from date of business registration and ensuring full payment of debts and other property obligations after they have been returned to shareholders;
- The company buys back the issued shares
- Charter capital is not paid in full and on time by shareholders
Advantages of joint stock company
- The liability regime of a joint stock company is limited liability, the shareholders are only responsible for the debts and other property obligations of the company within the scope of contributed capital, so the risk level of the shareholders is not high. ;
- The capital structure of a joint stock company is very flexible, enabling many people to contribute capital to the company;
- The ability to raise capital of a joint-stock company is very high through the issuance of shares to the public or to the public, which is a unique characteristic of a joint-stock company;
- The transfer of capital in a joint-stock company is relatively easy, there is no need to carry out procedures for changing shareholders with the Department of Planning and Investment, so the scope of subjects allowed to join a joint-stock company is very wide. Even officials and employees have the right to buy shares of joint stock companies.
Disadvantages of joint stock company
- The management and operation of a joint stock company is very complicated because the number of shareholders can be very large, many people do not know each other, and there may even be a division into opposing groups of shareholders. benefit;
- Founding shareholders may lose control of the company.
- The establishment and management of a joint-stock company is also more complicated than other types of companies because it is strictly bound by the provisions of law, especially the financial and accounting regimes.
- Only founding shareholders will display information on the national business registration system (if there is a transfer of shareholders, the founding shareholder will still have his or her name on the business registration, and will not be lost even though the transfer is complete. capital). The shareholders who contribute capital to each other do not have to carry out the procedures for changing the contents of business registration, only within the enterprise and not recorded on the enterprise registration system of the management agency.
- For a joint-stock company, when transferring shareholders, the personal income tax rate is 0.1% according to the securities transfer (even though the company has no profit), but this personal income tax rate is still applied.
Some related questions
What type of business should you choose ?
Depending on the needs of the founder can choose 1 of 5 types of businesses as above. However, in fact, most of today, for business lines without special conditions, startups often choose 3 types of companies: joint-stock companies, one-member limited liability companies and public companies. limited liability company with 2 or more members.
Does the limited company have the right to issue bonds to raise capital?
According to the provisions of Articles 46 and 74 of the Enterprise Law 2020, 1-member limited liability companies and 2-member limited liability companies are both allowed to issue bonds to raise capital.
What type of business can issue shares?
According to the provisions of the Enterprise Law 2020, only a joint-stock company can issue shares to raise capital and is also the only type of enterprise allowed to participate in the stock market. This is a unique advantage of a joint stock company.
Above is some basic information about the types of legal businesses in Vietnam, which are updated in the Enterprise Law 2020. Hopefully, Malu Design’s general article has brought you a lot of useful information. useful.