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Company forms in Vietnam

Since joining WTO in 2007 until now, the government has introduced a range of open policies and clearer guidance supporting investors to establish a commercial presence in Vietnam. This article provides an overview of three main private company forms for both domestic and foreign-invested enterprises, including multiple-member limited liability company (“MLLC”), single member limited liability company (“SLLC”), and shareholding company, also referred to as a joint-stock company (“JSC”). Other less common forms including sole proprietorship and partnership companies shall not be mentioned within the scope of this article.
 
1| Multiple member limited liability company
 
1.1. Legal status and responsibility of the company owner. A MLLC is an enterprise that has more than one but no more than fifty members, which may be organizations, individuals, or a combination of both. A MLLC has the status of a recognized legal entity and its member is responsible for the debts and liabilities of the enterprise to the extent of the amount of capital that the member has contributed or committed to contribute to the enterprise.[1]

1.2. Organizational and management structure. The Members council (“MC”) is the highest decision making body of a MLLC, and comprises all the members (or their authorized representation, in the case of corporate members. Resolutions can be adopted by means of voting at a meeting. Unless the charter provides otherwise, voting thresholds are set at 65% for basic matters and 75% for certain specified matters.[2] Voting power of each MC member is based on the ratio of capital owned or represented by them.        
   
The MC appoints a director or general director (“GD”), who may or may not be a member of the company. The GD is responsible for the day-to-day operation of the company and is often the legal representative of the company, although the charter may provide otherwise. A MLLC with more than 11 members must also establish an Inspection committee. The Inspection committee has the responsibilities, powers and conditions stipulated in the charter.[3]

1.3. Transfer or assignment of capital. A member can transfer, dispose of or ask the company to buy back its capital contribution portion in accordance with the Enterprise Law 2014 or as stipulated in the company charter. However, a member wishing to transfer all or part of its capital contribution must first offer to sell such share of capital contribution to all other members proportionally.[4]
 
2| Single member limited liability company

A SLLC is owned by one organization or individual member (“Company Owner”) who is liable for the debts and other liabilities of the company to the extent of the amount of the charter capital of the company. A SLLC has the same legal status as a MLLC, but the Company Owner has more autonomy with regards to decisions made about the company.[5]

The Company Owner may either appoint a representative to be the chairperson of the SLLC or may create a MC comprising of three to seven appointed representatives, which will implement the Company Owner’s rights and obligations on its behalf.[6] A resolution of the MC is adopted when it is approved by more than a half of the number of attending representatives. An amendment or supplement to the company charter, company reorganization and a transfer of all or part of the charter capital of the company must have the approval of at least three-quarters of the number of representatives attending the relevant meeting.[7]

Similar to a MLLC, a SLLC must have a director or GD appointed by the chairperson or the MC, who is responsible for the day-to-day operation of the company and is often the legal representative of the company.[8] A SLLC must have inspectors and the Company Owner can decide the number of inspectors who are responsible for supervising the performance of the MC (or the chairperson) and the director (or GD), and carrying out other tasks assigned by the Company Owner.[9]

A SLLC may reduce its charter capital in any of the following two cases:
 
  1. Where the company returns a part of the contributed capital in the company’s charter capital to the Company Owner, provided that the company has been in business operation continuously for more than two (2) years as from the date of registration of the enterprise and the company can ensure that the company’s debts and other asset obligations can still be paid fully after the return has been made to the Company Owner; or
  2. Where the Company Owner has not paid fully and in a timely manner the company’s charter capital.[10]
A SLLC may increase its charter capital by way of additional investment from the Company Owner or by obtaining capital contributions from other persons. In the event that part of the charter capital is contributed by or transferred to another organization or individual, the company must register to convert into a MLLC or a SC within 10 days from the date of completion of the transfer.[11]
 
3| Joint stock company

A JSC is an enterprise whose charter capital is divided into shares held by three or more organizations or individuals. Shareholders are responsible for the debts and liabilities of the enterprise to the extent of the amount of their contributed capital. A JSC must have common shares and may have preferred shares[12] and/or issue bonds.[13] Besides, a JSC may be a “public company” (more than 100 shareholders or that has made a “public offer” via mass media) and list on the Securities Exchange. Of note, the Law on Securities and its implementing legal instruments supplement this framework for public and listed companies with regard to management structure and disclosure requirements.

A JSC has the right to select its organizational, managerial and operational structure in accordance with one of the two following methods (except where securities laws provide otherwise):
 
  1. General meeting of shareholders (“GMS”), the Board of management (“BOM”), Inspection committee and the (General) director. Where a JSC has fewer than 11 shareholders, and such shareholders own less than 50% of the total company shares, there is no requirement for a Inspection committee; or
  2. GMS, BOM and (General) director. In this case, at least 20% of the members of the BOM must be independent, and an Internal audit committee must be established directly under the BOM.[14]
The GMS consists of all shareholders having the right to vote and is the highest decision-making body of a JSC. The law specifies certain matters requiring GMS approval. Voting thresholds are set at 51% for basic matters and 65% for certain specified matters (unless the charter specifies higher threshold).[15] Voting power of each shareholder is based on the ratio of ordinary shares with voting rights held by it, though it can be changed by voting preference shares.

The BOM is the managing body of a JSC consisting of not less than 3 members and not more than 11 members (a specific number of members will be provided by the company charter). BOM members are elected by the GMS by way of the cumulative vote for a term of up to 5 years and can be re-elected.[16] A resolution of the BOM may be adopted of approved by the majority of the members attending the meeting; in the event of even votes, the Chairperson has the casting vote.[17] The BOM appoints the director/GD for a term of up to 5 years and can be re-appointed. The director/GD is responsible for the day-to-day operation of the company.[18]

The Inspection Committee is required for a JSC having more than 11 shareholders who are individuals, or having shareholders being organizations owning more than 50% of the total number of shares of the company. The Inspection committee consists of 3 to 5 members if the company charter does not provide otherwise, and more than half of its members must regular reside in Vietnam.[19] The Inspection members are appointed by GMS by way of cumulative vote for a term up to 5 years and can be re-elected.

Regarding to transfer of capital, shares may be freely transferred (unless they are subject to certain limitations on founding shareholders in the first three years, or otherwise restricted under the charter or law).[20] However, voting preference shares may not be transferred.

Disclosure

Vietnamese law contains various provisions on the public disclosure and statutory reporting of certain information about companies. For example, all companies must make the content of their Enterprise Registration Certificate and other incorporation information available on the national business registration website.[21] Joint stock companies are required to report to the licensing authority any change in the ownership of foreign shareholders, or changes to the information of their BOM members, inspectors or GD and to publish their charter, annual financial reports, BOM members’ and inspectors’ reports and BOM members’ and managers’ profiles on their website.[22] Public (including listed) joint stock companies and their shareholders are subject to additional disclosure requirements, such as disclosure of any information that may impact on the price of their securities, or to report to the State Securities Commission and the relevant stock exchange on changes of major shareholders (a shareholder who owns at least 5% of the issued shares) or a change of more than 1% in the ownership of an existing major shareholder.[23]

In conclusion, depending on the specific features of each company form, investors may choose the preferred company in accordance with their investment circumstances. A Limited liability company is usually chosen when the investors want a simple company form with a limited number of investors, while a Joint stock company is the preferred choice if the investors need more flexibility to raise additional capital in the future. However, JSCs have more complex corporate governance than other company forms.
 
[1] Paragraph 1, Article 47 Enterprise Law 2014
[2] Point b, Paragraph 3, Article 60 Enterprise Law 2014 stipulates certain specified resolutions must be passed by a number of votes representing at least 75% of the total contributed capital of the members attending the meeting as follow:
- A resolution relating to a sale of assets/property with a value equal to or greater than 50% of the total value of assets (as stated in the company’s latest financial report or a smaller proportion stipulated in the company’s charter);
- A resolution on an amendment and supplement to the company’s charter; or
- A resolution on the company’s reorganization or dissolution.
[3] Article 55 Enterprise Law 2014
[4] Point a, Paragraph 1, Article 53 Enterprise Law 2014
[5] Article 73 Enterprise Law 2014
[6] Paragraph 1, Article 79 Enterprise Law 2014
[7] Paragraph 6, Article 79 Enterprise Law 2014
[8] Or as stipulated otherwise under the company charter.
[9] Article 82 Enterprise Law 2014
[10] Paragraph 1, Article 87 Enterprise Law 2014
[11] Paragraph 2, 3, Article 87 Enterprise Law 2014
[12] According to Paragraph 2, Article 113 Enterprise Law 2014, the preferred shares include voting preference shares, dividend preference shares, redeemable preference shares, and other types stipulated in the charter.
[13] Article 110 Enterprise Law 2014
[14] Paragraph 1, Article 134 Enterprise Law 2014
[15] Paragraph 1, 2, Article 144 Enterprise Law 2014
[16] Paragraph 1, 2, Article 150 and Paragraph 3, Article 144 Enterprise Law 2014
[17] Paragraph 9, Article 153 Enterprise Law 2014
[18] Article 157 Enterprise Law 2014
[19] Paragraph 1, 2, Article 163 Enterprise Law 2014
[20] Paragraph 1, Article 126 Enterprise Law 2014
[21] Article 33 Enterprise Law 2014
[22] Article 171 Enterprise Law 2014
[23] Public disclosure activities are stipulated in the Law on Securities 2006 and Circular 155/2015 / TT-BTC
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