OVERVIEW OF BUSINESS FORMS VIETNAM

Choosing an appropriate business form and business sectors to invest and set up the company in Vietnam depends on aspects including the short and long term plan, capital contribution, number of investors, the business lines, and the scale of the projects. As a foreign investor, doing business in Vietnam can be conducted through direct investment with a 100% foreign-owned company or indirectly investing in a domestic Vietnamese Company but ownership limitations might be applied relying on the business sector of the company. Foreigners can expand their market and do business in Vietnam by setting up their business presence in the forms of a Limited Liability Company (LLC) with one or multi-member limited liability company, a joint stock company (JSC), a representative office (RO), a partnership company, a branch office (BO), and a business cooperation contract (BCC).

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POPULAR BUSINESS FORMS AND ENTITIES IN VIETNAM FOR FOREIGN INVESTORS IN 2021

#1- Limited Liability Company (LLC)
There are two forms of limited liability companies: Single Member and Two or more members (Multiple Member), the single member and multiple member limited liability company, are among the most popular business types in Vietnam that foreign individual and organization investors have considered, established and operated in Vietnam. They can set up or join the limited liability company in either of the following forms: a 100% foreign-owned company where all members (individual and organization) are foreign investors, or a foreign-invested joint-venture company between foreign investors and at least one Vietnamese investor.

What are the highlights of the limited liability company?

The number of members in one LLC is limited from 1 to less than 50 members who are organizations and individuals;
The limited liability company (LLC) is a legal entity, the financing contribution of each member is considered as equity or charter capital;
The member or the company owner is responsible for the company's debts and other property obligations to the extent of their contributed charter capital;
The management structure of an LLC includes a Board of Manager (BOM) and a director or general director. In case of one-member LLC, the Company Owner has more autonomy with regards to decisions made about the company and can choose to create a BOM and appoint a representative to be the president or not.. must have one director or general director appointed by the BOM, who may or may not be a member of the company. The director/ general director is responsible for the day-to-day operation and is often the legal representative of the company.

#2- A Joint Stock Company (JSC)

A Joint-Stock Company (JSC) or shareholding company is a business entity, suitable for medium to large sized businesses, requiring 3 founders for a minimum number of original founders. The company's charter capital is divided into shares held by three or more organizations or individuals. Unlike the limited liability company (LLC), a Vietnamese Joint-Stock Company (JSC) is allowed to issue ordinary and preference shares, the shares can be listed on the public stock exchange. A common shareholder has the right to attend the General Shareholders Meeting yearly, to receive dividends, transfer its shares, to vote, inspect company documents, and the right to sue for wrongful acts.

The highlights of Joint Stock Company in Vietnam:

There is no limit on the maximum number of shareholders in a Joint-Stock Company (JSC);
A JSC can be solely owned by foreigners or a joint venture between foreigners and locals for that there is no limitations on nationality who can own a JSC and could be of any nationals, including local Vietnamese under the form of a joint venture between foreigners and local residents;
A JSC can issue shares and join public stock exchange market, making mobilising capital, selling shares and raising funds more easily;
The shareholders are liable for loss or debts corresponding to the amount of capital they have contributed;
Shareholders can relocate their shares ownership to other designated people without the approval from other shareholders;
The Corporate structure includes General Meeting, Management Board, Chairman of the Management Board, Director and Inspection Committee if the number of shareholders is more than 11 shareholders;
The shareholder has the right to attend, speak at the General Shareholders Meeting (GSM), and each common shareholder has one vote; Receive dividends at the rate decided by the (GSM); Freely transfer shares to others,...

#3- Representative Office (RO)

This is the most ideal form of business for foreign enterprises that have business relations or carry out investment projects or plan to establish a legal business form in Vietnam in the future. The conditions for foreign companies setting up representative offices in Viet Nam, provided they have been operating business overseas for at least one (1) year and above, the RO can be 100% foreign-owned. Unlike branch office or subsidiary, the RO is not considered as an independent legal entity under Vietnam laws and not allowed in profit-making activities under the provisions of Corporate Law. The representative office is only allowed to take part in market research and liaising with its head office abroad regarding matters such as trade and investment, and contract implementation in Vietnam.

To set up a Vietnam-based RO, the foreign company needs to satisfy the basic conditions that the head office is established and operating in its home country at least 1 year before the RO establishment. If the head office’s business license has validity according to its home country’s law, such validity must still remain for at least 1 year when the RO is established.

RO is ALLOWED:

Have establishment certificates with validity from 2 to 5 years. The certificate is available for extension or renewal;
Represent as authorized entity for the parent enterprise’s interests and protect those interests;
Lease or purchase necessary appliances including vehicles, tools, devices, etc;
Have an official seal named after the RO;
Recruit and employ both Vietnamese and foreigners to work at the office. For those foreign workers and managers, they may obtain the Vietnam Work Permit (valid for 02 years) to work under the RO name.

RO is NOT ALLOWED:

Carry out the business activities or pursue production related.

#4- Branch Office (BO)

Unlike representative office, branch office of foreign companies is allowed to execute commercial activities in Vietnam and receive profit from them. However, branch office is not a common form for foreign companies to establish their presence in Vietnam because it is only permitted in limited services, including legal services, computing and related services, management consulting and management consulting related services, construction and related services, franchising and finance services.

A branch office is allowed to:

Issue VAT invoices on its own;
Conduct all business activities in the country it is based, consisting of inventory, manufacturing, and trading;
Separate accounting and financial records from its headquarter;
Make amendments in contracts and agreements.

Furthermore, branch office is not perceived as an independent legal entity by the Law despite conducting business activities. Therefore, the choice between a representative office and a branch office for a foreign company to set up its presence in Vietnam should be considered.

#5- Business cooperation contract (“BCC”)

A BCC is a cooperation agreement between foreign investors or a foreign investor and at least one Vietnamese partner in order to carry out specific business activities. This form of investment does not constitute the creation of a new legal entity but which is licensed to engage in business activities in respect of a specific project in Vietnam, Therefore, the investors do not worry about dissolution when the investment projects complete. Through the BBC, foreign investors are able to quickly approach information about the target market and through the understanding of domestic partners. The investors in a BCC generally share the profits and/or products arising from a BCC and have unlimited liability for the debts of the BCC.

#6- Partnership Company

A Partnership Company (PC) is a very rare form of investment in Vietnam. It may be established between two individual general partners and may also have limited partners (“capital contribution members”). The general partner has unlimited liability for the operations of the partnership while limited partners are only liable to the extent of their capital contribution. The PCs have not been a common business form for foreign investors in Vietnam.

According to the Enterprise Law 2020, a partnership company (PC) has the following highlights:

The Partnership Company (PC) must has at least 2 members who are common owners of the company, doing business under a common name;
The partnership members must be individuals, responsible with all their assets for the obligations of the company;
The Partnership Company may have capital contributors who are only liable to the extent of their capital contribution to the company;
The PC has a status of a legal person from the date of issuance of the business registration certificate;
The company does not issue any securities.

#7- Public and Private Partnership Contract (“PPP”)

A PPP contract is an investment form carried out based on a contract between the government authorities or authorized State agencies and project companies for infrastructure projects and public services. There are several different types of public-private partnership contracts including Build-Operate-Transfer, Build-Transfer-Operate, Build-Transfer, Build-Own-Operate, Build-Transfer-Lease, Build-Lease-Transfer and Operate-Manage contracts. Both public and private investors are encouraged to participate in PPP contracts. The PPP contract form is encouraged and eligible for a number of investment projects in construction, renovation, operation, business activities, management of infrastructure facilities, provision of equipment or public services. The rights and obligations of the foreign investor will be regulated by the signed PPP contracts and the applicable regulations governing such contracts.

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OVERVIEW OF BUSINESS FORMS VIETNAM

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