COMPANY LAW-A PRACTICAL

APPROACH
Nguyen Minh Hang (Assoc.Prof, Dr)
Dean- Faculty of Law- FTU
Students:
 Understand different types of business
organizations in Vietnam and know how to choose
the appropriate type
Know how to prepare the establishment of a new
company
Understand some legal aspects of company’s
management.
 Vietnamese Law on Enterprises of 2020
 Decree 01/2021/NĐ-CP on business
registration
 Decree 47/2021/NĐ-CP guiding the
implementation of the Law on Enterprises
 • FORMS OF BUSINESS ORGANIZATIONS
1

• MANAGEMENT OF AN ENTERPRISE
2

• CASES STUDY
3
 Share, capital part (capital contribution)
 Limited liability, unlimited liability
 Members, founders, shareholders
 Charter (articles of association)
 Business registration certificate (certificate of
incorporation)
 Lan is a film producer and has enjoyed considerable success in recent years,
with several productions generating impressive revenues in cinemas. Her
reputation secure, Lan has decided to depart from her usual approach to
film making and has decided to make a film that is radically different to her
previous productions. As a result, those who have provided Lan with
financial assistance in the past have been unwilling to commit themselves to
her new project. Lan has held a meeting with Nhu, who is a cinema
enthusiast and has the financial means to help to bring Lan’s project to final
production. Nhu is a busy entrepreneur and does not want to get involved in
the production of Lan’s new film. She is prepared to make a substantial but
not an open-ended commitment to investing in the project, and would like,
if possible, to limit her exposure to risk. She has indicated that if the film is
successful she may provide support again on an occasional but not regular
basis. Lan and Nhu agreed that they should form a domestic legal entity to
formalise their collaboration, but are unsure of which corporate form would
be most suitable. Ideally, they wish to agree on a form that is simple and
not time consuming.

 Requirements:
1. Why do they need to form a legal entity (a company) to do this project?
2. Discuss the advantages and disadvantages of the alternative corporate
forms that Lan and Nhu could adopt, paying particular attention to the
needs of the two individuals.
IRAC method
 Issue: identify the issue.
 Rule: state the rule/law.
 Analysis: discuss the law in respect to the
facts.
 Conclusion: provide your conclusion.
 Criterias Partnership LLC SJC Remarks
Number of
members
Liability of
members
Right of transfer
the capital
Legal
representative
Management
structure
Financing
capacity
Advantages
Disadvantages
 Sole trader/sole proprietorship
 Partnership
 Limited liability companies - 2 types:
◦ LLC with two or more members; and
◦ One-member LLC
 JSC (joint stock company)
 Definition
 Characteristics of a sole proprietorship
 Management of sole proprietorship
 A sole proprietorship is an enterprise owned
by one individual who shall be liable for all
activities of the enterprise with all his/her
assets. (Art. 188 LOEs 2020)
 Established and owned by one individual
 Having no legal entity
 The owner is liable personally for all activities of
the enterprise
 Sole traders/ proprietorships
 The simplest business form
 Low set up costs
 Small enterprises and revenue
 Limited financial capacity
(provided by the sole owner)
 Risk: the proprietor himself
bears all the risk.
 Sole proprietorship is not a legal
entity

13
 The owner has the full power to manage all business
activities of the enterprise;
 The owner may himself or employ other persons to
manage and administer the business operations.
 The owner shall be the plaintiff, defendant in arbitration
or court proceedings in disputes relating to the
enterprise.
 The owner shall be the legal representative of the
enterprise.
 Characteristics of partnership
 Rights and obligations of the partners and
of the limited partners
 Must have at least two general partners;
 The general partners must be individuals, and
shall be liable personally and jointly for the
obligations of the partnership;
 Limited partners shall only be liable for the
debts of the partnership within the amount of
contributed capital
 Partnerships shall not be entitled to issue any
type of securities.
 Art. 177 LOEs 2020
 A- Jointly and unlinmited B-
partner partner
liability

Partnership X

E- F-
LP LP
 Voting right:
◦ Participate in meetings, discuss and vote; a general partner will
have one vote unless otherwise stipulated in the company charter.
 Management right
◦ Carry out registered business activities on behalf of the
partnership; engage in contracts or transactions that may
maximize benefit of the partnership.
◦ Use the partnership’s property, including seals and other assets in
order to carry out registered business activities;
 Right to profits
◦ Receive profits in proportion to his capital contribution, unless
otherwise stipulated in the company charter.
 Art. 181 LOEs 2020
 Manage and carry out business activities in a fiduciary,
diligent and optimal manner in order to maximize
legitimated benefit of the partnership and all partners.
 Manage and carry out business activities of the company in
accordance with the laws, the company charter and the
decision of the partners’ council;.
 Not use the partnership’s property for benefits of himself
or other individual or organization.
 Be jointly liable with his entire property to debts and other
obligations of the partnership if the property of the
partnership is not sufficient to pay off those debts.
 Take losses in proportion to his capital contribution, unless
otherwise stipulated in the company charter.
 A partnership may have limited partners (the
same to limited partnership under common law)
 Limited partners only liable for the debts of the
partnership within the amount of contributed
capital.
 Limited partners not entitled to take part in the
management of the partnership or to conduct
business activities in the name of the
partnership.
 Attend, discuss and vote in the meeting of the partners’
council in relation to matter such as amendment or
supplement of the company charter, supplement and
amendment of rights and obligations of limited partners, re-
organization and liquidation of the partnership and other
matter closely related to their rights and obligations.
 Receive profits in proportion to their capital contribution;
 Freely transfer their capital contribution to others;
 Be provided with the annual financial statement of the
partnership; request the chairman of the partners’ council,
general partners to provide fully and honestly information in
relation to business situation and performance of the
partnership; review accounting books, book of meeting
minutes, contracts, files and other relevant documents issued
by the company.
 Characteristics of LLC with two or more
members
 Capital contribution
 Members of the company may be individuals or
legal persons
 The minimum number of members is two and the
maximum is 50.
 The members have right to transfer the his capital
part in the LCC
 The company is not allowed to issue shares to the
public.
 The company has the legal personality and the
members are liable for the debts of the company
within the amount committed to contribute to the
company
 Members shall have to contribute capital fully and
on time (90 days from the date of business
registration issued).
 The amount of capital not yet contributed on time
shall be considered a debt that member owes the
company.
 Member shall have to compensate for any damage
arising from such failure to contribute capital fully
and on time as committed.
Members’
Council

Director/
Inspection
General
Committee (LLC
Director with 11 members or
more)

25
 comprises all members
 is the highest decision-making body of the
company.
 The frequency of meetings of the Board of
members shall be specified by the company’s
charter but meet at least once a year.
 The company’s development orientation;
 Amendments to the company’s charter;
 Decide the annual business plan and development
strategy of the company;
 Decide development investment projects of the company
 Election, dismissal of the Chairperson of the Members’
Council; designation, dismissal of Director/General
Director;
 Approval for the annual financial statement;
 Restructuring or dissolution of the company.
 Decide the increase or decrease of charter capital; decide
the time method for raising additional capital;
 The Director or General Director of a company
is the person who administer the everyday
business operation of the compay;
 responsible to the Members’ Council for the
performance of his/her rights and obligations.
 the legal representative of the company if
provided so by the company charter.
 Organize the implementation of Resolutions of
Members’ Council;
 Decide the issues related to the company’s
everyday business operation;
 Organize the implementation of the company’s
business plans and investment plans;
 Promulgate the company’s rules and regulations,
unless otherwise prescribed by the company’s
charter;
 Designate, dismiss the company’s managerial
positions, except for those within the competence
of the Members’ Council;
 Definition of one-member LLC
 Restrictions to the owner of one-member LLC
 A one-member limited liability company is an
enterprise owned by one organization or one
individual (company owner); the owner shall be
liable for all debts and other property obligations
of the enterprise within the amount of the charter
capital of the enterprise.
 Owner is one organization or one individual
 The liability of the owner is limited within the
charter capital.
 One member LLC has the legal personality.
 One member LLC is prohibited from offering
shares.
 The owner is entitled to withdraw the capital only by the way of
transferring a part or whole of the capital to another person; if the
capital is withdrawn by another way, the owner will be liable to all
debts and other financial obligations of the company.
 If the owner transfers a part of its capital to another person the
company will be transformed into LLC with 2 or more member and
such transformation is required register with the business registrar
within 15 days from the date of transferring capital.
 Characteristics of JSC
 Shares and shareholders
 The charter capital is divided into equal portions called
shares;
 Shareholders are liable for the debts of the enterprise
within the amount of capital contributed to the
enterprise;
 Shareholders may freely assign their shares to other
persons;
 Shareholders may be organizations or individuals; the
min. number is three no restriction on the max.
number.
 Joint-stock companies may issue securities to the public
 Joint-stock companies have the legal personality.
 Listed JSCs
 Non-listed JSCs
General Meeting of
Shareholders

Board of Inspection
Management Committee

Director/GD

37
Organizational & management structure

GM

Board of Directors
Directors Independent Directors

CEO
 Shareholders: the owners; by buying shares,
they provide the money for the company
 Directors: elected (and removed) by the
shareholders, they set the general policies for
the corporation (eg: determining the amount
of dividends)
 Managers/ Officers: chosen by the directors,
they run the day-to-day operations (eg: chief
executive officer)

39
Duong, Thanh, Trung and Hai established Thai Binh Duong Company
Limited, dealing in import-export and export promotion. The company has
registered its business with a charter capital of VND 5 billion. The capital
contribution of each member is as follows:
 Duong contributed 800 million in cash (accounting for 16% of the
charter capital)
 Thanh: contribution by debt receipt of Thanh My Company, total amount
of debt acknowledgment is 1.3 billion, agreed by the parties to be 1.2
billion (100 million is a deduction for unrecoverable risk debt of Thanh
My) (accounting for 24% of charter capital)
 Trung contributed capital by his house, the value at the time of capital
contribution was 700 million but was agreed upon by members to be 1.5
billion (accounting for 30% of the charter capital) because he was
convinced that in the coming time, the road in front of the house will be
expanded and the house value will increase
 Hai contributed capital by 1.5 billion dong in cash (30% of charter
capital) but at first only contributed 500 million dong, 1 billion Hai
pledged to contribute when the company needed cash capital.
After 1 year of operation, the company has a net profit
of 800 million. Members meet the Members' Council to
distribute profits but cannot reach an agreement. The
controversy discussion are:
 Hai will receive profit on the proportion of the capital
actually contributed (500 million) or the committed
capital contribution (1.5 billion)?
 Is it legal to contribute capital by debt
acknowledgment? Thanh My Company only paid
about 600 million because this company is in
bankruptcy. How much of profit will Thanh be
distributed?
 Is it legal a valuation higher than the actual value at
the time of capital contribution? Has Trung been able
to receive the profits on the contribution of 1.5
billion?
 In her capacity as general director of JKL Company, a
shareholding company, Lan attended a meeting with PQR
Company, a client organisation, to discuss future business.
During the meeting, Lan was informed of a business
opportunity that would arise in the near future. Despite
knowing that her company would benefit from this
opportunity, Lan informed the client that JKL Company
would be unable to deal with the contract due to lack of
production capacity. Subsequent to the meeting, Lan
informed the board of management of JKL Company of her
intention to resign. Once she had left the company, she
formed a new company and made a successful bid to
secure the contract with PQR Company that she had earlier
rejected on behalf of her former employer.

 Requirement: Advise the board of management of JKL

Company on the action it could take against Lan.
 Drink Company was formed in 2006 as a shareholding company, and quickly
established itself as a successful retail operator in the coffee shop market. The
company sells high quality, highly priced coffees, teas, fruit juices and snacks
from several locations in Hanoi, and has plans to expand to several other towns
and cities in the future. The board of management has identified a new
opportunity to diversify the business, and intends to open three fitness centres
equipped with gymnasia, swimming pools and relaxation areas. Each fitness
centre will also have its own coffee shop. Three buildings suitable for conversion
into fitness centres were found and the board of management has decided to
acquire these and purchase the fittings and equipment necessary for the fitness
centres. The board of management has also sanctioned a high profile marketing
campaign with a view to giving the new centres extensive publicity before the
opening dates. The fitness centres initiative has not been universally welcomed by
the shareholders of the company. Despite announcing increased profits, the board
of management has not increased the dividend this year, citing the need for
reinvestment as a justification for this. Several shareholders have pointed out that
the Charter of the company refers to its lines of business as a food and drink
retailer, with no mention of fitness centres. These shareholders believe that the
board of management has acted outside its authority, and that the new venture is
highly risky, as most premium grade hotels already have well-established fitness
centres that are open to the public.

 Requirement:
(a) Discuss the actions that can be taken by the shareholders who oppose the
diversification plan of the board of management.
(b) Examine the potential consequences to the members of the board of
management of the actions that have been taken in diversifying the business.
 Phong and Hai were partners in an unlimited partnership which provided
gardening services. The partners were working on a contract to redesign
and create a new garden in the grounds of a large company. Phong was
responsible for ordering inventory, but in doing so he purchased excess
inventory in order to carry out personal work for customers who were
not known to Hai. Hai discovered Phong’s dishonesty and demanded full
details of Phong’s additional work, as well as a share in the profits which
he made. In response, Phong refused to provide any of these details and
walked away from the partnership, resigning with immediate effect. As a
result, Hai incurred significant additional expenditure, as he had to hire
sub-contractors to complete the work on the new garden for his
corporate customer.

 Requirements:
(a) Explain Phong’s right to resign from the partnership.
(b) Explain whether Phong would have any potential liabilities for the
obligations of the partnership if he resigned.
(c) Explain Hai’s rights to demand information on Phong’s additional work
and a share in the profits made in respect of this work.
 JJJ Company is a management consultancy, specialising in providing
marketing advice to client companies. Tuan has been a member of the
board of management of JJJ Company for three years, and during that
time has made a positive impact on the company, introducing new ideas
and helping to develop the client base. One year ago, Tuan’s wife and
three children set up MMM Company, a limited liability company, with
themselves as the only four members of the company. The company
offers similar services to those of JJJ Company. Some of the shareholders
of JJJ Company are concerned that Tuan is using his family’s company
for personal benefit. Tuan is personally very friendly with some of the
clients of the family company, and has attended several business
meetings with them on his wife’s behalf. Tuan’s colleagues on the board
of management of JJJ Company are aware that Tuan’s family run their
own company, but this has never been discussed. At the most recent
meeting of the board of management of JJJ Company, Tuan suggested
that JJJ Company should sub-contract some of its smaller contracts to
MMM Company.

 Requirement: Discuss the legal implications of Tuan’s involvement in his

wife’s company.
 Comply with laws in the process of
establishing and operating businesses
 Pay attention on the drafting of the charter of
the company
 Understand your right and obligations (as
members, partners, shareholders, directors,
managers)
 Directors, managers and other management
officers: duty of care and loyalty to the
company’s interest