CHAPTER 2

THE ENTERPRISE LAW IN VIETNAM

1
 CHAPTER 2
1. Overview of the enterprise law in Vietnam
2. The main types of enterprises in Vietnam
(under the Enterprise Law 2020)

2
1. Overview of the enterprise law in Vietnam

▪ History of the enterprise law in Vietnam

▪ The current laws governing enterprises
▪ Introduction to business forms in Vietnam

3
 History of the enterprise law in Vietnam
The French Colonization
• In the late 19th century: non-
existent
• North Civil Code 1931 and
Central Vietnam Commercial
Code 1942 (human
associations and capital
associations)
1945-1986
• In the North: no company law
• In the South: Commercial
Code 1972 (5 corporate forms:
Partnerships, simple share
capital associations, joint
capital associations, LL
associations, shareholding
associations)
4
 History of the enterprise law in Vietnam

1986-2005 2005 - present

• Law on Foreign Investment 1987 • Law on Enterprises 2020
• Company Law 1990 • Law on Enterprises 2014
• Law on State-owned Enterprise • Law on Investment 2014
1995, 2003 • Law on Cooperatives 2012
• Law on Promotion of Domestic
Investment 1994
• Law on Cooperatives 1996, 2003
• Law on Enterprises 1999, 2005

5
 Governing laws
▪ Law on Enterprises 2020
▪ Law on Investment 2020
▪ Law on Cooperatives 2012
▪ Law on Bankruptcy 2014
▪ …

6
 Law on Enterprises
• No. of Articles: 218
• No. of Chapter: 10
• Structure:
– General Provisions
– Establishment of Enterprise
– LLC
– State Enterprise
– Shareholding Company
– Partnership
– Sole Proprietorship/ Private enterprise
– Corporate Groups
– Re-organization, Dissolution, Bankruptcy
– Implementation
7
 Group work
Finding key changes in the LoE 2020
compared to the LoE 2014?

8
Forms of business in Vietnam

Do you know any forms of business in

Vietnam?

9
 Forms of business in Vietnam
• Household business
• Cooperatives
• Private enterprise
• Partnership
• Company
– One member limited liability company
– Two or more member limited liability
company
– Joint stock company
• State-owned enterprise
• Social enterprise 10
Forms Prior to 2005 2005-2009 2009-2020 2021 onwards
Business Decree Decree Decree Decree
household N0.109/2004/ND- N0.109/2004/ No.43/2010/ND- 01/2021/ND-
CP ND-CP CP; Decree CP
78/2015/ND-CP
Cooperative Law on Law on Law on Law on
Cooperatives Cooperatives Cooperatives Cooperatives
1996/2003 2003 2012 2012
State-owned Law on State-
company owned company
1995/2003
LLC Law on Law on Law on Law on
JSC Enterprises 1999 Enterprises Enterprises Enterprises
(Company Law 2005 2014 2020
Partnership and Law on Sole
Sole Proprietorship was
Proprietorship annulled)
100% foreign- Law on foreign
owned investment in VN
company 1996 (amended in
Joint venture 2000)
 Household business
➢ A household business:
▪ Be established by an individual or family household members being
Vietnamese citizens who have full legal capacity as prescribed in the
Civil Code.
▪ Each individual or family household member may
register only one household business nationwide
➢ The owner(s) of a household business shall take
responsibility for the business operation with all of their
property.
(Article 79, 80, Decree No. 01/2021/ND-CP on enterprise registration)

12
 Cooperatives
• A cooperative is a collective economic
organization with co-owners and legal entity
status, established voluntarily by at least 7
members who cooperate with and assist one
another in production, business or job
creation activities to meet their common
needs on the basis of autonomy, self-
responsibility, equality and democracy in
management of the cooperative

13
 Key concepts
1. Overview of the enterprise law in Vietnam
2. The main types of enterprises in Vietnam
(under the Enterprise Law 2020)

14
The main types of enterprises in Vietnam
(under LoE 2020)
▪ Private enterprise (Sole Proprietorship)
▪ Partnership
▪ One member LLC (single member LLC)
▪ Two or more member limited liability company (multi-
member LLC)
▪ Joint stock company (Shareholding Company)
▪ Group of companies

15
Private enterprise (Sole proprietorship)

• Definition
• Characteristics
• Organizational structure & Management

16
 Private enterprise - Definition

A private enterprise is an enterprise owned by one

individual who shall be liable for all activities of the
enterprise to the extent of all his or her assets.
(Art.188 of the LoE 2020).

17
 Characteristics of private enterprises
➢ The owner is personally liable for all activities of
the enterprise (Art 188.1)
➢ Juristic personality

18
 Juristic personality
• In law, ‘person’ is used to denote 2
categories: natural person and
artificial person.
• Juristic personality: a company has a
legal identity, separate from members
who comprise it.
✓ The property of the company belongs to that
company
✓ Debts of the company must be satisfied from
the assets of that company
✓ The company has perpetual succession until
wound up. 19
 Juristic personality
Under Vietnamese law, an organization shall be
recognized as a juridical person if it meets all of the
following conditions:
a) It is legally established;
b) It has an organizational structure;
c) It has property independent from other natural and
juridical persons and bears liability by recourse to its
property;
d) It participates independently in legal relations in its
own name.
(Article 74, Civil Code 2015)

Does a private enterprise has juristic personality?

20
 Characteristics of private enterprises
➢ Must not issue any kind of securities (Art 188.2)
➢ Selling the enterprise:
• The owner at his/her discretion can sell his/her
company to another person.
• The owner is still responsible for the company’s
debts and other liabilities which are incurred before
the handover date, unless otherwise agreed
among the buyer, the seller, and the creditors.
(Art 192 LoE 2020)

21
 Organizational structure & Management
➢ The owner of a private enterprise:
• Has the full power to manage all business activities of
the enterprise;
• May himself or employ other persons to manage and
administer the business operations.
• Shall be the plaintiff, defendant in arbitration or court
proceedings in disputes relating to the enterprise.
• Shall be the legal representative of the enterprise.

22
Private enterprise – Pros and cons?

- Simple business form

- Easy and cheap to create
- Owner has complete control

- Unlimited personal liability

- Finance: the necessary
capital to run the biz is
provided by the sole owner
23
 Quiz
1. Businesses in the form of sole proprietorships are
legally distinct from their owners. True or False?
2. A sole proprietorship cannot issue any kind of
stocks, but can issue bonds. True or False?
3. Which of the following is a benefit of running a
business as a private enterprise?
A. The owner can appoint another person to be the
legal representative of the enterprise.
B. Ability to raise capital
C. The owner has full control over the business

24
 Quiz
4. Which of the following statements regarding sole
proprietorship is correct?
A. The business is legally distinct from the owner
B. The owner can appoint another person to be the
CEO
C. Sole proprietorships do not need to register for
VAT

25
 Partnership
• Definition
• Characteristics
• Organizational structural & Management

26
 Partnership - Definition
• A partnership is an enterprise in which:
– There must be at least 02 members being co-
owners of the company jointly conducting
business under one common name (general
partners). In addition to unlimited liability
partners, the company may also have limited
partners. (Article 177, LoE 2020)

▪ « M. Smith and sons »

▪ « Peter and friends »
▪ « Brown’s brothers »
▪ « Baker & Mc Kenzie »
▪ « Flécheux, Ngo & associés »
▪ « James and associates » 27
 Partnership - Definition

• Individuals • Individuals or
• be liable for the organizations
obligations of the • be liable for the debts of
company to the extent of the company to the extent
all of their assets => of the amount of capital
Unlimited liability they have contributed
=> Limited liability

General Limited
partners partners

28
Partnership – Characteristics
➢At least two general partners
➢Juristic personality?

➢Issue any kind of securities?

29
 DISCUSSION

Compare rights and obligations of general

partners and limited partners in a
partnership under the LoE 2020)

30
 General partners & Limited partners
General partners Limited partners
Voting rights

Management
rights

31
 General partners & Limited partners
General partners Limited partners
Rights to
profit

Transfer their
stakes

Liability

32
 Liability

A B C

33
Organizational structure &
management

Partners’ Council

General partners

Limited partners

34
 Partners’ Council (Art. 182, LOE 2020)

• All partners make up the partners’ council.

• The partners’ council will elect one among them
to be the chairman of the partners’ council; the
chairman will be director or general director of
the partnership, unless otherwise provided in
the company charter.
• The partners’ council is entitled to decide on
business operations of the partnership.

35
 Partners’ Council (Art. 182, LOE 2020)
Unless otherwise prescribed by the charter, the
following issues must be approved by at least
three fourths (3/4) of general partners:
• The partnership’s development orientation;
• Amendments to the charter;
• Admission of a new general partner;
• Approval for a withdrawal or removal of general
partner from the company;
• Decision on a project of investment;

36
 Partners’ Council (Art. 182, LOE 2020)
Unless otherwise prescribed by the charter, the following
issues must be approved by at least three fourths (3/4)
of general partners:
• Decision to take loans and raise capital in other
manners; give a loan with a value of ≥ 50% charter
capital of the company, unless a higher rate is
prescribed by the company’s charter;
• Decision to buy, sell assets with a value of ≥ the
company’s charter capital, unless a higher rate is
prescribed by the company’s charter;
• Decision to ratify annual financial statement, total
profit, distributable profit, and amount of profit
distributed to each;
• Decision to dissolve the company. 37
 Convocation of meeting of the Partners’ Council
(Art. 182, LOE 2020)

• Chairman of the Partners’ Council can convene a

meeting of the Partners’ Council when necessary or
upon request of general partners.
• If the chairman fails to convene the meeting upon
request of general partner, such general partner is
entitled to convene the meeting.

38
 Quiz
True or False
1. In a partnership, each partner is a legal
representative of the firm.
2. The minimum number of partners in a
partnership is 2.
3. A general partner can freely transfer their stakes
in the partnership to another person.

39
 Quiz
4. Which of the following statements
regarding partnership is correct?
A. A partnership must have at least one
limited partner.
B. The business must be profitable.
C. A partner can be an individual living
person or a registered company

40
Limited Liability Company (LLCs)

• Definition
• Characteristics
LLCs with two or
• Organizational &
more members Management structure

• Definition
• Characteristics
One-member LLCs • Organizational &
Management structure

41
 Limited liability companies
with two or more members
Definition
A LLC with two or more members is an enterprise in which:
– A member may be an organization or an individual;
the number of members must be at least 2 and shall
not exceed 50;
– A member shall be liable for the debts and other
property obligations of the enterprise to the extent of
the amount of capital contributed to the enterprise.
– The share of capital contribution of each member may
only be assigned in specific circumstances.
Article 46.1 LoE 2020

42
 Limited liability companies
with two or more members
Characteristics
➢ The minimum number of members is two and
maximum is 50.
➢ The company has juristic personality
➢ The members are liable for the debts of the
company within the capital contribution =>
Limited liability
➢ The company is not allowed to issue shares, but
can issue corporate bonds under certain
circumstances
How can a LLC increase its charter capital?
43
 Limited liability companies
with two or more members
Characteristics
➢ Transferring stakes? (Art 52)

Can a member of LLC transfer all or part of its

capital to an outsider?

44
 Limited liability companies
with two or more members
Characteristics
➢ Transferring stakes in special cases? (Art 53)

45
 Limited liability companies
with two or more members
Characteristics
➢ Stake redemption:
- WHEN? ART 51.1, 53.4
- CONSEQUENCES?
+ TERMINATION OF MEMBER STATUS
+ THE CHARTER CAPITAL WILL BE DECREASED

46
 DISCUSSION

STAKE TRANSFER VS STAKE REDEMPTION?

47
 MANAGEMENT STRUCTURE:
ART 54

MEMBERS’ COUNCIL

INSPECTION
DIRECTOR
COMMITTEE/
(GENERAL DIRECTOR)
CONTROLLING BOARD

REMARK: State-owned LLCs and its subsidiaries: Controlling

board is compulsory. The remainder: Controlling board is optional
 LEGAL REPRESENTATIVE

• ART.12-15
• ART 54.3

49
 Members’ Council of LLC

• Comprises all members

• 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.

50
 Director/ General Director

• The Director or General Director of a

company is the person who administer
the everyday business operation of the
company;
• 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.
51
One-member limited liability companies

Definition

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.

52
One-member limited liability companies

Characteristics

➢The owner is one organization or one individual

➢The company has juristic personality
➢The members are liable for the debts of the
company within the capital contribution => Limited
liability
➢The company is not allowed to issue shares, but can
issue corporate bonds under certain circumstances

53
One-member limited liability companies

Characteristics
➢Transferring stakes?

Can a member of LLC transfer all or part of its capital

to an outsider?

54
 One-member limited liability companies

Characteristics
➢Transferring stakes
•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 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.

55
 MANAGEMENT STRUCTURE

INDIVIDUAL OWNER
INSTITUTIONAL OWNER (ART 79)
(ART 85)

PRESIDENT
PRESIDENT
MEMBERS’ COUNCIL

DIRECTOR DIRECTOR
DIRECTOR

CONTROLLING BOARD CONTROLLING BOARD

REMARK: State-owned LLCs: Controlling board is compulsory. The

remainder: Controlling board is optional
 Quiz
True or False?
1.It is the LLC itself, rather than the members
personally, that enjoys the benefit of limited liability.
2.In an multi-member LLC, members can freely
transfer their stakes to another person.
3.An one-member limited liability companies has no
existence distinct from the owner.
4.An LLC can issue bonds to the public.
5.It is required under the law that an LLC must have an
Inspection Committee/Control Board.

57
 Shareholding/Joint stock
Companies
• Definition
• Characteristics
• Organizational structural & Management

58
 Definition
A shareholding company is an enterprise in which:
– The charter capital is divided into equal portions
called shares;
– Shareholders may be organizations or
individuals; the minimum number of
shareholders is three and there is no restriction
on the maximum number;
– Shareholders are liable for the debts and other
property obligations of the enterprise to the
extent of the amount of capital contributed to
the enterprise;
(Article 111 of LoE 2020)
59
 Characteristics of JSC
➢ The charter capital is divided into equal portions
called shares;
➢ Shareholders may be organizations or individuals;
the min. number is three no restriction on the max.
number.
➢ Shareholders are liable for the debts of the
enterprise within the amount of capital contributed to
the enterprise;
➢ Joint-stock companies have the juristic personality.
➢ Shareholders may freely assign their shares to other
persons (Exception?);
➢ Joint-stock companies may issue securities to the
public

60
 TRANSFER OF SHARES
SHARES CAN BE FREELY TRANSFERED, EXCEPT FOR 3
CASES:
1. TRANSFER RESTRICTION STIPULATED IN THE
COMPANY CHARTER
2. VOTING PREFERENCE SHARES NOT ALLOWED TO
TRANSFER
3. ORDINARY SHARES OF FOUNDING SHAREHOLDERS
WITHIN 3 YEARS FROM THE DATE OF ISSUANCE OF
ERC :
- B/W FOUNDING SHAREHOLDERS: FREELY
TRANSFERRED
- OTHER SHAREHOLDERS/PERSON: APPROVED BY
GMS
- REMARK: ART 120.4 LAW ON ENTERPRISES 2020
61
 Types of shares

Voting
Ordinary
preference
shares
shares

Shares Dividend
preference
shares
Preference
shares Redeemable
preference
shares
Others
stipulated in the
charter

62
 Group work

Compare and contrast different types of

shares?

63
 TYPES OF SHARES
A. ORDINARY SHARES
• OWNER: INDIVIDUAL/
ORGANISATION
• TRANSFER: FREELY TRANSFERRED
EXCEPT THE CASES STIPULATED IN
ART 120.3, 127.1
• VOTING: 1 ORDINARY SHARE = 1
VOTE
• CANNOT BE CONVERTED INTO
PREFERENCE SHARES
 VOTING PREFERENCE SHARE
- ‘A voting preference shareholder carries more votes than
an ordinary one’?

- VOTE CALCULATION: 3 Elements

+ TYPE OF SHARES ( VOTING PREFERENCE OR ORDINARY)
+ THE QUANTITY OF SHARES
+n=?
EXAMPLE: A= 100 ORDINARY SHARES, B = 10 VOTING
PREFERENCE SHARES
-n = 10: A = B
-n > 10: A < B
-n < 10: A > B
 VOTING PREFERENCE SHARE
1. OWNER: FOUNDING SHAREHOLDERS +
ORGANISATIONS AUTHORIZED BY THE
GOVERNMENT (ART 116.1)
+ FOUNDING SHAREHOLDER: VALID FOR 3 YEARS +
CONVERTED INTO ORDINARY ONES
+ ORGANISATIONS AUTHORISED: CHARTER
→ why?
2. RESTRICTIONS: NON-TRANSFERABLE
(?) Voting preference share is valid only within 3
years since the day the company is granted an ERC.
 DIVIDEND PREFERENCE SHARE

-PREFERENCE:
PAID AT A RATE HIGHER THAN THAT PAID FOR AN
ORDINARY STOCK OR AT AN ANNUAL FIXED RATE.
-RESTRICTION:
- HAVE NO RIGHTS TO VOTE, ATTEND THE GMS,
NOMINATE CANDIDATE TO THE BOARD OF
MANAGEMENT, CONTROLLING BOARD.
 REDEEMABLE PREFERENCE SHARE

1. PREFERENCE: SHALL BE REDEEMED BY THE

COMPANY…

2. RESTRICTION:
HAVE NO RIGHTS TO VOTE, ATTEND THE GMS,
NOMINATE CANDIDATE TO THE BOARD OF
MANAGEMENT, CONTROLLING BOARD.
 REMARK

AN ADDITIONAL PREFERENCE FOR DIVIDEND AND

REDEEMABLE PREFERENCE SHARES (Art.117.2.b)
Upon dissolution or bankruptcy of the company:
1. Redeemable preference shares
2. Dividend Preference shares
3. Voting Preference shares + Ordinary shares +
other type of shares
 2.3.3. MANAGEMENT STRUCTURE
MODEL 1
GENERAL MEETING OF Art 137.1(a)
SHAREHOLDER

BOARD OF INSPECTION
MANAGEMENT COMMITTEE/CONTROLLING
BOARD

DIRECTOR/
GENERAL DIRECTOR
CONTROLLING BOARD NOT MANDATORY: 2 CONDITIONS
- Quantity: < 11 shareholders
- Institutional shareholders own < 50% /Total shares
 2.3.3. MANAGEMENT STRUCTURE

GENERAL MEETING OF
SHAREHOLDER MODEL 2
Art 137.1(b)

BOARD OF
MANAGEMENT

DIRECTOR/
GENERAL DIRECTOR
2 CONDITIONS
- 20% members of the B.M are independent members
- Auditing Committee is required in the B.M
 The Roles in a company
• The owners
• Provide the money for the company
Shareholders

• Elected (and removed) by the shareholders

• Set the general policies for the corporation
Directors
(eg: determining the amount of dividends)

• Chosen by the directors

• Run the day-to-day operations (eg: chief
Officers
executive officer)

72
 Quiz
True or False?
1. A shareholder has to contribute funds to
the company when there is not enough
cash to pay the creditors.
2. The change in ownership does not affect
existence of a shareholding company.
3. All types of shares in a shareholding
company are freely transferable.
4. There is no legal requirement for the
minimum and maximum number of
shareholders in a shareholding company.
73
Corporate group

74
 Corporate group
• A group of companies with long-term and
close relationship in term of economic
benefits, technology, market and other
business services.
• Not a type of business entity,
• Not have a juristic personality
• Can be in form of:
a) Holding company and subsidiary;
b) Economic Conglomerate
c) Other forms.

75
 Economic Conglomerate

• Economic Conglomerate is a large-size

corporate group. Conditions, organizational
management and operation of economic
conglomerate will be stipulated in detailed
by the Government.

76
 Parent - Subsidiary
A company is considered parent company of
another company if the former company:
• Owns more than 50% of charter capital or
total ordinary shares of the other company;
• Is entitle to directly or indirectly decide the
designation of a majority of BoD, the CEO of
the other company;
• Is entitled to decide amendments to the
other company’s charter.

77
 Parent - Subsidiary

Prohibition against cross ownership

• Subsidiaries must not contribute capital to or
buy shares of the parent company.
• Subsidiaries of the same parent company
must not contribute capital or buy shares of
each other for the purpose of cross
ownership.

78
Decision on the forms of enterprises
Formation
procedures &
costs

Management costs &

Transferability organizational
structure

Other obligations: tax, Juristic personality &

information disclosure,… Owners’ liability

Ability to Size (number

raise capital of owners)

79
 Comparison of different forms of enterprises
Factor Private enterprises Partnerships LLC JSC

Size One owner

(individual)

Juristic No
personality

Liability The owner’s

liability is unlimited

Owners’ The owner can

interests sell his/her
company to
another person.
80
 Comparison of different forms of enterprises
Factor Private Partnerships LLC Jsc
enterprises

Management The owner has

full power of
management

Ability to Cannot issue any

raise capital securities

Others

81