CHAPTER 2 -

CHOOSING A FORM OF

BUSINESS OWNERSHIP
The definition of enterprise

• Enterprise "is an organization that has its own name, assets,

office, and is registered in accordance with law to do business."
(according to Vietnam Enterprise Law 2020).

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Classification by sources of fund

• State-owned enterprises
• Private sector
• Foreign Invested Enterprise

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State-owned enterprises
Vietnam Enterprise Law 2020 stated “enterprises
where the State holds more than 50% of its charter
capital that has voting rights, be regarded as a
State Owned Enterprise” (Article 4, Clause 11).
 State-owned enterprises
 Decree 91 / 2015NĐ-CP stipulates that the State-owned enterprise
(SOEs) only invests state-owned property to establish SOEs in the
following areas:
 Providing essential public products and services to ensure social
security
 Operating in the fields of direct service to national defense and
security in accordance with the Government's regulations
 Operating in the natural monopoly sector
 Applying high technology, making large investments, creating a
driving force for rapid development of other industries, sectors and
the economy.
State-owned enterprises
Criteria State-owned enterprises Other types of enterprise

Establishment by the Board of Members - established by

State permit establishment on the basis of
Establishment decision of representative agency of state ownership,
business registration of business entities.
implementing decision on enterprise establishment.

In addition to profit targets, SOEs must implement other Pursue profit goals and do any businesses
Enterprise’s goals
socio-economic goals set by the state. that is not prohibited by the law.

Property is owned by the State. SOEs do not have

Capital and ownership rights to assets, and only manage the business Business entity is the owner of their
ownership over the State's assets (do not have ownership rights but business assets.
have the right to possess, dispose and use).

The State appoints the Members 'Council, the company

president and controller, and the other positions are
Organization, Human decided by the Members' Council and the company The business owner decides the
resourses president. organization and personnel of the business.

The State approves the overall strategy and planning

Foreign Invested Enterprise
• The Law on Investment 2020 stipulates that a foreign-
invested enterprise is an enterprise where foreign
investors hold more than 50% of the charter capital or
is an organization where the majority of partners are
foreign individuals. with total capital holding more than
50% of charter capital.
Private sector
• Enterprises in the private economic sector are
enterprises that are not in the category of foreign-
invested enterprises or are not state-owned
enterprises.
Classification by Business Fields

• Agricultural enterprises

• Industrial enterprises

• Commercial enterprises

• Service enterprises
Classification by Business Fields
 Agricultural enterprises: are enterprises operating in the agricultural
sector, focusing on the production of products such as plants and
animals.

 Industrial enterprises: are enterprises operating in the industrial sector

 Commercial enterprises: are enterprises operating in the field of

commerce, focusing on exploiting services in the distribution of goods.

 Service enterprises: banking, finance, insurance, post and

telecommunications, transportation, tourism, hotels, healthcare, etc.
•In order to choose the right form of ownership, it is necessary to
answer some of the following basic questions (Collins, 2014):

1. Do you want simple or complicated business registration

procedures?
2. Do you wish to have control of all or part of your business?
3. Do you want to share profits with others?
4. Do you want to pay less taxes?
5. Do you have the competencies and skills necessary to run
your business unit?
6. Do you want your business to survive without you?
7. Do you have enough financial capacity?
8. How far is your ability to pay off debt?
■ 1. Sole proprietorship
■ 2. Partnership
■ 3. Corporation
■ 4. Limited-liability Companies
■ 5. Not-for-Profit Corporations
■ 6. Cooperatives, & Joint ventures
■ A sole proprietorship is a business that is owned (and usually operated) by one
person
■ Sole proprietorships are most common in retailing, service, and agriculture.
■ Thus, the clothing boutique, corner grocery, television-repair shop down the
street, and small, independent farmers are likely to be sole proprietorships
■ Advantages of ■ Disadvantages of
Sole Sole Proprietorships
Proprietorships • Unlimited liability
• Ease of Start-Up • Lack of
and Closure Continuity
• Pride of Ownership • Lack of Nloney
• Retention of .All • Limited Nlanagement
Profits Skills
• No Special Taxes • Difficulty in Hiring
Employees
• Flexibility of
Being Your
■ A partnership is a voluntary association of two or more persons to act as co­
owners of a business for profit.
■ Types of Partners
• .A general partner is a person who assumes full or shared responsibility for operating
a business. General partners also assume unlimited liability for all debts, including
debts incurred by any other general partner without their knowledge or consent
• .A limited partner is a person who invests money in a business but who has no
management responsibility or liability for losses beyond his or her investment in the
partnership
■ Advantages of ■ Disadvantages of
Partnership Partnership
• Ease of Start-Up • Unlimited liability
• Personal Interest • Lack of Continuity
• Combined Business Skills & • Management Disagreements
I<.nowledge • Frozen Investment
• Retention of
Profits
• No Special Taxes
■ A corporation is an artificial person created by law, with most of the legal rights
ofa real person, including:
■ The right to start and operate a business
■ The right to buy or sell property
■ The right to borrow money
■ The right to sue or be sued
■ The right to enter into binding contracts
■ The shares of ownership of a corporation are called stock.
■ The people who own a corporation's s t o c k - a n d thus own part of
the
corporation-are called stockholders
■ A closed corporation is a corporation whose stock is owned by relatively few
people and is not sold to the general public.
■ An open corporation is one whose stock can be bought and sold by any
individual
■ The organizational structure of most corporations is more complicated than
that of a sole proprietorship or partnership.
■ In a corporation, both the board of directors and the corporate officers
are involved in management
FIGURE Hierarchy of Corporate
4.4 Structure
Stockholders exercise a great deal of influence
through their right to elect the board of
directors.

Stockholders IL---s-ra- Board

Officer Hir Employee
(owners
6' of
s e s
) director
s
■ Advantages of Corporation ■ Disadvantages of Corporation
• Limited liability • Difficulty and Expense of Formation
• Ease of Raising Capital • Government Regulation and Increased

• Ease of Transfer of Ownership Paperwork

• Perpetual Life • Conflict Within the Corporation

• Specialized Management • Double Taxation

• Lack of Secrecy
■ Limited liability - a feature of corporate ownership that limits each
owner's fmancial liability to the amount ofmoney that he or she has paid for
the corporation's stock.
■ A limited-liability company (LLC) is a form of business ownership that
combines the benefits of a corporation and a partnership while avoiding some
of the restrictions and disadvantages of those forms of ownership.
• A not-for-profit corporation (sometimes referred to as non-profit) is a
corporation organized to provide a social, educational, religious, or other service
rather than to earn a profit.
• Various charities, museums, private schools, colleges, and charitable
organizations are organized in this way, primarily to ensure limited liability.
■ A cooperative is an association of individuals or f1tms whose purpose is
to perform some business function for its members.
• The cooperative can perform its function more effectively than any member could by
acting alone.
• .Although cooperatives are found in all segments of our economy, they are most
prevalent in agriculture
• A joint venture is an agreement between two or more groups to form a
business entity in order to achieve a specific goal or to operate for a specific
period of time.
• Both the scope of the joint venture and the liabilities of the people or businesses
involved usually are limited to one project.
• Once the goal is reached, the period of time elapses, or the project is completed, the
joint venture is dissolved.
• Major oil producers often have formed a number of joint ventures to share the
extremely high cost of exploring for offshore petroleum deposits
SMALL AND MEDIUM ENTERPRISES

• 1. A Profile
• 2. The Importance of Small Business in our Economy
• 3. The Pros & Cons of Smallness
• A Small and Medium enterprises as "one which is independently
owned and operated for profit and is not dominant in its field."
• Small and medium enterprise spans the gamut from corner newspaper
vending to the development of optical fibers.
• The various kinds of businesses generally fall into three broad categories
of industry: distribution, service, and production.
2. THE IMPORTANCE OF
SMEs IN
OUR ECONOMY

■ Providing Technical innovation

■ Providing Employment
■ Providing Competition
■ Filling Needs of Society & Other Businesses
3. THE PROS AND CONS OF SMEs

■ Advantages of SMEs ■ Disadvantages of SMEs

■ Personal relationships with Customers and • Risk of Failure
employees • Limited Potential
• .Ability to .Adapt to Change
• Limited Ability to raise Capital
• Simplified record l(eeping
• Independence
■ 1. Entrepreneurial spirit
■ 2. Creating a New Enterprise
■ 3. Merger & Acquisition
■ 4. Franchising
■ Entrepreneurial spirit is the desire to create a new business.
■ Entrepreneur is characterized by
• Innovation
• Independence
• .A desire to determine one's own destiny
• .A willingness to find and accept a challenge
• Other factors (age, family background ... )
■ Creating a New Enterprise
• Developing business idea/ concept
• Transforming the idea/ concept into enterprise (realization)
• Managing the development
■ The purchase of one corporation by another is called a merger.
■ An acquisition is essentially the same thing as a merger, but the term usually is
used in reference to a large corporation's purchases of other corporations
• A hostile takeover is a situation in which the management and board of directors of a
firm targeted for acquisition disapprove of the merger
• A tender offer is an offer to purchase the stock of a firm targeted for acquisition at a
price just high enough to tempt stockholders to sell their shares.
• A proxy fight is a technique used to gather enough stockholder votes to control a
targeted company
■ The purchase of one corporation by another is called a merger.
■ An acquisition is essentially the same thing as a merger, but the term usually is
used in reference to a large corporation's purchases of other corporations
• A horizontal merger is a merger between firms that make and sell similar products or
services in similar markets.
• A vertical merger is a merger between firms that operate at different but related levels
in the production and marketing of a product.
• A conglomerate merger takes place between firms in completely different industries.
■ A franchise is a license to operate an individually owned business as if it were
part of a chain of outlets or stores. It is an attractive means of starting and
operating a small business.
■ Franchising is the actual granting of a franchise.
■ A franchisor is an individual or organization granting a franchise.
■ A franchisee is a person or organization purchasing a franchise.
■ Franchising arrangements fall into three general categories.
• the first approach - a manufacturer authorizes a number of retail stores to sell a certain
brand-name item. prevalent in sales of passenger cars and trucks, farm equipment, shoes,
paint, earth-moving equipment, and petroleum.
• the second type - a producer licenses distributors to sell a given product to retailers.
common in the soft drink industry.
• the third form - a franchisor supplies brand names, techniques, or other services instead
of a complete product