Vietnam is a small country but is considered as a potential market for investment. In recent years, the number of foreign investors into the Vietnamese market has been increasing. In particular, establishing limited liability companies in Vietnam is the first choice of investors. This article explains how an LLC works, its functions, and how it differs from other types of corporation. It also explains how they are formed.
What is a Limited Liability Company?
A Limited Liability Company is a legal entity which is limited in its liability. The members of the company are called shareholders and they have certain rights and responsibilities when it comes to the business. This makes it a good choice for small businesses who are not big enough to worry about the personal liability of their investors.
LLCs are a legal entity that can be used to protect assets. They are also used in international business transactions. In Vietnam, there are more than 1 million LLCs operating in the country.
Features of a limited liability company (LLC) in Vietnam
The liability of member
A limited liability company is established based on the capital contribution of its members. This contributed capital is the total assets contributed to create the charter capital of the company.
The word “Limited” in a Limited Liability Company refers to the fact that members of a LLC are only liable and financially responsible for the company in proportion to the amount of capital they have contributed to the company’s charter.
Right to issue shares and bonds
When compared to a joint stock company in Vietnam, a limited liability company (whether a one member limited company or a limited liability company with two or more members) is NOT allowed to issue shares.
According to the 2014 Enterprise Law, there are no regulations allowing a Vietnamese limited liability company to issue bonds. However, according to the provisions of Articles 46 and 74 of the revised Enterprise Law 2020, a limited liability company in Vietnam can issue bonds provided that it complies with Vietnamese law.
For a single member limited liability company, the enterprise structure can be one of the following two models:
(1) The President of the company and the Director/Director General;
(2) Board of members and Director/Director General (applicable only to owners who are organizations).
A two-member (or Multi-member) LLC in Vietnam is usually structured by the following divisions:
- Members’ Council.
- Chairman of the Members’ Council.
- Director/Director General.
- Supervisory Board.
Reasons to Form a Limited Liability Company in Vietnam
Limitation of Liability
The limited liability company (LLC) is an ideal structure for small businesses. It is a tax-efficient entity that allows owners to keep the majority of their assets and avoid the risk of personal liability.
For example, if a company is in financial trouble, neither the government, the bank nor the creditors can seize the personal assets of any of its members.
Simple registration procedure
Compared to other types of businesses in Vietnam, LLC has the simplest structure and is easiest to set up. This type of legal entity is particularly suitable for SME companies run by one or a few shareholders. Registration procedures are significantly reduced compared to larger companies and organizations in Vietnam.
Great investment prospects
Forming an LLC helps your company appear more trustworthy because transparency is a priority for this organization. It offers excellent growth prospects and potential, thanks to the easy process of getting capital from angel investors, venture capitalists or other financial institutions.
Types of Limited Liability Companies in Vietnam
Single Member Limited Liability Companies
As the name suggests, a single member limited liability company (SLLC) is a type of limited liability company in which only one member is liable for any debts that the company incurs. A single member LLC is a legal entity that allows one person or group of people to own and control property in a specific geographical area. A member of a SLLC is liable for any debts that the company incurs, regardless of who actually incurred them.
Two-member (or Multi-member) limited liability company
Two-member LLC (or Multi-member LLC) is a legal form of company with multiple members that have limited liability. This form of company is mainly used by small enterprises, but also by large corporations and state-owned enterprises. The majority of business owners are aware that when they set up a limited company, they can legally protect their assets from the liabilities owed by the company.
Legal Documents for LLCs in Vietnam
Foreign investors should get registered with the enterprise registration authority before starting to invest in Vietnam. Specifically, foreign investors need to prepare a set of documents to establish an LLC, including:
- Application for registration of a limited liability company: for single member LLC (Appendix I-2 of Circular 01/2021), for Two-member LLC (Appendix I-3 of Circular 01/2021).
- Company’s charter (Company Regulations).
- A valid copy of one of the following documents: ID card/citizen identification/ passport.
- Capital-contributing members list (for two or multi-member LLC).
- A copy of IRC (Investment Registration Certificate).
- A copy of establishment decision, business certificate or other documents.
Length of the registration procedure
When you think of a business organization, you usually think of how complicated and time-consuming registration would be. In most cases, it takes about 3 weeks or less (depending on the complexity of the business) to register a limited liability company in Vietnam.
Although the Vietnamese government has many supportive policies for foreign investors, the procedure for establishing a new legal entity will still be difficult. LTS is a leading company in the field of legal advice and business establishment in Vietnam. If you are a foreign investor wishing to establish a limited liability company in Vietnam, let us accompany you. Contact us now for more details!
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