CHAPTER 2

THE ENTERPRISE LAW IN VIETNAM

1
 Key concepts
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 1945-1986

• In the late 19th century: not • In the North: no company law
exist • In the South: Commercial
• North Civil Code 1931 and Code 1972 (5 corporate forms:
Central Vietnam Commercial Partnerships, simple share
Code 1942 (human capital associations, joint
associations and capital capital associations, LL
associations) 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: 128
• 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
 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)

11
 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

12
 Forms of business in Vietnam
Forms Before 2005 After 2005/2014/2020

Cooperative Law on Cooperatives 1996/2003 Law on Cooperatives

2012
SOEs Law on SOEs 1995/2003
Ltd Co.

Shareholding Co. (Law on Company and Law on Law on Enterprises

Private Enterprise 1990) repealed 2005/2014/2020
Partnerships by Law on Enterprises 1999

Private enterprises
100% foreign capital
enterprise
Law on FDI 1996/2000
Joint-venture co.
Household business Decrees No.
Decree No. 109/2004/ND-CP 43/2010/ND-CP,
78/2015/ND-CP
01/2021/ND-CP 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)
Doanh nghiệp tư nhân
▪ Partnership DN hợp danh
▪ One member LLC (single member LLC)
▪ Two or more member limited liability company (multi-
member LLC)
▪ Joint stock company (Shareholding Company)
Công ty cổ phần
▪ 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? NO

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.
nguyên đơn, bị đơn
• 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?
Yes. A partnership shall enjoy legal entity
status as from the date of issuance of the
enterprise registration certificate. (Art. 177.2
LoE 2020)

➢Issue any kind of securities?

No (Art 177.3, LoE 2020)

29
 Homework

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
Voting rights One vote in all matters Limited to certain matters: charter
unless otherwise amendment /supplement,
stipulated in the company supplement/amendment of their
charter rights and obligations , re-
organization and liquidation and
other matter closely related to
their rights and obligations.

Management
rights

32
 General partners & Limited partners
General partners Limited partners
Voting rights One vote in all matters Limited to certain matters: charter
unless otherwise amendment /supplement,
stipulated in the company supplement/amendment of their
charter rights and obligations , re-
organization and liquidation and
other matter closely related to
their rights and obligations.

Management • Act as the legal Not entitled to take part in the

rights representatives and management of the partnership or
run the partnership’s to conduct business activities in
everyday business the name of the partnership.
• Use the partnership’s
seals and other assets
to carry out its
business activities 33
 General partners & Limited partners
General partners Limited partners
Rights to
profit

Transfer their
stakes

Liability

34
 General partners & Limited partners
General partners Limited partners
Rights to Receive profits in proportion to Receive annual distributed
profit the capital contribution unless profits in proportion to the
otherwise stipulated in the capital contribution
charter.

Transfer their
stakes

Liability

35
 General partners & Limited partners
General partners Limited partners
Rights to Receive profits in proportion to Receive annual distributed
profit the capital contribution unless profits in proportion to the
otherwise stipulated in the capital contribution
charter.

Transfer their ▪ Require consent of other Not require

stakes general partners

Liability

36
 General partners & Limited partners
General partners Limited partners
Rights to Receive profits in proportion to Receive annual distributed
profit the capital contribution unless profits in proportion to the
otherwise stipulated in the capital contribution
charter.

Transfer their ▪ Require consent of other Not require

stakes general partners

Liability ▪ Take joint responsibility for Be responsible for all

paying the remaining debts liabilities and other
of the company; obligations of the
▪ Bear a loss in proportion partnership within the
to their stakes in the capital contribution
company unless otherwise
stipulated in the charter;
37
 Liability

A B C

38
Organizational structure &
management

Partners’ Council

General partners

Limited partners

39
 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.

40
 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;

41
 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. 42
 Convocation of meeting of the Partners’ Council
(Art. 182, LOE 2020)

triệu tập

• 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.

43
 Quiz
True or False
1. In a partnership, each partner is a legal
representative of the firm.
F. General partner can be legal representative, limited partner is not. (Art. 184)
2. The minimum number of partners in a
partnership is 2. true Art. 177.1)
3. A general partner can freely transfer their stakes
in the partnership to another person.
F. A general partner must not transfer part or all of his/her stake in the
company to another organization or individual unless it is accepted by the
other general partners. (Art. 180.3)

44
 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. art 184

C. A partner can be an individual living

person or a registered company

45
 Exercise
A, B and C found a partnership (D) for provision of
accounting services. At the time of establishment, A
contributed $2million, B contributed $3million, C
contributed $1million. All of them are general partners.
1. C has special knowledge of the law. C asked A and B to
sign a contract under which, C would enjoy 50% of the
profit but in case of insolvency, C would only take
responsibility for 11,66% of the debt (as his proportion
of capital contribution). Was the contract legally
binding?
2. The partnership entered into the contract with E for
provision of annual accounting services. The contract
value was $10million. The contract was signed by C
without knowledge of A and B. Is the contract legally
46
valid?
 Exercise
A, B and C found a partnership (D) for provision of
accounting services. At the time of establishment, A
contributed $2million, B contributed $3million, C
contributed $1million. All of them are general partners.
3. The partnership D failed to perform its obligation
under the contract with E and had to pay E the
damage of $6 million. At that time, D had only the
total asset of $5million. Can E request A and B to pay
the remaining amount?
4. Upon E’s request, A had to pay E the remaining amount.
Can A ask B and C to reimburse him?

47
Limited Liability Company (LLCs)

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

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

48
 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

49
 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?
50
 Limited liability companies
with two or more members
Characteristics
➢ Transferring stakes?

Can a member of LLC transfer all or part of its

capital to an outsider?

What if a member dies?

If a member being an individual dies, his/her inheritor
according to the will or law shall be the company’s
member. (Art.53.1 LoE 2020)

51
 Limited liability companies
with two or more members
Characteristics
➢ Transferring stakes: priority to existing members
Member are entitled to transfer part or all of his/her
stake to another person as follows:
• Offer the stakes to other members in proportion to
their stakes in the company under the same
conditions;
• Only transfer the stake under the same conditions
applied other members to non-members if the
members do not purchase or do not purchase in
full within 30 days from the offering date.
(Article 52.1 LoE 2020)
52
 Limited liability companies
with two or more members
Organizational structure & Management

Members’
Council

Director/
Inspection
General
Committee/Control
Director
Board
53
 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.

54
 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.
55
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.

56
 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

57
 One-member limited liability companies

Characteristics
➢Transferring stakes?

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

to an outsider?

58
 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.

59
 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.

60
 Shareholding/Joint stock
Companies
• Definition
• Characteristics
• Organizational structural & Management

61
 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)
62
 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;
➢ Joint-stock companies may issue securities to the
public

63
 Types of shares

Voting
Ordinary
preference
shares
shares

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

64
 Group work

Compare and contrast different types of

shares?

65
Organizational & management structure
Option 1: Art 137.1 (a) LoE 2020

☺ ☺ ☺ ☺

GM

Inspection
Board of Directors Committee/Control
Board

CEO

Under the law, is it mandatory for a shareholding

company to have an inspection committee?

66
 Organizational & management structure
Option 2: Art 137.1(b) LoE 2020

GM

Board of Directors Independent

Auditing
Directors Independent Directors Board/
Internal
Control Boad

CEO

67
 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)

68
 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.
69
Corporate group

70
 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.

71
 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.

72
 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.

73
 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.

74
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)

75
 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.
76
 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

77