Conversion of enterprises according to Viet Nam Law on Enterprises

The conversion of enterprises is allowed according to Viet Nam Law on Enterprises. Let’s find out with Lawyer X about legal regulations on the conversion of enterprises using the following scenario: “Dear Lawyer! I want to ask how many forms of conversion of enterprises are there in Viet Nam? How shall the conversion of enterprises be conducted? Thanks for answering me!”

Legal grounds

Law on Enterprises

Types of Enterprises in Viet Nam

Enterprise means an organization that has a proper name, assets, premises, is established or registered in accordance with law for business purposes. According to Law on Enterprises 2020, there are four types of enterprises including: Private enterprises, Partnerships, Limited Liability Companies, and Shareholding Companies.

* Private Enterprise is an enterprise owned by only one individual who shall be liable for entire business operations of the enterprise to the extent of all his or her assets. Private enterprise owner can be examined as the person contributing 100% capital to the enterprise. Therefrom, it could be seen that a private enterprise has some following characteristics:

– Private enterprise owner is just individuals

– Assets liability of private enterprise owner is unlimited liability, which means private enterprise owner shall be liable for all business operations of the enterprise to the extent of all his/her assets.

*Partnership is an enterprise that has characteristics as follows:

– There are at least 02 partners that are joint owners of the company and do business under the same name (referred to as “general partner”). There can be limited partners in addition to general partners;

– Partnership has the status of a juridical person.

– Partnership must not issue any kind of securities.

A general partner shall be an individual whose liability for the company’s obligations is equal to all of his/her assets. A limited partner can be an organization or an individual whose liability for the company’s debts is equal to the promised capital contribution.

*Limited liablity company comprises 2 types which are single-member limited liability company and multi-member limited liability company.

Single-member limited liability is an enterprise which has characteristics as follows:

– The owner of a single-member limited liability company is a single organization or individual

– Assets liability of the owner is limited liability, which means the owner shall be liable for all business operations of the enterprise to the extent of the charter capital of the company.

– A single-member limited liability company has the status of a juridical person.

– A single-member limited liability company must not issue shares except for equitization; but may issue bonds in accordance with laws

A multiple-member limited liability company is an enterprise which has characteristics as follows:

– A multiple-member limited liability company means an enterprise that has 02 – 50 members that are organizations or individuals. A member’s liability for the enterprise’s debts and other liabilities shall be equal to the amount of capital that member contributed to the enterprise, except for the cases specified in Clause 4 Article 47 of Law on Enterprises. The member’s stake (contributed capital) may only be transferred in accordance with Articles 51, 52 and 53 of Law on Enterprises.

– A multiple-member limited liability company has the status of a juridical person from the day on which the Enterprise Registration Certificateis issued.

– Multiple-member limited liability companies must not issue shares except for equitization.

– Multiple-member limited liability companies may issue bonds in accordance with Law on Enterprises and relevant laws; private placement of bonds shall comply with Article 128 and Article 129 of Law on Enterprises.

*A joint stock 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 debts and other property obligations of the enterprise only within their amounts of capital contributed to the enterprise;

– A joint stock company has legal entity status

– A joint stock company may issue all types of shares to raise funds.

– A joint stock company has the right to issue shares, bonds and other securities of the company.

Conversion of a limited liability company into a joint stock company

– The conversion of a state-owned enterprise into a joint stock company shall comply with relevant laws.

– A limited liability company can be converted into a joint stock company:

+ without raising additional capital from other organizations and individuals or selling stakes;

+ by raising additional capital from other organizations and individuals;

+ by selling all or part of the stakes to one or some organizations and individuals; or

+ combining the methods specified in Points a, b and c of Clause 2 Article 202 Law on Enterprises and other methods.

– The conversion shall be registered with the business registration authority within 10 days from the day on which the conversion is complete. Within 03 working days from the receipt of the application for conversion, the business registration authority shall reissue the Certificate of Enterprise Registration and update the company’s status to the national enterprise registration database.

– The joint stock company obviously inherits all lawful rights and interests, debts including tax debts, employment contract and other obligations of the limited liability company.

Conversion of a joint stock company into a single-member limited liability company

– A joint stock company can be converted into a single-member limited liability company as follows:

+ A shareholder receives all shares of the other shareholders;

+ A organization or individual other than a shareholder receives all shares of all shareholders;

+ Only 01 shareholder remains in the company.

– The transfer or receipt of shares specified in Clause 1 of Article 203 Law on Enterprises shall be made at market value or a value determined by asset-based method or discounted cash flow method or another method.

– Within 15 days from the occurrence of any of the events specified in Clause 1 of Article Law on Enterprises, an application for conversion shall be submitted to the business registration authority where the enterprise is registered. Within 03 working days from the receipt of the application, the business registration authority shall issue the Certificate of Enterprise Registration and update the company’s status to the national enterprise registration database.

– The limited liability company obviously inherits all lawful rights and interests, debts including tax debts, employment contract and other obligations of the joint stock company.

Conversion of a joint stock company into a multiple-member limited liability company

– A joint stock company can be converted into a multiple-member limited liability:

+ without raising additional capital or selling stakes;

+ by raising additional capital from other organizations and individuals;

+ by transfer all or part of the shares to other organizations and individuals;

+ when only 02 shareholders remain in the company; or

+ combining the methods specified in Points a, b and c of Clause 1 Article 204 Law on Enterprises and other methods.

– The conversion shall be registered with the business registration authority within 10 days from the day on which the conversion is complete. Within 03 working days from the receipt of the application for conversion, the business registration authority shall issue the Certificate of Enterprise Registration and update the company’s status to the national enterprise registration database.

– The limited liability company obviously inherits all lawful rights and interests, debts including tax debts, employment contract and other obligations of the joint stock company.

Conversion of a private company into a limited liability company, joint stock company or partnership

– The owner of a private company may convert it into a limited liability company, joint stock company or partnership if the following conditions are fully satisfied:

+ The private company satisfies the conditions specified in Clause 1 Article 27 of this Law;

+ The owner makes a written commitment to take personal responsibility for all unpaid debts and pay them when they are due with all of his/her assets;

+ The owner has a written agreement with the parties of ongoing contracts that the new company will take over and continue executing these contracts.

+ The owner shas a written commitment or agreement with other limited partners to continue hiring the existing employees of the private company.

– Within 03 working days from the receipt of the application, the business registration authority shall consider issuing the Certificate of Enterprise Registration if the conditions specified in Clause 1 of Article 205 Law on Enterprises are fully satisfied and update the enterprise’s status to the national enterprise registration database.

– The new company obviously inherits all rights and obligations of the private company from the issuance date of the Certificate of Enterprise Registration. The owner of the private company shall be personally responsible for all debts that are incurred before this day with all of his/her assets.

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Frequently asked questions

Yes! The conversion of a limited liability company into a joint stock company shall be registered with the business registration authority within 10 days from the day on which the conversion is complete. Within 03 working days from the receipt of the application for conversion, the business registration authority shall reissue the Certificate of Enterprise Registration and update the company’s status to the national enterprise registration database.

Conclusion: So the above is Conversion of enterprises according to Viet Nam Law on Enterprises. Hopefully with this article can help you in life, please always follow and read our good articles on the website: lsxlawfirm.com