Linking to form company groups is an inevitable trend; objectivity in the commodity-producing economy; Market economy. Basic factors such as the need to spread risks; the need for accumulation and concentration of capital; division of labor and strong influence from competition law; The law of supply-demand of the economy have promoted the association activities to form a stronger group of companies. Not outside of this objective trend, the association and formation of economic groups today represent a remarkable development in quantity and quality. So what is an economic group? How are the characteristics and roles of economic groups regulated by Vietnamese law? Today, LSX Lawfirm will give you an article about “Characteristics and role of economic groups in Vietnam”, as follows:
Legal grounds
Enterprise Law 2020
The concept of economic group
- Firstly, An economic group is a collection of companies on a large scale, operating in one or more different fields; within one or more countries; in which there is one company (parent company) taking the lead and controlling the activities of other companies (subsidiaries).
- Secondly, An economic group is an organizational structure with both business functions and economic linkage functions formed on the basis of aggregation; through investment, capital contribution, merger, acquisition, reorganization, or other forms of association.
- Thirdly, Companies in economic groups stick together for a long time in terms of economic and technological benefits; markets, and other related services; in order to increase accumulation, concentration, and improve competitiveness; maximize profits in production and business.
Features of Economic Groups
In addition to the general characteristics of the group of companies; Economic groups have the following basic characteristics:
Economic groups have a very large scale in terms of capital; labor, turnover, scope; wide field of activity
- Regarding large-scale capital: Economic groups have the accumulation of capital of companies in the group; including the parent company; subsidiaries; member companies, and affiliated companies. Large capital scale creates for the corporation the ability to compete more effectively; specialization in production and business activities within the group, thereby reducing costs; creating a driving force to promote the development of each company in the group then.
- In terms of labor scale: The Group concentrates on a large-scale workforce; by the group’s member companies operating in many different fields; the labor force is differentiated from high professional level to medium professional level; from management to production workers. The quality of human resources is stable, meeting the requirements.
- Regarding the scope of activities: Currently, economic groups not only operate within a country; but have also expanded to many other countries and territories; becoming multinational corporations. Most of the economic groups operate in multi-industry and multi-field. Then This is done with the objective of spreading risk; ensuring that the corporation’s operations are effective, sustainable,…
- So Regarding revenue: The economic group carries out private activities on a large scale; wide operating range, good competitive advantage; High management level, profit maximization. Therefore, the group is able to achieve large and stable revenue then.
Economic nature
- Firstly, An economic group is a form of business association (group association); that has a diverse organizational structure
- Secondly, An economic group is a group of businesses linked together for economic interests; technology, market, etc., including parent company, subsidiary, secondary subsidiary, member company. In which, the parent company owns the majority of the share capital of the subsidiaries.
- Thirdly, The organizational structure of economic groups is very diverse: single-level organizational model; multi-level organizational model; complex multi-level organizational model.
Multi-ownership economic group
- Firstly, An economic group is a combination of companies including a parent company and subsidiaries; multi-level subsidiaries, and member companies.
- Secondly, The parent company owns the majority of shares in the subsidiaries. Thus, the group’s capital ownership is mixed ownership; but there is one large owner holding the controlling power which is the parent company.
The role of economic corporations in the market economy
Economic groups play a significant role in the development of the economy:
- Firstly, Economic groups are the basis for the formation and development of large-scale business association models. An economic group is a type of business organization model formed by the cooperation needs of investors; to create large-scale assemblies. Economic groups make important contributions to the national revenue; help the country solve financial difficulties.
- Secondly, It is one of the tools for the state to adjust the economic structure. When the state wants to change the economic structure, the risks for these decisions are great. The State needs to have tools to carry out a restructuring with high specialization; a modern production level; capable of mobilizing resources. Economic groups are the subjects that meet these requirements.
- Thirdly, Economic groups create a basis for improving competitiveness; international economic integration. Economic groups have many advantages in the market in terms of resources and advantages of scale; branding, specialization, and consistency. Therefore, economic groups have good competitiveness.
- Fourthly, Economic groups help improve scientific and technical efficiency. Scientific and technical innovation is a topical requirement for companies in the market. The company must make significant improvements in technology; to bring to the market good quality products; Low cost, competitive then.
- Finally, Economic groups carry out responsibility for job creation and social security; play a large role in community activities; such as humanitarian activities, charity activities, community health activities, etc.
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Related questions
At present, economic groups are determined to have no legal status but only a collection of companies; then they have a close relationship with each other in terms of capital, finance, technology; market, brand, research, training, etc.
The most common types of enterprises in economic groups are joint-stock companies then; It can be seen that travel businesses choosing this type have their own characteristics such as easy capital mobilization; competitive ability; effective risk distribution then.
Accordingly, to the provisions of Clause 2, Article 195 of the Law on Enterprises in 2020, “Subsidiaries are not allowed to invest in buying shares or contribute capital to the parent company”. This is a regulation that shows progress in legislative techniques, limiting the problem of cross-ownership in the company.
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