Characteristics of state-owned enterprises in Vietnam

by Quang Minh

In the era of a growing society, more and more people register and expand their businesses. In Vietnam, state-owned enterprises play a key role in domestic business lines. So, how do state-owned enterprises work? In this article, LSX legal firm would like to provide you with: “Characteristics of state-owned enterprises in Vietnam”

  • Law on Enterprise 2020

Enterprises owned by the state

State-owned enterprises mean production and business establishments in which the state owns all or most of the capital in the enterprise. These enterprises belong to the ownership of the state or mainly state-owned so that the government can exert a dominant influence, directly or indirectly, over enterprises.
According to Clause 11 Article 4 of the Law on Enterprise 2020:
“A “state-owned enterprise” means an enterprise more than 50% charter capital or voting shares held by the State as prescribed in Article 88 of this Law.”
The State owns the entire charter capital or has controlling shares or contributed capital organized in the form of a State company, joint stock company, or limited liability company.
A state-owned enterprise owned by one owner in case the state owns the entire charter capital (ie 100% ownership). State-owned enterprises have multiple owners when having the shares and the controlling capital contribution ratio of over 50% and less than 100%.

Classification of state-owned enterprises

Based on the capital:

  • Wholly state-owned enterprises (100% of charter capital of held by the State)
  • Partially state-owned enterprises (over 50% of charter capital or voting shares held by the State, except the enterprises above).

Wholly state-owned enterprises include:

  • Single-member limited liability companies with 100% of charter capital which is held by the State that are parent companies of state-owned corporations or parent companies in groups of the parent company – subsidiary companies;
  • Independent single-member limited liability companies have 100% of charter capital held by the State.

Partially state-owned include:

  • Multiple-member limited liability companies and joint stock companies over 50% of charter capital or voting shares of which is held by the State that are parent companies of state-owned corporations or parent companies in groups of the parent company – subsidiary companies;
  • Independent multiple-member limited liability companies and joint stock companies over 50% of charter capital or voting shares held by the State.

Based on the management organization model:

  • Firstly, state-owned enterprises have a Board of Members. The board of directors directly represents the state owner and takes responsibility before the state.
  • Secondly, state-owned enterprises without a board of Members. In this model, the director of the enterprise is appointed or hired by the state to run the operation of the enterprise.

Characteristics of state-owned enterprises in Vietnam

  • Investor: the State or the State together with other organizations and individuals. As the sole investor in an enterprise, the state has full authority to decide on issues related to the existence and operation of each state-owned enterprise. In which, the State has the right to decide on the formation, reorganization and disposition; decide on objectives, development strategies, production, and business plans, and financial investments; decide on the organizational model of management, decide on dissolution; control and monitor the implementation of the goals and tasks of the enterprise…
  • Capital ownership: The State owns the entire charter capital (100%) or owns the controlling capital contribution (over 50% but less than 100% of the charter capital).
  • Forms of enterprise: State-owned enterprises have many forms. For a state-owned enterprise with 100% charter capital owned by the state, there are different types of enterprises such as state companies, state-owned joint-stock companies, and state-owned single-member limited liability companies. For an enterprise owned by the State with more than 50% of charter capital, it may exist under the following types of enterprises: joint-stock company, limited liability company
  • Property Liability: State-owned enterprises take liabilities to the extent of their assets. The State has limited liability to the extent of assets contributed as capital to the enterprise.
  • Legal status: State-owned enterprises have legal status.
  • Governing law: state-owned companies converted into joint-stock companies, limited liability companies, and other types of state-owned enterprises organized and operated under the Law on Enterprise 2020. 

Organizational structure, rights and organization of state-owned enterprises

Organizational structure

The state ownership representative body shall decide whether to apply one of the two models below to organize the state-owned enterprise as a single-member limited liability company:

  • A company with a President, Director/General Director, and Board of Controllers;
  • A company with a Board of Members, Director/General Director, and Board of Controllers.

In the form of limited liability companies with two or more members and joint stock companies, the State plays the role of a member or shareholder of the company.

Rights and obligations of state enterprises.

Rights of state-owned enterprises

Regarding rights, State-owned enterprises fully have the rights of enterprises in Article 7 of the Law on Enterprise 2020, including:

1. Freely engage in any business line that is not banned by law.

2. Freely run the business and choose a type of business organization; choose business lines, area of operation, and type of operation; change the scale of business and business lines.

3. Choose the method of mobilizing, distributing, and using capital.

4. Freely find markets, customers and enter into contracts.

5. Export and import.

6. Hire employees in accordance with employment laws.

7. Apply technological advances to improve business efficiency; have intellectual property rights protected in accordance with intellectual property laws.

8. Acquire, use, and dispose of their assets.

9. Reject unlawful requests for the provision of resources from other organizations and individuals.

10. File complaints and participate in proceedings as prescribed by law.

11. Other rights prescribed by law.

Obligations of state-owned enterprises

Regarding obligations, state-owned enterprises must meet the general obligations in Article 8 of the Law on Enterprise 2020:

1. Maintain the fulfillment of conditions for conducting restricted business lines and business lines restricted to foreign investors (hereinafter referred to as “restricted business lines”) prescribed by law throughout the course of business operation.

2. Apply for enterprise registration; register changes to enterprise registration information; publish information about the establishment and operation of the enterprise; submit reports and fulfill other obligations prescribed by this Law.

3. Take responsibility for the accuracy of the information in the enterprise registration application and reports; promptly rectify incorrect information if found.

4. Organize accounting works; pay taxes and fulfill other financial obligations prescribed by law.

5. Protect lawful rights and interests of employees as prescribed by law; do not discriminate against or insult employees; do not mistreat or force employees to work; do not employ minors against the law; enable employees to improve their vocational skills through training; buy social insurance, unemployment insurance, health insurance and other insurance for employees as prescribed by law.

6. Other obligations prescribed by law.

State-owned enterprises are also obliged to periodically publish information as well as to disclose unusual information under Articles 109 and 110 of the Law on Enterprise 2020.

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  • Legal advice related to new regulations;
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Contact LSX

Finally, hope this article is useful for you to answer the question about “Characteristics of state-owned enterprises in Vietnam”. If you need any further information, please contact  LSX Law firm+84846175333 or Email: hoangson@lsx.vn

Does the dissolution of state-owned enterprise differ to other types of enterprise?

Because the Law on Enterprise 2020 does not have a separate regulation on the dissolution of state-owned enterprises, the same procedures will be applied as other types of enterprise dissolution.

Rights and obligations of members of the Board of Members in a state-owned enterprise?

Participate in meetings of the Board of Members; discuss, propose, vote on the issues within the jurisdiction of the Board of Members;
Inspect, access, extract logbooks; monitor contracts, transactions, accounting books, financial statements, minutes of meetings of the Board of Members and other documents of the company;
Other rights and obligations prescribed by the company’s charter, the Enterprise law and relevant laws.

Obligations of the Board of Controllers in a state-owned enterprise?

Under Article 104 of Enterprise law:
a) Supervise the implementation of the company’s business plans and development strategy;
b) Supervise and evaluate the company’s business performance and finance;
c) Supervise and evaluate the performance of the Board of Members and its members, the company’s President and Director/General Director;
d) Supervise and evaluate the compliance to the company’s internal audit, risk management, reporting regulations and other rules and regulations;
dd) Supervise the legitimacy, systematic organization and honesty of accounting tasks, accounting records, financial statements, their annexes and relevant documents;
e) Supervise the company’s contracts and transactions with relevant parties;
g) Supervise execution of major projects; sales and purchases; other large-scale contracts and transactions; unusual contracts and transactions of the company;
h) Prepare and send evaluation reports and proposals of the matters specified in Points a, b, c, d, dd, e and g of this Clause to the state ownership representative body and the Board of Members;
i) Perform other obligations demanded by the state ownership representative body, prescribed by the company’s charter.

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