The differences between a cooperative and an enterprise in Vietnam.

According to the provisions of Law on Enterprises and Cooperative Law , there are similarities and differences between the model of cooperative and enterprise. If you want to know “What are the differences between a cooperative and an enterprise?”. Please follow the article below of LSX for more detailed information!

Legal grounds

• Law on Enterprises 2020

What are the differences between a cooperative and an enterprise?

• Both a cooperative and an enterprise are voluntary organizations.
• All have legal status.

The differences between an enterprise and a cooperative in Vietnam

Criteria	An enterprise	A cooperative
Object	Business activities in the market and for profit purposes.	Cooperative members aim to meet the common needs of members’ goods and services.
Management mechanism	The right to decide the management of company usually belongs to the shareholders, the members occupying a larger amount of capital, or in other words, the power belongs to people who contribute a lot of capital.	Cooperative members have equal rights and voting rights regardless of capital contribution in deciding the organization, management and operation of the cooperative.
Profit distribution	The distribution of profits is usually based on the capital ownership ratio of shareholders and members of the company.	The distribution of profits is mainly based on the members’ use of products and services or the members’ contribution to the job-creating cooperative.

The advantages and disadvantages of a cooperative

The advantages of a cooperative:

• A cooperative attract a large number of members to participate, create conditions for individuals to develop in production and business. This model exhibits high sociality.
• The management of a cooperative is carried out on the principle of democracy and equality, so all cooperative members are equal in participating in deciding issues related to the cooperative’s activities, regardless of capital contribution.
• A cooperative is a legal entity that has its own property and is responsible within its own property. The members are only liable to the extent of their capital contribution to the cooperative. Therefore, cooperative members can feel secure to invest, produce and do business together, avoiding anxiety when risks occur.

The disadvantages of a cooperative:

Business activities in the form of a cooperative also have certain limitations such as:

• Because a cooperative develop on an equal basis, this model often does not attract members who contribute a lot of capital. As a result, members participating in the cooperative model will feel their rights in decision-making is not commensurate with the amount of capital that they have contributed.
• There are many difficult and complicated problems in the cooperative management process because the number of members participating in the cooperative are often very large.
• The ability to raise capital of a cooperative is not high compared to other types of businesses because the capital of a cooperative is usually mobilized mainly from capital contribution of members or subsidies and supports from the State and other organisations.
• The members’ fragmented ownership of their assets limits the decisions of a cooperative.
• The prestige in the name of the cooperative may be a barrier for investors or foreign partners not to appreciate as the business model.

Conditions for establishing a cooperative under Vietnam law

• Cooperative is a collective economic organization, co-owned, has legal status, is voluntarily established by at least 07 members and cooperates and supports each other in production, business and job creation activities. to meet the common needs of members, on the basis of autonomy, self-responsibility, equality and democracy in management of the cooperative.
• When cooperatives and unions of cooperatives develop to a higher level, enterprises of cooperatives and unions of cooperatives will be formed; enterprises of cooperatives and unions of cooperatives operating under the Law on Enterprises.
• Individuals who are Vietnamese citizens or foreigners lawfully reside in Vietnam, aged 18 years or older, have full civil act capacity; households with legal representatives as prescribed by law; agencies and organizations are Vietnamese legal persons; have a demand to cooperate with members and use products and services of the cooperative; have a voluntary application for joining and approve the cooperative’s charter; contribute capital according to regulations.

Conditions about the subject of business establishment under Vietnam law

First and foremost, individuals and organizations that want to open an enterprise must be subject to the right to establish an enterprise. Accordingly, all organizations and individuals have the right to establish and manage enterprises in Vietnam, except for the cases specified in Clause 2, Article 17 of Law on Enterprises 2020:

• State authorities, People’s armed forces using state-owned assets to establish enterprises to serve their own interests;
• Officials and public employees defined by the Law on Officials and the Law on Public Employees;
• Commissioned officers, non-commissioned officers, career military personnel, military workers and public employees in agencies and units of Vietnam People’s Army; commissioned officers, non-commissioned officers and police workers in police authorities and units, except for those designated and authorized representatives to manage state-owned stakes in enterprises or to manage state-owned enterprises;
• Executive officers and managers of state-owned enterprises prescribed in Point a Clause 1 Article 88 of this Law, except those who are designated as authorized representatives to manage state-owned stakes in other enterprises;
• Minors; people with limited legal capacity; incapacitated people; people having difficulties controlling their behaviors; organizations that are not juridical persons;
• People who are facing criminal prosecution, kept in temporary detention, serving an imprisonment sentence, serving an administrative penalty in a correctional institution or rehabilitation center, has limited legal capacity or is incapacitated, is not able to control his/her own behaviors, is banned by the court from holding certain positions or doing certain works; other cases prescribed by the Law on Bankruptcy and the Anti-corruption Law. If requested by the business registration authority, the applicant shall submit the judicial records;
• Juridical persons that are banned from business operation or banned from certain fields as prescribed by the Criminal Code.

Related articles:

• What are rights and obligations of employees and employers under Viet Nam Labor Law?
• Procedures of dissolution of state enterprises in Vietnam
• Some basic information about enterprise registration in Vietnam

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