What type of company can a foreigner set up in Vietnam is the question that most foreign investors have, when trying to enter the Vietnamese market. In this article, LSX Lawfirm will give you the answer to that question.
- 2020 Enterprise Law
Limited Liability Company (LLC)
There are two types of LLC in Vietnam:
- Single-member LLC
- Multiple-member LLC.
Hence the name, single-member LLC is an enterprise owned by an organization or individual. The company owner is responsible for the company’s debts and other property obligations to the extent of the company’s charter capital.
On the other hand, multiple-member LLC has its member to be from 02 to 50. The members are responsible for the debts and other property obligations of the enterprise to the extent of the capital contributed to the enterprise.
There are various reasons why foreign investors setting up an LLC; the following reasons are the most common:
Firstly, many foreign investors choose LLC as they only need to be responsible for debts as well as property obligations to the extent of the company’s capital contribution; due to the company’s legal status. This helps the investors avoid asset-related risks.
Secondly, with the limited company model, the income tax is only 20%, the lowest in all types of company-enterprise establishment; because the scale is usually not as large as that of other businesses.
Joint-stock company (JSC)
A joint-stock company is an enterprise in which the charter capital is divided into equal parts called shares, hence the regulation of Enterprise Law 2020. The company has a minimum number of shareholders of 3 and no maximum limit. Indeed, shareholders are only responsible for the debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise.
JSC is the most frequent-use enterprise due to its pros. Basically, the operation capacity of JSCs is very wide, in most fields and industries. Along with that, the capital structure of JSC is very flexible, enabling many people to contribute capital to the company. A special feature that differs from other types of companies is the ability to contribute more capital; because JSC can raise capital through the issuance of additional shares.
Partnership Company (PC)
Henceforth the definition of Enterprise law, PC has at least 02 general partners who are individuals and co-owners of the company. They are liable with all their assets for the obligations of the company; which depend on the extent of the contributed capital.
However, PC is not a popular option for foreign investors, as its liability is too heavy on the owners, comparing to others. Partners shall be jointly and severally liable for the obligations of the company. In addition to the assets contributed as capital, the general partners are also liable for the entire assets of the individual. This regulation creates a very high level of risk for general partners in business
Private Enterprise (PE)
A sole proprietorship is a type of enterprise owned by a single individual and is solely responsible for all business activities with all his or her assets. Similar to Partnership Company, PE is also considered a risky choice for foreigners. In fact, the owner of this private business will be responsible for repaying the debt with all personal assets to the private enterprise in case the business encounters risks of bankruptcy or default; which is not “friendly” to the investors.
Above are all types of enterprises that a foreign investor could try setting up, with their pros and cons. Hope this article “What type of company can a foreigner set up” is useful for you! If you have any questions, please contact Lawyer X for quick and best legal services: 0833102102
Yes, they can. According to the provision of law, foreign investors can establish a company with 100% foreign investment capital in Vietnam. Still, it will vary depending on the business line.
The two most common types of enterprises are limited liability companies and joint-stock companies.
Thus the provisions of the 2020 Enterprise Law and WTO Law, enterprises have the right to freely conduct business in industries, as long as the regulation does not prohibit.