Recently, LSX legal firm has received a question from our customer: “I have a plan to set up a Sole Proprietorship to provide shipping service. However, I did a research and find out that I can not contribute capital to establish a Sole Proprietorship. I do not understand and would like you to give me an insight into this problem.” So, in this article, we will help you answer the question: “Why can’t you contribute capital to Sole Proprietorship in Vietnam?”
Legal ground
- Law on Enterprise 2020
Sole Proprietorship under Vietnamese legislation
According to Article 188 of the Law on Enterprise 2020:
- A sole proprietorship is an enterprise owned by a single individual whose liability for its entire operation is equal to his or her total assets.
- A sole proprietorship must not issue any kind of securities.
- An individual may only establish one sole proprietorship. The owner of a sole proprietorship must not concurrently own a household business or hold the position of the general partner of a partnership.
- A sole proprietorship must not contribute capital upon establishment or purchase of shares or stakes of partnerships, limited liability companies, or joint stock companies.
Characteristics of Sole Proprietorship
With the nature of an enterprise owned by one owner, the entire capital to establish a sole proprietorship belongs to only one individual (the owner). Assets used in business activities of a sole proprietorship are not required to carry out procedures for transferring ownership to the enterprise.
A sole proprietorship does not have legal status. To have legal status, a business must satisfy the following conditions:
- Established in accordance with the Law on Enterprise 2020.
- Have the organizational structure as prescribed.
- Have separate assets from other individuals as well as legal entities and take liabilities by the assets of itself.
- Independently participate in legal relations on its own.
A sole proprietorship does not have independent assets, so a sole proprietorship does not fully satisfy the requirements to become a legal entity.
Why can’t Sole Proprietorship contribute capital?
Based on Article 188 of the Law on Enterprise mentioned above, it can be seen that the law stipulates that “each individual is only entitled to establish a private enterprise”. The law stipulates that each individual can only establish a sole proprietorship because the individual as the owner of a sole proprietorship must take unlimited responsible with all his assets for the business activities of the enterprise. Therefore, to ensure the interests of customers and partners, including creditors of private enterprises, the Law only allows each individual to establish only one sole proprietorship.
On the other hand, Article 188 of the Law on Enterprise 2020 mentioned above only restricts the right to contribute capital, establish, purchase shares, and contributed capital to a sole proprietorship, but does not limit those rights to the owner of a sole proprietorship. Therefore, in addition to partnerships and business households, the owner can contribute capital, establish or buy shares, contributed capital in limited liability companies, and joint stock companies.
The owner of a sole proprietorship can not concurrently be the owner of a business household or a member of a partnership (Clause 3, Article 188 of the Law on Enterprise2020). Therefore, you can contribute capital with other subjects to establish other types of businesses, except for business households and partnerships.
Since a sole proprietorship has no legal status, the owner of the sole proprietorship has unlimited liability for the company’s operations, so the capital contribution or shares owned by the owner of a sole proprietorship in other companies belongs to the property of the sole proprietorship.
Why can’t sole proprietorship divide separate consolidate or acquire in Vietnam?
According to the concept of a sole proprietorship, a sole proprietorship means an enterprise owned by a single individual whose liability for its entire operation is equal to his/her total assets. So, no distinction between the assets of the enterprise and the assets of the owner of a sole proprietorship exists, so it cannot become a legal entity and cannot apply for reorganization forms.
Contents showing non-discrimination on assets of sole proprietorship under the law:
- During the operation, the owner of a sole proprietorship has the right to increase or decrease his investment capital in the business activities of the enterprise.
- The sole proprietorship has complete discretion over all business activities of the sole proprietorship. Also, the owner can use profits after paying taxes and performing other financial obligations as prescribed by law.
A sole proprietorship can only apply forms of enterprise reorganization when converting to another type of enterprise. The transformation of a sole proprietorship: a partnership, limited liability company, or joint stock company.
Conversion of a sole proprietorship into a limited liability company, joint stock company or partnership
The owner of a sole proprietorship may convert it into a limited liability company, joint stock company, or partnership if the owner fully satisfies the following conditions:
- Firstly, the sole proprietorship satisfies the conditions specified in Clause 1 Article 27 of the Law on Enterprise 2020;
- Secondly, 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;
- Thirdly, the owner has a written agreement with the parties of ongoing contracts that the new company will take over and continue executing these contracts.
- Fourthly, the owner has a written commitment or agreement with other limited partners to continue hiring the existing employees of the sole proprietorship.
Legal service of LSX Legal Firm
LSX legal firm provides legal services to clients in various legal areas. To make your case convenient, LSX will perform:
- Legal advice related to new regulations;
- Representing in drafting and editing documents;
- We commit the papers to be valid, and legal for use in all cases;
- Represent to submit documents, receive results, and hand them over to customers.
With a team of experienced, reputable, and professional consultants; The firm is always ready to support and work with clients to solve legal difficulties.
Furthermore, using our service, you do not need to do the paperwork yourself; We guarantee to help you prepare documents effectively and legally.
Also, you will not have to waste time preparing the application, submitting application, or receiving results. At those stages, we will help you do it smoothly.
After all, LSX provides the service with the desire that customers can experience it the best way. Additionally, we guarantee the cost to be the most suitable and economical for customers.
Contact LSX
Finally, hope this article is useful for you to answer the question about “Why can’t Sole Proprietorship contribute capital in Vietnam?”. If you need any further information, please contact LSX Law firm: +84846175333 or Email: [email protected]
Related articles
- Conditions for establishing a limited liability company in Vietnam
- Registration of a single-member limited liability company in Vietnam
- Registration of a multi-member limited liability company in Vietnam
Related questions
– Joint-stock company
– Single-member limited liability company
– Multi-member (two or more) limited liability company
– Partnership
– Lastly, Sole proprietorship
Owners of sole proprietorships are subject to high risk because they have unlimited liability with all their assets for all business activities of the business.
The owner is always responsible for every business activity of the business.
A sole proprietorship does not have the right to contribute capital to the establishment, purchase shares, or contributed capital in a partnership, limited liability company, or joint-stock company.
This type of company does not have legal status. As a result, the problem of raising capital will also face difficulties.
Because there is only one owner, he/she has full rights to decide on everything related to the operation of the company.
A sole proprietorship has a simple and compact organizational structure.
Easy to manage
Since a private enterprise has unlimited liability with the entire owner’s assets, it will be easy to create trust for partners and customers as well as promote business cooperation.
Conclusion: So the above is Why can’t Sole Proprietorship contribute capital in Vietnam?. Hopefully with this article can help you in life, please always follow and read our good articles on the website: lsxlawfirm.com
