Why can’t sole proprietorship divide, separate, consolidate or acquire in Vietnam?
Currently, the economy is developing, according to which many businesses are established. Enterprises such as joint-stock companies, limited liability companies, etc raise many procedures for forms of business reorganization. However, a type of business – the sole proprietorship, can not carry out the procedure for reorganization. In this article, LSX legal firm will provide you with information to answer: “Why can’t sole proprietorship divide, separate, consolidate or acquire in Vietnam?”
Legal ground
- Law on Enterprise 2020
Legal regulations on sole proprietorship
According to article 118 of the Law on Enterprise 2020:
Article 188. Sole proprietorships
1. A sole proprietorship is an enterprise owned by a single individual whose liability for its entire operation is equal to his/her total assets.
2. A sole proprietorship must not issue any kind of securities.
3. 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 general partner of a partnership.
4. A sole proprietorship must not contribute capital upon establishment or purchase shares or stakes of partnerships, limited liability companies or joint stock companies.
Pros and cons of a sole proprietorship
Advantages
- 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.
Disadvantages
- 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.
Forms of business reorganization
Full division of enterprises
Full division means the situation in which a limited liability company or joint stock company (the divided company) divides its assets, rights, obligations, members/shareholders to establish two new companies or more.
Partial division of enterprises
A limited liability company or joint stock company may be partially divided by transfer part of the divided company’s assets, rights, obligations, members/shareholders to one or some new limited liability companies or joint stock companies without ceasing the existence of the divided company.
Consolidation of enterprises
Two or more companies (consolidating companies) may be consolidated into a new company (consolidated company), after which the consolidating companies shall cease to exist.
Acquisition of enterprises
One or some companies (acquired companies) may acquired by another company (acquiring company) by transfer all of the acquired company’s assets, rights, obligations and lawful interests to the acquiring company, after which the acquired company shall cease to exist.
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 Procedures and Liability
First of all, the owner of a sole proprietorship wishing to carry out the conversion procedure for the company shall prepare and submit an application to the competent authority.
Within 03 working days from the receipt of the application, the business registration authority shall consider issuing the Certificate of Enterprise Registration if the conditions mentioned above fully satisfied and update the enterprise’s status to the national enterprise registration database.
The new company obviously inherits all rights and obligations of the sole proprietorship from the issuance date of the Certificate of Enterprise Registration. The owner of the sole proprietorship shall personally take responsibility for all debts that incurred before this day with all of his/her assets.
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.
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
Prepare a complete and valid set of dossiers for the application
Then, Submit your application by one of the three methods above.
Lastly, Within 3 working days from the date of receiving the Receipt, the applicant will receive a notification result of the consideration of business suspension.
Firstly, notice of business suspension;
Secondly, power of attorney for individuals to carry out the procedures (if enterprises cannot do it themselves);
Thirdly, copy of the company’s business registration certificate (if any).
Contact LSX
Finally, hope this article is useful for you to answer the question about “Why can’t sole proprietorship divide, separate, consolidate or acquire in Vietnam?”. If you need any further information, please contact LSX Law firm: +84846175333 or Email: [email protected]
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