Differences Between Private Enterprises and Single-Member Limited Liability Companies
What is a sole proprietorship?
Based on Clause 1, Article 188 of the Law on Enterprises 2020, the definition of a sole proprietorship is as follows:
Sole Proprietorship
1. A sole proprietorship is an enterprise owned by one individual who is personally responsible with all of his/her assets for all activities of the enterprise.
A sole proprietorship is understood to be an enterprise owned by an individual who is personally responsible with all of his/her assets for all activities of the enterprise.
What is a single-member limited liability company?
Based on Clause 1, Article 74 of the Law on Enterprises 2020, the definition of a single-member limited liability company is as follows:
Single-member Limited Liability Company
1. A single-member limited liability company is an enterprise owned by a single organization or individual (hereinafter referred to as the company owner). The company owner is responsible for the company's debts and other property obligations within the extent of the company’s charter capital.
A single-member limited liability company is an enterprise owned by a single organization or individual (hereinafter referred to as the company owner).
The company owner is responsible for the company's debts and other property obligations within the extent of the company’s charter capital.
How are Sole Proprietorships and Single-member Limited Liability Companies different?
What are the similarities between a sole proprietorship and a single-member limited liability company?
Based on Chapter 7 of the Law on Enterprises 2020 and Section 2, Chapter 3 of the Law on Enterprises 2020, the sole proprietorship and the single-member limited liability company have the following similarities:
- Both are types of enterprises established by a single owner.- When transferring capital, the type of enterprise must be converted.- Both are not allowed to issue shares to raise capital.- Can hire a director or general director through a labor contract.
What are the differences between a sole proprietorship and a single-member limited liability company?
Based on Chapter 7 of the Law on Enterprises 2020 and Section 2, Chapter 3 of the Law on Enterprises 2020, the sole proprietorship and the single-member limited liability company can be distinguished based on the following criteria:
| Criteria | Sole Proprietorship | Single-member Limited Liability Company || --- | --- | --- || Owner | Individual. This individual cannot simultaneously be the owner of a household business, a member of a partnership. | Individual or organization || Owner's asset liability | The owner is personally responsible with all of his/her assets for all activities of the enterprise. (Unlimited liability) | The owner is responsible for the company's debts and other property obligations within the extent of the company’s charter capital. (Limited liability) || Capital Contribution | The investment capital of the sole proprietorship is registered by the owner.
Assets used in business activities by the sole proprietorship owner do not need to go through ownership transfer procedures to the enterprise. | The charter capital of the company is the total value of assets contributed by the owner within 90 days from the date of issuance of the enterprise registration certificate.
The company owner must transfer ownership of contributed assets to the company. || Changes in charter capital | During its operation, the owner of the sole proprietorship has the right to increase or decrease his/her investment capital into the business activities of the enterprise.
If the investment capital is decreased below the registered investment amount, the owner of the sole proprietorship can only decrease the capital after registering with the Business Registration Authority. | In case of decreasing charter capital:
Return a portion of the capital contributions in the company's charter capital if the business has been operating continuously for more than 2 years from the date of business registration and ensures to settle all debts and other property obligations after returning to the owner.
Charter capital is not fully and timely paid by the owner.
In case of increasing charter capital:
By the company owner making additional contributions or mobilizing additional contributions from others.
In case of increasing charter capital by mobilizing additional contributions from others, the type of enterprise must be converted. || Rights to issue securities | Not allowed to issue any type of securities | Allowed to issue bonds. || Legal status | Does not have legal status | Has legal status || Organizational structure | The owner of the sole proprietorship personally manages the business or hires someone to manage the enterprise | Has the right to choose one of the following two models:
- Chairman of the company, Director or General Director, and Controller;
- Members' Council, Director or General Director, and Controller. || Restrictions on capital contribution, purchasing shares | Sole proprietorships are not allowed to contribute capital to establish or purchase shares, or capital contributions in partnerships, limited liability companies, or joint-stock companies | No restrictions. |
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