10/07/2023 08:23

To distinguish between 1-member and 2-member limited liability companies in Vietnam

To distinguish between 1-member and 2-member limited liability companies in Vietnam

What are the differences between single-member and multi-member limited liability company under the law in Vietnam? “Ai Quoc_Can Tho”

Hello, Lawnet would like to answer the following:

1. Distinguish between 1-member and 2-member limited liability companies under the law in Vietnam

Similarities

- They all have legal status from the time they are granted the Certificate of Business Registration.

- Company members and company owners have limited liability to the extent of their contributed capital.

- Members of one member limited liability companies and two or more member limited liability companies can both be organizations or individuals.

- They are not allowed to issue shares, except for conversion into a joint stock company.

- All bonds are issued to raise capital.

- It is not required to set up a supervisory board.

- Both can adjust the increase or decrease in charter capital. Accordingly, the reduction of charter capital can only be done after 02 years from the date the company is granted the business registration certificate and meets specific conditions (unless a member of the company fails to pay in full and on time the charter capital of the company within 90 days from the date of registration of the establishment of the company).

Differrences

Criteria

Single-member limited liability company

Multi-member limited liability companies

No. of members

A single-member limited liability company is an enterprise owned by a single organization or individual (Article 74 Law on Enterprises 2020)

A multiple-member limited liability company means an enterprise that has 02 – 50 members that are organizations or individuals (Article 46 Law on Enterprises 2020)

 

Procedure for increasing, decreasing charter capital

According to Article 87 Law on Enterprises 2020, A single-member limited liability company may increase its charter capital when its owner contributes capital or raises capital from other persons. The owner shall decide on the specific increase and the method.

- In case of raising capital from other persons, the company shall be converted into a multiple-member limited liability company or joint stock company.

- A single-member limited liability company may decrease its charter capital in the following cases:

+ Part of the contributed capital is returned to the company’s owner after the company has operated for at least 02 consecutive years from the enterprise registration date and the company is able to fully pay its debts and other liabilities after the return of capital;

+ Charter capital is not fully and punctually contributed by the owner as prescribed in Article 75 of this Law.

According to Article 68 Law on Enterprises 2020,  a company may increase its charter capital in the following cases:

= Increase in the members’ capital contribution;

= Receipt of capital contribution from new members.

- In case of increase in the members’ capital contribution, the increase will be distributed among the members in proportion to their holdings in the company. 

- A company may decrease its charter capital in the following cases:

= The company returns part of the contributed capital to the members in proportion to their holdings in the company after the company has operated for at least 02 consecutive years from the enterprise registration date and the company is able to fully pay its debts and other liabilities after the return of capital;

= The company repurchases the members’ stakes;

= Charter capital is not fully and punctually contributed by the members.

Transfer of stakes

The company owner has the full right to transfer and dispose of all or part of the charter capital of the company (Article 76 Law on Enterprises 2020)

- If a member of the company wishes to transfer his/her contributed capital to another person, he/she must offer to sell that portion of the capital to the remaining members.

- The rest of the members have priority to buy within 30 days from the date of offering and if the remaining members do not buy, that member has the right to transfer to a third party with the same terms and conditions as offered to the remaining members. (Article 52 Law on Enterprises 2020)

Organization structure

- It is not required to have a Board of Members

- A single-member limited liability company owned by an organization shall apply one of the two models below:

- A company with a President and the Director/General Director;

- A company with a Board of Members and the Director/General Director.

(Article 79 Law on Enterprises 2020)

- There is Board of Members, a Chairman of the Board of Members, Director/General Director.(Article 54 Law on Enterprises 2020)

Responsibility regarding stakes

The owner’s liability for the company’s debts and other liabilities shall be equal to the company’s charter capital. (Article 74 Law on Enterprises 2020)

A member’s liability for the enterprise’s debts and other liabilities shall be equal to the amount of capital that member contributed to the enterprise. (Article 46 Law on Enterprises 2020)

2. Pros and Cons of single-member and multi-member limited liability company

Single-member limited liability company

Pros

- Less risk to the owner because he is only responsible for the company's activities within the amount of capital contributed.

- The number of responsible company members is not much, so the management and administration of the company are not too complicated.

- The owner has full authority to decide everything related to the company's activities.

Cons

- Raising capital will be more difficult than for other types of businesses.


- In case of additional capital contribution, the type of enterprise must be changed.

- Not issuing shares, causing difficulties in raising capital.

Multi-member limited liability companies

Pros

  - Less risk to capital contributors because they are only responsible for the company's activities within the amount of capital contributed.

- The number of members is large, so it is easier to raise capital than a one-member limited company.

- The transfer of capital is strictly regulated within the company, so it is easy to control the change of members, limiting the penetration of strangers into the company.

When transferring capital, the capital transfer member must declare and pay personal income tax.

Cons

- The number of members is limited, so it is not possible to add or remove members within the scope prescribed by law.

- Not issuing shares, making it difficult to raise capital.

Best regards!

Le Thi Phuong Ngan
346


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