Does a sole proprietorship have the right to contribute capital upon establishment of limited liability companies in Vietnam?

1. Does a sole proprietorship have the right to contribute capital upon establishment of limited liability companies in Vietnam?

In Article 188 of the Enterprise Law 2020, sole proprietorships are as follows:

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.

Thus, according to the above regulations, sole proprietorships in Vietnam are not entitled to contribute capital upon establishment of limited liability companies. If your sole proprietorship contributes capital to establish a limited liability company with Mr. M, your business will be sanctioned.

However, only sole proprietorships are not allowed to contribute capital to establish limited liability companies, but owners of sole proprietorships are not prohibited. According to this, you can still contribute capital to establish a limited liability company with Mr.

2. How much is fine for sole proprietorship when contributing capital upon establishment of limited liability companies in Vietnam? 

Pursuant to Article 56 of Decree 122/2021/ND-CP stipulating violations against regulations on sole proprietorships as follows:

1. A fine ranging from VND 20,000,000 to VND 30,000,000 shall be imposed for any of the following violations:

a) Contributing capital upon establishment or purchase shares or stakes of a partnership, limited liability company or joint stock company;

b) Failure to fully record the increase or decrease in capital; all the capital, including loans and leased assets serving the operation of the sole proprietorship in its accounting books;

c) Failure to register with the business registration authority before the capital is decreased below the registered capital;

d) Establishing multiple sole proprietorships or concurrently owning a household business or hold the position of general partner of a partnership;

dd) Buying the sole proprietorship without registering the change of the sole proprietorship’s owner.

2. Remedial measures: The violator is compelled to register the change of the sole proprietorship’s owner if the violation specified in Point dd Clause 1 of this Article is committed.

In Clause 2, Article 4 of Decree 122/2021/ND-CP stipulating fine levels:

2. The fines for administrative violations specified in this Decree are imposed upon organizations (except for the fines for violations specified in Point c Clause 2 Article 28; Points a and b Clause 2 Article 38; Article 62 and Article 63 of this Decree, which are imposed upon individuals). For the same violation, the fine incurred by an individual is 1/2 (half) that incurred by an organization.

Therefore, your sole proprietorship in Vietnam that contributes capital to establish a limited liability company with Mr. M will be fined from VND 20,000,000 to VND 30,000,000.

3. When hiring a director for a sole proprietorship, who is responsible for every business activity of the enterprise in Vietnam? 

According to Article 190 of the Enterprise Law 2020, administration of sole proprietorships is as follows:

1. The sole proprietorship’s owner has total authority to decide all of its business activities, use of post-tax profit and fulfillment of other financial obligations as prescribed by law.

2. The owner may directly or hire another person to hold the position of Director/General Director. In case of an hired Director/General Director, the owner is still responsible for every business activity of the enterprise.

3. The sole proprietorship’s owner is its legal representative who will represent it during civil proceedings, as the plaintiff, defendant or person with relevant interests and duties before the court and arbitral tribunals, and in performance of other rights and obligations prescribed by law.

According to this Article, the owner of a sole proprietorship can hire a director to manage and operate the business, but the owner is still responsible for every business activity of the enterprise in Vietnam.

Best Regards!