Cases of conversion of an enterprise in Vietnam

Cases of conversion of an enterprise in Vietnam (Internet image)

1. What is conversion of an enterprise?

According to Clause 31, Article 4 of the Law on Enterprise 2020, reorganization of an enterprise means the full division, partial division, consolidation, acquisition or conversion of an enterprise.

Thus, conversion of an enterprise is one of the forms of enterprise reorganization under the Law on Enterprise 2020.

2. Cases of conversion of an enterprise in Vietnam

2.1 Conversion of a limited liability company into a joint stock company

Article 202 of the Law on Enterprise 2020 stipulates the conversion of a limited liability company into a joint stock company as follows:

- The conversion of a state-owned enterprise into a joint stock company shall comply with relevant laws.

- A limited liability company can be converted into a joint stock company:

+ Without raising additional capital from other organizations and individuals or selling stakes;

+ By raising additional capital from other organizations and individuals;

+ By selling all or part of the stakes to one or some organizations and individuals; or

+ Combining the methods specified in Points a, b and c of Clause 2 Article 202 of the Law on Enterprise 2020 and other methods.

- The conversion shall be registered with the business registration authority within 10 days from the day on which the conversion is complete.

Within 03 working days from the receipt of the application for conversion, the business registration authority shall reissue the Certificate of Enterprise Registration and update the company’s status to the national enterprise registration database.

- The joint stock company obviously inherits all lawful rights and interests, debts including tax debts, employment contract and other obligations of the limited liability company.

2.2 Conversion of a joint stock company into a single-member limited liability company in Vietnam

Article 203 of the Law on Enterprise 2020 stipulates the conversion of a joint stock company into a single-member limited liability company as follows:

- A joint stock company can be converted into a single-member limited liability company as follows:

+ A shareholder receives all shares of the other shareholders;

+ A organization or individual other than a shareholder receives all shares of all shareholders;

+ Only 01 shareholder remains in the company.

- The transfer or receipt of shares specified in Clause 1 of Article 203 of the Law on Enterprise 2020 shall be made at market value or a value determined by asset-based method or discounted cash flow method or another method.

-. Within 15 days from the occurrence of any of the events specified in Clause 1 of Article 203 of the Law on Enterprise 2020, an application for conversion shall be submitted to the business registration authority where the enterprise is registered.

Within 03 working days from the receipt of the application, the business registration authority shall issue the Certificate of Enterprise Registration and update the company’s status to the national enterprise registration database.

- The limited liability company obviously inherits all lawful rights and interests, debts including tax debts, employment contract and other obligations of the joint stock company.

2.3 Conversion of a joint stock company into a multiple-member limited liability company in Vietnam

- A joint stock company can be converted into a multiple-member limited liability:

+ Without raising additional capital or selling stakes;

+ By raising additional capital from other organizations and individuals;

+ By transfer all or part of the shares to other organizations and individuals;

+ When only 02 shareholders remain in the company; or

+ Combining the methods specified in Points a, b and c of this Clause and other methods.

- The conversion shall be registered with the business registration authority within 10 days from the day on which the conversion is complete. Within 03 working days from the receipt of the application for conversion, the business registration authority shall issue the Certificate of Enterprise Registration and update the company’s status to the national enterprise registration database.

- The limited liability company obviously inherits all lawful rights and interests, debts including tax debts, employment contract and other obligations of the joint stock company.

(Article 204 of the Law on Enterprise 2020)

2.4 Conversion of a sole proprietorship into a limited liability company, joint stock company or partnership in Vietnam

Pursuant to Article 205 of the Law on Enterprise 2020, a private enterprise may transform into a limited liability company, joint stock company or partnership under the decision of the owner of the private business if all the conditions are satisfied:

- The owner of a sole proprietorship may convert it into a limited liability company, joint stock company or partnership if the following conditions are fully satisfied:

+ The sole proprietorship satisfies the conditions specified in Clause 1 Article 27 of the Law on Enterprise 2020;

+ 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;

+ The owner has a written agreement with the parties of ongoing contracts that the new company will take over and continue executing these contracts.

+ The owner shas a written commitment or agreement with other limited partners to continue hiring the existing employees of the sole proprietorship.

- 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 specified in Clause 1 of Article 205 of the Law on Enterprise 2020 are 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 be personally responsible for all debts that are incurred before this day with all of his/her assets.

Van Trong

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