The 2014 Law on Enterprises and What You Should Know

After the breakthrough in institutional reform marked by the document titled “Law on Enterprises 1999”, the Law on Enterprises 2014 is considered a second breakthrough in institutional reform, reflecting the spirit of the 2013 Constitution regarding the freedom of business activities for citizens and enterprises. Accordingly, whatever is not prohibited by law, citizens and enterprises are free to invest and conduct business.

The Law on Enterprises 2014 aims to fit the current business reality of enterprises and removes many difficulties and limitations, contributing to creating favorable conditions for opening up a business-friendly environment in line with global trends.

The Law on Enterprises 2014 will take effect from July 1, 2015.

New Points to Note in the Law on Enterprises 2014

Business Registration

The Law on Enterprises 2014 aims to make enterprises become cheaper and safer business tools to attract investors, enhance investment attraction, and effectively mobilize various resources and investment capital into production and business.

Based on this, the Law on Enterprises 2014 has facilitated the business environment by stipulating that the business registration certificate does not need to state the business lines; separates the investment certificate from the business registration certificate; abolishes the requirements and conditions for business at the time of business establishment registration; harmonizes the business registration procedures with labor tax, social insurance; allows enterprises to decide the seal, content, and form of the seal; and enables enterprises to have more than one representative in law.

Regarding Charter Capital and Membership Contribution Period

The Law on Enterprises 2014 stipulates principles to determine and register the actual contributed capital of companies, addressing the issue of non-real (virtual) capital that cannot be handled as currently. The most notable point is that single-member limited liability companies and joint-stock companies are allowed to reduce charter capital.

Single-member limited liability companies, joint-stock companies, and limited liability companies with two or more members that do not contribute sufficient charter capital within the stipulated timeframe, as committed when registering for business establishment, have the right to register to adjust the reduction of capital to the actual contributed value. In this case, the owner, member, or shareholder who has not paid or fully paid the registered contributed capital or the registered purchased shares shall be liable for the company's financial obligations corresponding to the total value of the registered contributed capital or the nominal value of the registered purchased shares within the committed contribution period.

During the operation, businesses can also adjust by returning part of the contributed capital in the company's charter capital under the conditions stipulated in the Law on Enterprises 2014.

The Law on Enterprises 2014 uniformly applies the timeframe for full payment of contributed capital upon establishing a company, stipulating a shorter capital contribution period for owners and members of limited liability companies to contribute the full and correct type of assets as committed when registering for business establishment within 90 days from the date of issuance of the Business Registration Certificate, whereas the current maximum capital contribution period for single-member and multi-member limited liability companies is 36 months.

Corporate Governance Model of Joint-stock Companies

Accordingly, there are various governance models for joint-stock companies worldwide, such as the two-tier board model and the one-tier board model. In Vietnam, prior to this, joint-stock companies were governed under the Law on Enterprises issued in 2005, structured as follows: General Assembly of Shareholders, Board of Directors, CEO/General Director, and Supervisory Board.

However, according to the corporate governance model in the Law on Enterprises 2014, the structure will include the General Assembly of Shareholders and the Board of Directors (including members and independent members), and the CEO/General Director.

Company Decision-Making Process

According to international practices, the quorum has officially decreased from 65% (under the Law on Enterprises 2005) to 51%. And resolutions of the General Assembly of Shareholders are passed when they are approved by shareholders representing at least 51% of all voting rights of attending shareholders (under the Law on Enterprises 2005, it was 65%; for resolutions passed in the form of written opinions, it is at least 75%).

The law prescribes independent members of the Board of Directors who do not directly manage the enterprise; abolishes the direct election of the Chairman of the Board of Directors by the General Assembly of Shareholders.

Shareholder Protection

The Law on Enterprises 2014 provides detailed provisions regarding common shareholders, voting preference shareholders, dividend preference shareholders, redeemable preference shareholders, and founding shareholders.

Reorganization, Dissolution

The law specifies each case of dissolution and the dissolution procedure steps: a resolution to dissolve the enterprise, which must state reasons for dissolution, followed by asset liquidation, prioritizing tax debt settlement.

New Points in State-owned Enterprise Management

The Law on Enterprises 2014 adds a new chapter entirely dedicated to state-owned enterprises, an area that has not previously been specified by any law. It includes regulations on the areas of business for the state, as well as the organizational structure and activities, periodic and ad hoc information disclosure.

Four areas in which state-owned enterprises may conduct business:

- Enterprises providing essential public service products to society.

- Enterprises operating in sectors directly serving national defense and security.

- Enterprises operating in natural monopoly sectors.

- Enterprises applying high technology, making large investments, creating motivation for the development of other sectors and the economy.

Law on Enterprises 2014 – An Institutional Breakthrough

Separating Enterprise Establishment Procedures from Investment Project Procedures

The Law on Enterprises 2014 has separated procedures for establishing enterprises from those related to investment projects and related procedures for shares and stocks. For foreign investors, the Law has separated the certification of enterprise establishment from the investment certification. This law also offers greater opportunities for market entry; the business registration certificate is a form of state acknowledgment of the formation and market entry of enterprises.

At the time of enterprise establishment, the enterprise's production and business activities have not yet arisen. Therefore, the law clearly separates the procedures for establishing an enterprise and registering business, and business conditions. Previously, some industries were unclear about enterprise establishment and conditional business, such as the medical field where individuals establishing enterprises required the director to have a practicing certificate. But under the Law on Enterprises 2014, an individual can establish an enterprise, while the conditions for business fields must be complied with before doing so. This regulation is more startup and business-friendly in general.

Abolishing the Requirement for Enterprises to Provide Industry Codes when Registering for Business

The Law on Enterprises 2014 has abolished the regulation that enterprises must conduct business activities according to the industries and professions listed in the Business Registration Certificate but only stipulates compliance with business conditions when conducting investment business in regulated sectors and ensure maintaining these business conditions throughout business operations. According to this law, businesses are autonomous in business and can choose operating structures; freely choose industries, professions, locations, and business forms; and actively adjust scales and industries of business.

Thus, the requirement for enterprises to provide industry codes when registering for business has been abolished. Enterprises will not be limited in the number of business lines they can operate. Trading and distribution companies will not need to provide thousands of industry codes for their commercial products, including future ones they intend to engage in.

Important Reform on Seals

According to Article 44 of the Law on Enterprises 2014: Enterprises have the right to decide on the form, quantity, and content of enterprise seals. Before using the seal, enterprises must notify the seal template to the Business Registration Agency for public disclosure on the National Business Registration Portal.

This is a completely new approach to the enterprise seal, and although the use of seals has not been completely abolished, significant reforms have been made.

Previously, the issuance and use of enterprise seals were regulated by the Ministry of Public Security. Under the Law on Enterprises 2014, enterprises have the right to decide on the form, quantity, and content of their seals per legal regulations. Instead of having to register with the Public Security Agency, enterprises only need to notify the seal template to the Business Registration Agency for public disclosure on the National Business Registration Portal. This regulation helps businesses avoid hassles and reduce costs and time.

With the development of electronic transaction methods, the use of seals will no longer be significant. Thus, the reform on seals is entirely appropriate with global trends. Currently, enterprise seals are still bound by multiple transaction regulations in some laws. Abolishing them entirely would require extensive adjustments to many legal texts and may not ensure strict management.

Regarding the Business Registration Certificate

This document can be either in written or electronic form. According to Article 29 of the Law on Enterprises 2014, the Business Registration Certificate only contains four main contents: enterprise name and enterprise code; headquarters address; detailed personal information of the legal representative, individual enterprise owner, partnership member, company member, and organization member; and the enterprise's charter capital.

Thus, the Business Registration Certificate will not include lines of business and the list of founding shareholders (for joint-stock companies). This means if there are changes in lines of business or founding shareholders (for joint-stock companies and foreign investors), businesses only need to notify the Business Registration Agency to update the enterprise profile without having to register for a business certificate re-issuance as currently required (Article 32, Law on Enterprises 2014). Consequently, when enterprises change, add business lines, or change founding shareholders in joint-stock companies, they will save time and procedures by avoiding the need to re-issue a Business Registration Certificate.

More importantly, the removal of the business line in the Business Registration Certificate, the removal of the capital requirement, and the professional practicing certificate requirement legally realize the right to freely conduct all business activities not prohibited by law as stipulated in the Constitution, making enterprises truly safe, versatile, and cheaper business tools...

According to Article 33 of the Law on Enterprises: After being issued a Business Registration Certificate or when there is a change in registration details, enterprises must publicly disclose it on the National Business Registration Portal. This is a new point in this amendment. Under the current regulations, enterprises can choose the method to announce, such as posting on the Business Information Network of the Business Registration Agency or one of the print or electronic newspapers for three consecutive issues.

State-owned Enterprises Completely New Regulations Compared to the Law on Enterprises 2005

The concept of state-owned enterprises as per Clause 8, Article 4 of the Law on Enterprises 2014 has changed compared to before: instead of stipulating that a state-owned enterprise is one where the state owns more than 50% of charter capital, the Law on Enterprises 2014 stipulates that a State-owned Enterprise is one that the state owns 100% of the charter capital.

Thus, only a handful of state-owned enterprises will remain 100% state-owned. Others should be equitized to ensure equality in status, opportunities, and state protection. The law also amends some content concerning clearly defining the legal status of economic corporations, adds more specific regulations on the parent-subsidiary company model, prohibits mutual capital contributions and cross-ownership among subsidiaries within the same enterprise group, and adds regulations to increase transparency of structure and relations within the economic corporation, such as publicizing the charter or agreement on the common operational framework. Additionally, the law amends some content related to abolishing the limitation on mergers, consolidations, splits, and separations of companies for the same organizational type. It allows companies of the same ownership type to merge, consolidate, split, separate, and provides clearer and more reasonable procedures for enterprise dissolution, unifying a single point of contact and enhancing coordination among business registration, tax, and police agencies in handling enterprise dissolution procedures.

Regarding Social Enterprises

This is a new concept legally formalized and specifically stipulated in Article 10 of the Law on Enterprises 2014. Social enterprises are not a new type of enterprise but are organized and operated under specific types such as joint-stock companies, limited liability companies, etc., with a distinction in operational goals and the purpose of profit use.

According to Article 10 of the Law on Enterprises 2014, social enterprises are those registered as established per this Law, with operational goals aimed at solving social and environmental issues for community benefits, and use at least 51% of their annual profits for reinvestment to achieve the registered social and environmental goals. Besides the rights and obligations of enterprises under the Law on Enterprises 2014, social enterprises also have several rights and obligations stipulated in Clause 2, Article 10 of the Law on Enterprises.

Regarding Legal Representatives of Enterprises

According to the Amended Law on Enterprises, the legal representative of an enterprise is the individual representing the enterprise in exercising rights and obligations arising from enterprise transactions, representing the enterprise as a plaintiff, defendant, or person with related rights and obligations before arbitration, courts, and other rights and obligations as prescribed by law. Companies can fully decide to appoint a legal representative.

If necessary, the company can autonomously decide to have more than one legal representative, and the scope of rights and obligations for each representative must be clearly specified in the company charter. Depending on the content of transactions, the legal representative of the enterprise with corresponding authority as specified in the charter will carry out transactions with partners.

No Judicial Records Required for Business Registration Application

According to Clause 2, Article 18 stated: In some cases, when registering for business establishment, the Business Registration Agency may request the applicant to submit a judicial record card to the Business Registration Agency. This is a new regulation of the Law on Enterprises 2014. However, the judicial record card is not inherently a mandatory document in the application for business registration because if it were, it would increase the time for business establishment, creating a significant compliance cost burden for both state agencies and businesses, adversely affecting the investment and business environment in our country.

Source: Legal Life

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