MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY SCHOOL OF LAW TOPIC COMPARE A ONE MEMBER LIMITED LIABILITY COMPANY WITH A PRIVATE ENTERPRISE COURSE COMPANY LAW HO CHI MINH[.]
MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY SCHOOL OF LAW TOPIC: COMPARE A ONE-MEMBER LIMITED LIABILITY COMPANY WITH A PRIVATE ENTERPRISE COURSE: COMPANY LAW HO CHI MINH CITY - 2022 LIST OF MEMBERS 🙦🙦 No Full Name Student ID Completion Level Lâm Nhựt Phi 31201020772 100% Lương Thái Sơn 31201022645 100% Nguyễn Minh Quân 31201022610 100% Nguyễn Ngọc Minh Thư 31201022790 100% 🞜🞜 TABLE OF CONTENTS 🙦🙦 APPRECIATION INTRODUCTION CONTENTS Definition: 1.1 One-member limited liability company: 1.2 Private enterprise: 6 Similar characteristics: Different characteristics: Further comparisons in organization structure: 4.1 One-member limited liability company: 4.2 Private enterprise: 13 13 14 Pros and cons of choosing each type of business enterprise: 5.1 Advantages: 5.1.1 One-member limited liability company: 5.1.2 Private enterprise: 5.2 Disadvantages: 5.2.1 One-member limited liability company: 5.2.2 Private enterprise: 14 14 14 15 15 15 16 Conclusion: 17 References: 18 🞜🞜 APPRECIATION 🙦🙦 Dear Ms Nguyen Thi Anh, First of all, our group would like to say thank you for the lectures in the enterprise law course that helped us successfully build this thesis There is no exaggeration to say that we would not have been able to complete this course without your detailed instructions and explanations We will cherish the knowledge gained from this course to continue on our upcoming path Later, we admitted that in the process of studying and completing the essay, it is impossible not to make mistakes and uncertain arguments Therefore, we are looking forward to receiving your comments and suggestions to supplement our knowledge, help us refine our experiences and support future essays Finally, I wish you good health and more successful courses in the future We sincerely thank you! Yours sincerely, Group 🞜🞜 INTRODUCTION 🙦🙦 One-member limited liability company is a type of enterprise recognized in the Law on Enterprise 1999, in Vietnam With the number of registered companies topping the total number of all types of enterprises, at all times, it is therefore oriented to development by the State to promote all economic potentials in order to renew the country Equally competitive in the corporate structure in Vietnam, private enterprises are also making an indispensable contribution to the country's economy This essay discusses the differences in capital structure, legal status, rights and operating structure of the two types of enterprises based on the aspect of Vietnamese law, specifically the Law on Enterprise 2020 In addition, the advantages, as well as disadvantages of the two, are indicated by the group of authors, based on an objective view of the provisions of the law 🞜🞜 CONTENTS 🙦🙦 Definition: 1.1 One-member limited liability company: According to Article 74 of Law on Enterprise 20201, a one-member limited liability company is defined as follows: - A one-member limited liability company [single member LLC] is an enterprise owned by one organization or individual (hereinafter referred to as company owner) The company owner is liable for all debts and other property obligations of the company to the extent of the amount of the charter capital of the company - A single-member LLC has legal entity status from the date of issuance of the ERC - A single-member LLC may not issue shares, except in a case of conversion to become a shareholding company - A single-member LLC is permitted to issue bonds in accordance with this Law and other relevant laws; the private placement of bonds shall be in accordance with articles 128 and 129 of this Law Hence, with those regulations in this concept, Law on Enterprise 2020 still inherits its former regulations in Law on Enterprise 20142 1.2 Private enterprise: According to Article 188 of Law on Enterprise 20203, a one-member limited liability company is defined as follows: - A private enterprise is an enterprise owned by one individual who shall be liable for all activities of the enterprise to the extent of all his or her assets - Private enterprises may not issue any type of securities - Each individual may only establish one private enterprise The owner of a private enterprise must not concurrently act as the head of a business household or an Article 74 of Law on Enterprise 2020 Law on Enterprise 2014 and 2020 Article 188 of Law on Enterprise 2020 unlimited liability member of a partnership - Private enterprises are not permitted to contribute capital to establish or purchase shares or of capital contribution portions in partnerships, limited liability companies or shareholding companies Hence, with those regulations in this concept, Law on Enterprise 2020 still inherits its former regulations in Law on Enterprise 20144 Similar characteristics: - Though differences in the type of enterprises, both one-member limited liability companies and private enterprises only have one owner5 - Both enterprises can’t issue shares for funding but can increase the charter capital by their money6 - When the company choose to receive contributions from others, it must change its type of business7 - The director and general director may be hired by the business owner through an employment contract8 Different characteristics: Besides that, there are still lots of differences between these two types of business: One-member Limited Private Enterprise Liability Company Characteristics Company owner Owner’s asset- Article One Article 74 organization or Clause Characteristics Article Article One individual individual 188 Clause Liable for all Liable for all Law on Enterprise 2014 and 2020 Article 74 Clause and Article 188 Clause of Law on Enterprise 2020 Article 74 Clause 3, Article 76 Clause Point h, Article 188 Clause and Article 189 Clause of Law on Enterprise 2020 Article 87 Clause and Article 188 Clause of Law on Enterprise 2020 Article 85 Clause and Article 190 Clause of Law on Enterprise 2020 debts and other property activities of the obligations of enterprise to the the company to liability extent of all the extent of the company amount of the owner’s assets charter capital (unlimited of the company liability) (limited liability) The enterprise is a legal person Legal status from the date of The enterprise issuance of the is not a legal ERC, which Article 74 person since fully satisfies Clause 2, the conditions prescribed for there is no Civil Code difference 2015 between the legal entities in Article 74 assets of the Clause 1, Clause business owner Article 74 of the and the assets Civil Code of the business Civil Code 2015 Article 74 Clause 2015 Charter capital - Contribution Article 75 The invested contribution Clause must be fully capital of the made to the owner of a company within private 90 days from enterprise shall Article 189 Clause the date of issuance of the enterprise registration certificate - Else, in the case of failure, be registered by it shall be the company contributed owner within 30 days from the last day on which the charter capital must be fully contributed Change in In case of Article 87 - The owner can charter capital raising the increase or 189 capital: reduce the Clause - The owner capital invested decides the in the business form and the operations of amount the enterprise increases and it should be - If the fully recorded additional in the books of amount is account contributed by - Only able to others -> reduce the Article change the type of business (multi-member LLC or shareholder company) In case of reducing the capital: - Company has invested capital been established below the and done amount of business for two invested capital consecutive registered after years, fully registration repaid all debts with the BRO and obligations before the return - Company owner fails to pay for the charter capital in full and on time Ability to Since there is Article 17 - The owner contribute no specified Clause must not Article 188 capital to other Article showing concurrently act Clause 3,4 companies as the head of a the restriction in 10 business household or an unlimited liability this type of member of a business in partnership contributing - Private capital to other enterprises are companies not permitted to Hence, based on contribute Article 17 capital to Clause 3, this establish or type of purchase shares organization or of capital still has the contribution right to portions in contribute partnerships, capital limited liability companies or shareholding companies Can issue but Rights to issue bond shall be in accordance with articles 128 and Private Article 74 Clause 129 of this Law Enterprises Article can’t be issued 188 by any type of Clause securities Legal - Company Article 12 - Only the Article 12 representative must have at Clause 2, Clause 1, least one legal Article 79 company is a 11 owner of the 2, 3, representative legal - A legal representative representative - Only when the must be the owner exits chairman of the VietNam, Article he/she can 190 Council or the authorize Clause chairman of the another person company or the to become a director or legal general director representative Members' Clause - Can choose either one of the following structures: Chairman of the company, director or The owner can general director hire a director Organizational Members’ Article 79 or general structure Council, Clause 1,2 director or take director or this position by general director him/herself - If the enterprise is state-owned, the Inspection Committee is a must 12 Article 190 Clause Further comparisons in organization structure: 4.1 One-member limited liability company: According to Article 79 Clause 1:“ A single-member LLC owned by an organization shall be organized, managed and operate in either of the following models: (a) Chairman of the company, director or general director; (b) Members’ Council, director or general director.” And also due to Clause of this Article, the company shall need an Inspection Committee in case the company is state-owned In addition, at least one legal representative holding one of those following positions in Clause is required In detail, Members’ Council shall consist of three to seven members, appointed or removed by the company owner and their periods shall not exceed five years9 Also, the chairman of the company shall be appointed by the company owner10 Thereafter, the director or the general director shall be appointed by the Members’ Council or the chairman of the company for a term not exceeding five years11 Thus, the structure of a one-member limited liability company is strict and complicated Let’s take a look at the real organizational structure of Xo so kien thiet Tien Giang one-member limited liability company in the following model: The chairman of the company is Mr Nguyen Minh Hieu and the company’s director is Mr Tran Van An12 Due to this company is a state-owned enterprise13 so it also has an Inspection Committee, which is taken place by Mrs Dinh Thu Ngoc14 As we can see, this model legally follows point a of Article 79 Clause which was already mentioned, making this a vivid example of a one-member limited liability company’s structure Article 80 Clause of Law on Enterprise 2020 10 Article 81 Clause of Law on Enterprise 2020 11 Article 82 Clause of Law on Enterprise 2020 12 “Cơ cấu tổ chức Công ty TNHH MTV Xổ số kiến thiết Thành phố Hồ Chí Minh”, Available at: https://www.xskthcm.com/trang/gioi-thieu/so-do-to-chuc.html 13 Truc Giang (2022), “Tiền Giang chưa thể cổ phần hóa doanh nghiệp nhà nước”, Investment Newspaper, Available at: https://baodautu.vn/tien-giang-van-chua-the-co-phan-hoa-2-doanh-nghiep-nha-nuoc-d167181.html 14 Article 79 Clause of Law on Enterprise 2020 13 4.2 Private enterprise: A private enterprise is a type of business owned by an individual The outstanding feature of private enterprises is the simplicity and compactness of the organizational structure It is because an individual owns it, so in the business process, making decisions for business owners is decisive and easy15 According to Article 190 Clause 2: “The owner of a private enterprise may directly act as or employ another person to act as the director or general director to manage and administer the business operations; in this case, the private enterprise owner shall remain liable for all business activities of the private enterprise” Moreover, in term of legal representative for this enterprise type, the owner of the enterprise is a legal representative16 Hence, there is less strict and simpler organizational structure regulation in this type of business than in one-member limited liability companies Pros and cons of choosing each type of business enterprise: 5.1 Advantages: 5.1.1 One-member limited liability company: - The company owner is liable for all debts and other property obligations of the company to the extent of the amount of the charter capital of the company (limited liability) Thus, it is much safer for the company owner to operate the company in his type of business17 - Though this type of business can’t raise the charter capital by issuing stock to the public, it can be done through issuing bond18 - The company has more positions to be a legal representative19 (chairman of the company or Member’s Council, general director or director, ) - This type of business has its legal status20 so as to bring the enterprise stability by 15 Bui Thi Hang Nga (Ed), Truong Ngoc Hien & Gian Thi Le Na, (2019), Reference book on Enterprise Law: Regulations and Situations 16 Article 190 Clause of Law on Enterprise 2020 17 Article 74 Clause of Law on Enterprise 2020 18 Article 74 Clause and of Law on Enterprise 2020 19 Article 79 Clause of Law on Enterprise 2020 20 Article 74 Clause of Law on Enterprise 2020 14 distinguishing the assets of the company and that of the company owner In addition, having legal status simplifies legal life and economic life21 Specifically, if the enterprise does not recognize the legal entity status, all the members in the enterprise will have to participate in the establishment of transactions in the name of the originator, which complicates the settlement of obligations arising from business activities 5.1.2 Private enterprise: - Unlimited liability mode obliges the owner to operate the company right to avoid unlimited damages to his/her assets This creates trust for partners and customers of private enterprises, attracting business cooperation22 - Company only has one owner23 which leads to simple organization and flexible operation in this type of business Moreover, unlike one-member limited liability, this type of company doesn't have a Member's Council or Inspection Committee which leads to full authority to decide on all business activities of the enterprise - With low management fees, this simple structure also helps avoid paying huge employment fees 5.2 Disadvantages: 5.2.1 One-member limited liability company: - This type of business has a simple organizational structure among others but is more complicated than that of a private enterprise which leads to higher operation costs than that of private enterprise whenever a company needs to expand labor forces - By having a legal status24, the company must be restricted by law more than the private enterprise type - The operation of the company depends on whether the owner has good leadership or not In order for the company to operate smoothly, it requires the owner to achieve 21 Available at: https://taxplus.vn/tu-cach-phap-nhan/#:~:text=Doanh%20nghi%E1%BB%87p%20c%C3%B3%20t %C6%B0%20c%C3%A1ch,s%E1%BB%91%20t%C3%A0i%20s%E1%BA%A3n%20c%E1%BB%A7a%20m %C3%ACnh 22 Article 188 Clause of Law on Enterprise 2020 23 Article 188 Clause of Law on Enterprise 2020 24 Article 72 Clause of Law on Enterprise 2020 15 synchronization, consistency, and timely adjustment so that the limited liability company does not fall into situations such as limited business capacity and productivity25 5.2.2 Private enterprise: - There is no separation between the owner’s asset and the enterprise’s asset Hence, it’s would be a great likelihood to have a higher risk of being liable for all debts and other obligations of the company26 In addition, stipulates that the owner of the private enterprise has the right to increase or decrease the investment capital, and these adjustments must be recorded in the accounting books and financial statements27, but does not mention who will ensure that the owner’s records are accurate - The owner shall tend to make subjective decisions because of his full authority to decide all the activities of the company, which leads to less transparency in management28 - The company won't have legal status so it can’t sign certain contracts due to legally limitation by the law29 - The limitation of raising capital leads to low capital for operating business activities30 Conclusion: Above is our analysis, comparing the similarities and differences, along with the advantages and disadvantages between two types of business: One-member limited liability and private enterprise Both types are very common in Vietnamese companies, appear in every industry sector and greatly contribute to creating diversity 25 Researchers (n.d.), “CHUYỂN ĐỔI DOANH NGHIỆP TƯ NHÂN THÀNH CÔNG TY TRÁCH NHIỆM HỮU HẠN MỘT THÀNH VIÊN”, Available at: https://www.studocu.com/vn/document/truong-dai-hoc-luat-ha-noi/coporate-law-lawyer/ldn2020-chuyen-doi-dntnthanh-cong-ty-tnhhmtv/18138582 26 Article 188 Clause of Law on Enterprise 2020 27 Article 189 Clause of Law on Enterprise 2020 28 Article 190 Clause of Law on Enterprise 2020 29 Article 74 Clause of Civil Code 2015 30 Article 188 Clause of Law on Enterprise 2020 16 and competition among them, thereby creating development opportunities for each business From a viewpoint of business, a one-member limited liability company helps its customers keep their relief in operation thanks to its legal status, which means this enterprise is protected from the Law Besides, a private enterprise helps its owner operate businesses with low capital by easing legal procedures or tax procedures, better than a one-member limited liability company Another viewpoint is from the Start-up wave The capacity to borrow money from banks or call for investment funds is typically quite limited, so start-up enterprises are often begun with modest self-capital from founding members Despite the fact that there are numerous financial channels available, it is still very common for startups to face funding constraints If these enterprises choose the type of private enterprise to business, they will have to bear great responsibility and the risk of bankruptcy and default if the start-up is unsuccessful is inevitable Private enterprises, on the other hand, are not permitted to issue any form of securities, so if they require additional capital, they can only contribute more capital by themselves This really makes it very difficult for these founders – who are individuals with limited capital31 Overall, either type of business shall have its certain pros and cons for application Thus, based on choosing the scale of business operation, demands gained from each type of business and orientation, individuals or organizations could choose their best type of business 31 Vu Thi Van & Vu Hai Thuy (2020), “Thực trạng hoạt động doanh nghiệp khởi nghiệp Việt Nam mộtsố giải pháp đề xuất”, Electronic Magazine Finance, Available at: http://tapchitaichinh.vn/tai-chinh-kinh-doanh/thuc-tranghoat-dong-cua-doanh-nghiep-khoi-nghiep-viet-nam-va-mot-so-giai-phap-de-xuat-324401.html 17 References: Legal documents: - Civil Code 2015 - Law on Enterprise 2014 - Law on Enterprise 2020 Other essay: - Researchers (n.d.), “CHUYỂN ĐỔI DOANH NGHIỆP TƯ NHÂN THÀNH CÔNG TY TRÁCH NHIỆM HỮU HẠN MỘT THÀNH VIÊN”, Available at: https://www.studocu.com/vn/document/truong-dai-hoc-luat-ha-noi/coporate-lawlawyer/ldn2020-chuyen-doi-dntn-thanh-cong-ty-tnhhmtv/18138582 Reference book: - Bui Thi Hang Nga (Ed), Truong Ngoc Hien & Gian Thi Le Na, (2019), Reference book on Enterprise Law: Regulations and Situations Website: - “Cơ cấu tổ chức Công ty TNHH MTV Xổ số kiến thiết Thành phố Hồ Chí Minh”, Available at: https://www.xskthcm.com/trang/gioi-thieu/so-do-to-chuc.html - Truc Giang (2022), “Tiền Giang chưa thể cổ phần hóa doanh nghiệp nhà nước”, Investment Newspaper, Available at: https://baodautu.vn/tien-giang-van-chuathe-co-phan-hoa-2-doanh-nghiep-nha-nuoc-d167181.html -“Tư cách pháp nhân – lợi ích & điều kiện để có tư cách pháp nhân”, Available at: https://taxplus.vn/tu-cach-phap-nhan/#:~:text=Doanh%20nghi%E1%BB%87p%20c %C3%B3%20t%C6%B0%20c%C3%A1ch,s%E1%BB%91%20t%C3%A0i%20s %E1%BA%A3n%20c%E1%BB%A7a%20m%C3%ACnh - Vu Thi Van & Vu Hai Thuy (2020), “Thực trạng hoạt động doanh nghiệp khởi nghiệp Việt Nam mộtsố giải pháp đề xuất”, Electronic Magazine Finance, 18 Available at: http://tapchitaichinh.vn/tai-chinh-kinh-doanh/thuc-trang-hoat-dong-cuadoanh-nghiep-khoi-nghiep-viet-nam-va-mot-so-giai-phap-de-xuat-324401.html 19