Nowadays, the single-member limited liability company (LLC) is a common type of enterprise in Vietnam. One of the important issues that owners of single-member LLCs are often concerned about is the company’s ability to raise capital. Can a single-member LLC raise capital in Vietnam? And what legal regulations must be followed? In the article below, Viet An Law Firm will provide clients with legal information related to the capital raising of single-member LLCs.
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What is a single-member LLC?
According to Article 74 of the Law on Enterprises 2020, a single-member LLC is defined as follows:
A single-member LLC is an enterprise owned by a single organization or individual (hereinafter referred to as “owner”). The owner’s liability for the company’s debts and other liabilities shall equal the company’s charter capital.
Besides, a single-member LLC has the status of a juridical person from the day on which the Certificate of Enterprise Registration is issued.
A single-member LLC must not issue shares except for equitization.
A single-member LLC may issue bonds.
Can a single-member LLC raise capital in Vietnam?
A single-member LLC can raise capital through the following methods:
The owner contributes capital;
The company raises capital from new members and shall be converted into a multiple-member LLC or joint stock company.
The company raises capital by issuing bonds.
The owner contributes capital.
According to Clause 1, Article 87 of the Law on Enterprises 2020, the increase or decrease of charter capital is stipulated as follows:
“1. 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.”
Thus, a single-member LLC is allowed to raise capital from its members to increase its charter capital. This is an effective way for a single-member LLC to increase its capital without the risk of a takeover of capital contributions, as is the case with joint-stock companies or multiple-member LLCs.
However, it is important to note the following conditions:
The owner will be the sole member of the single-member LLC, so the capital is increased by the owner contributing additional investment.
After contributing sufficient capital and the correct type of assets within the prescribed time, the owner can decide to increase the capital by contributing additional capital to increase the company’s charter capital.
The specific increase of capital and the type of assets to be contributed to the charter capital will be decided by the owner.
Adding new capital members and converting the business type
In addition to contributing capital to increase the charter capital of the company, Clause 1, Article 87 of the Law on Enterprises 2020 also allows a single-member LLC to raise capital from other persons.
In this form, the single-member LLC will accept capital contributions from individuals or organizations that are not the company owner. These contributors can provide capital in various forms according to the law on capital contribution. After completing the capital contribution, the contributors will become members of the company.
However, according to Clause 2, Article 87 of the Law on Enterprises 2020, when increasing charter capital by raising capital from other contributors, the following conditions must be noted:
Convert the business type: The single-member LLC shall be converted into a multiple-member limited liability company or joint stock company.
Procedures to implement:
In case of conversion into a multiple-member limited liability company, a notification of change in enterprise registration information shall be submitted within 10 days from the day on which the change in charter capital is complete;
In case of conversion into a joint stock company, 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 in the national enterprise registration database (Article 202 of the Law on Enterprises 2020).
Raising capital by issuing bonds
Clause 4, Article 74 of the Law on Enterprises 2020 clearly stated:
“Single-member limited liability companies may issue bonds following this Law and relevant laws; private placement of bonds shall comply with Article 128 and Article 129 of this Law.”
Thus, although a single-member LLC is not allowed to issue shares, the company is still permitted to issue bonds to be more flexible in raising capital.
A bond is understood as a certificate of debt obligations issued by the issuer, in which a bondholder lends a specific amount of money (the bond’s face value) to the bond issuer for a specified period and with a specified interest rate.
Corporate bond means a type of debt security with a term to maturity of at least 01 year, issued by an enterprise to confirm the company’s obligations to repay principal, interest, and other liabilities (if any) to the bondholders.
Procedure for registering the conversion of a limited liability company type due to raising capital
Cases requiring registration
According to Article 202 of the Law on Enterprises 2020, if a limited liability company is converted into a joint stock company by raising additional capital from other organizations and individuals, the conversion shall be registered with the business registration authority within 10 days from the day on which the conversion is complete.
Timing of registration
The conversion shall be registered with the business registration authority within 10 days from the day on which the conversion is complete.
Components dossier
According to Clause 4, Article 26 of Decree 01/2021/ND-CP, the registration dossier for converting a single-member LLC into a joint-stock company includes the following documents:
Application form for enterprise registration.
The company’s charter.
Copies of the following documents: Legal documents of the enterprise’s legal representative; Legal documents of the company’s owner who is an individual; Legal documents of the company’s owner who is an organization (except for the State); Legal documents of the authorized representative and letter of appointment of authorized representative.
The resolution or decision of the owner of the single-member limited liability company and copy of the minutes of the General Meeting of Shareholders of the joint-stock company on the conversion from the company;
The contract for the transfer of shares/stakes or documents proving completion of such transfer; the contract for a donation of shares/stakes; the copy of the certificate of the inheritor’s lawful right to inheritance;
Documents certifying the capital contribution by new members/shareholders;
A written approval given by the investment registration authority for capital contribution or purchase of shares/stakes by foreign investors/foreign-invested business entities in case procedures for registration of capital contribution or purchase of shares/stakes must be followed by the Law on Investment.
Procedures to implement
The company applies an application dossier for company conversion registration to the Business Registration Office of the Department of Planning and Investment where the business’s headquarters is located within 10 days from the date of completing the conversion.
Within 03 working days from the receipt of the application for conversion, the Business Registration Office shall issue the Certificate of Enterprise Registration and update the company’s status in the national enterprise registration database.
Note:
The enterprise may register conversion from the enterprise type at the same time when it registers changes to enterprise registration information or notifies changes to enterprise registration information.
If an enterprise applies for registration of conversion and replacement of legal representative at the same time, the person that signs the application shall be the Company’s President, or Chairperson of the Board of Members of a single-member limited liability company, or Chairperson of the Board of Directors of the joint-stock company after conversion.
Above is the advice of Viet An Law about the question: Can a single-member LLC raise capital in Vietnam? For clients who have related questions or need legal support, please contact Viet An Law Firm for the best support!
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