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Compare a single-member LLC and a multiple-member LLC in Vietnam

According to the provisions of the Law on Enterprise 2020, the types of LLCs include: single-member limited liability company (LLC) and LLC with two or more member. By this article, Viet An Law summarizes the differences and similarities between these two types of enterprises.

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    The difference between a single-member LLC and a multiple-member LLC

    Criteria A single-member LLC A multiple-member LLC
    Quantities of members Only 1 member contributes capital who is the owner of the company. There are 2 members to a maximum of 50 capital contributors and they are company owners.
     

    Procedure to increase or decrease the the company’s charter capital

    LLC increases its charter capital through the company owner contributing additional capital or mobilizing additional capital contributed by others. The company owner decides the form of increase and the rate of increase of charter capital.

    In case of increasing charter capital by mobilizing additional capital contributed by others, the company must transform into a multiple-member LLC or a joint stock company.

    The company may increase its charter capital in the following cases:

    • Increase the member’s contributed capital;
    • Receive additional the contributed capital from new members.

    The company can reduce its capital by redemption of the contributed capital of members.

    Transfer of contributed capital         The company owner has the full right to transfer and dispose of all or part of the charter capital of the company.

     

    If a member of the company wishes to transfer his/her contributed capital to another person, he/she must offer to sell that portion of capital to the remaining members.

    The remaining members have the right to pre-emptive purchase within 30 days from the date of offering and then if the remaining members do not purchase, that member has the right to transfer to a third party with the same terms and conditions as offered to the remaining members.

    Company structure A Member Council is not required.

    A single-member LLC owned by an organization is managed and operated by one of the following two models:

    • A Company President, a Director or a General Director;
    • Members’ Council, a Director or a General Director.
    LLCs with two or more members have a Members’ Council, a Chairman of the Members’ Council, a Director or a General Director.
    Respondibility for contributed capital The company owner has responsible for the company’s debts and other property obligations to the extent of the company’s charter capital. The members of the company have responsible for the debts and other property obligations of the enterprise within the amount of capital committed to contribute to the enterprise.

    Similar characteristics between a single-member LLC and a multiple-member LLC

    • Both single-member LLCs and multiplemember LLCs have legal person status from the time of issuance of the Enterprise Registration Certificate;
    • Owners of both a single-member LLC and a multiple-member LLC can be organizations or individuals who are capital contributors;
    • Company members, company owners only have limited liability to the extent of their contributed capital;
    • The company can adjust the increase or decrease of charter capital. Accordingly, the reduction of charter capital can only be done after 02 years from the date the company is granted the certificate of business registration and satisfies specific conditions (except for cases where the company members do not pay in full and within 90 days from the date of registration of company establishment);
    • It is not required to establish a supervisory board;
    • Legal procedures for market entry and exit are the same: Enterprise establishment procedures, bankruptcy procedures, company dissolution procedures;
    • Shares may not be issued, except for case if the limited company is converted into a joint stock company;
    • Both 2 types of companies are allowed to issue bonds to mobilize capital.

    Some common advantages of these two types of companies compared to joint stock companies and other types of enterprises

    • Because both a single-member LLC and a multiple-member LLC have legal person status, the company members are only responsible for the company’s activities to the extent of the amount of capital contributed to the company so it is less risk for capital contributors;
    • The number of members of the LLC is not much and the members are usually acquaintances and trust each other, so the management and operation of the company is not too complicated;
    • The capital transfer regime is strictly regulated within the company, so the company owners can easily control the change of members, limiting the penetration of strangers into the company;
    • The capital transfer regime is strictly regulated within the internal company, so the company owners can easily control the change of members, restricting the penetration of strangers into the company;
    • When transferring capital, the capital transfer member must declare tax and pay personal income tax, in case of the capital contribution is equal to the transfer price, there is no payable tax.

    Common disadvantages of these two types of companies compared to joint stock companies and other types of enterprises

    Single-member LLCs and multiple-member LLCs are subject to stricter regulations than private enterprises or partnerships.

    The capital mobilization of a LLC is restricted because it does not have the right to issue shares as a joint stock company.

    Customers who are interested in the enterprise establishment procedure and legal issues related to the company, please contact Viet An Law for specific advice!

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