Pros and Cons of LLC vs. Sole Proprietorship for Entrepreneurs

When starting a business, choosing the legal model is a crucial decision that affects every aspect of operations. Between a limited liability company (LLC) and a sole proprietorship, each type has its own advantages and limitations in terms of legal liability, governance, and fundraising capabilities. Understanding these differences will help startups make the optimal choice, creating a solid foundation for sustainable development. Through this article, Viet An Law Firm will provide an in-depth analysis of the pros and cons of LLC vs. sole proprietorships for entrepreneurs, giving clients an objective perspective.

Distinguishing between two types of businesses

Based on Articles 188 and 74 of the Enterprise Law 2020, amended and supplemented in 2025, they can be distinguished through the following criteria:

Distinguishing between LLC vs. sole proprietorships

Owner

• Single-member Limited Liability Company: individual/organization
• Sole Proprietorship: individual (cannot simultaneously be the owner of a business household, a member of a partnership company, or the owner of another private enterprise)

Capital contribution

Single-member Limited Liability Company

• Company’s charter capital: The owner must transfer ownership of contributed assets to the company within 90 days from the date of issuance of the Business Registration Certificate.
• As committed by the owner and recorded in the company’s charter.

Sole Proprietorship:

• Investment capital of the private enterprise owner is registered by the owner themselves.
• Assets used in the business operations of the private enterprise owner do not require a transfer of ownership to the enterprise.

Owner’s liability

• Single-member Limited Liability Company: The owner of a single-member limited liability company is liable for the company’s debts and other financial obligations to the extent of the company’s charter capital. (Limited Liability)
• Sole Proprietorship: The owner of a private enterprise is liable without limit using all of their assets. This means that if the company’s assets are insufficient to cover debts and other financial obligations, the owner must use their personal assets to settle these debts.

Changes to registered capital

Single-Member Limited Liability Company

• Registered capital can be increased in the following ways:
• Raising additional capital contributions from the owner;
• Raising additional investment capital from other individuals or organizations.
• Note: In the case of raising additional investment capital from other individuals or organizations, the single-member limited liability company must convert its business type to a limited liability company with two or more members or a joint-stock company.
• Registered capital can be reduced in the following ways:
• Returning a portion of the capital contribution to the company owner;
• The registered capital is not fully and timely paid by the owner.

Sole Proprietorship

• During operation, the owner of a private enterprise has the right to increase or decrease their investment capital in the business.
• In case of reducing investment capital to below the registered investment capital, the private enterprise owner may only reduce capital after registering with the Business Registration Authority.

Right to issue bonds

• Single-member limited liability company: can issue bonds. Single-member limited liability companies are restricted from issuing shares.
• Sole Proprietorship: Cannot issue any securities.

Legal Status

• Single-member limited liability company: has legal personality.
• Sole Proprietorship: Does not have legal personality.

Organizational Structure

Single-member limited liability company:

Can choose one of the following two models:

• Chairman of the company, Director or General Director;
• Board of Members, Director or General Director.
• If the owner of the company is a state-owned enterprise, there is also a supervisory board;

Sole Proprietorship:

• The owner manages the business themselves or hires a manager;
• The owner is the legal representative.

Rights to contribute capital and purchase shares in the enterprise

• Single-member limited liability company: no restrictions;
• Sole Proprietorship: a private enterprise is not allowed to contribute capital to establish or purchase shares or capital contributions in a partnership, limited liability company, or joint-stock company.

Therefore, based on the above comparison, clients can consider your needs to choose the appropriate type of business.

Incentives for entrepreneurs and small and medium-sized enterprises

Small and medium-sized enterprises (SMEs) are a common type of business in Vietnam. With the two most common types of companies – limited liability companies with one member and private enterprises – as analyzed above, the Vietnamese government has long offered, and continues to offer, many incentives to encourage socio-economic development in this group of businesses, including:

Incentives for entrepreneurs and small and medium-sized enterprises

Corporate income tax exemption for small and medium-sized enterprises for the first 3 years

Specifically, Clause 4, Article 10 of Resolution 198/2025/QH15 on tax, fee, and charge support policies stipulates the exemption of corporate income tax for small and medium-sized enterprises for 3 years from the date of initial issuance of the Business Registration Certificate.

In addition, other preferential policies on taxes, fees, and charges are also stipulated, such as:

• The cessation of business license fee collection and payment from January 1, 2026;
• Exemption from fees for documents that need to be reissued or replaced when restructuring and reorganizing the state apparatus according to the law.

Incentives in the selection of contractors for public procurement projects

According to Article 11 of Resolution 198/2025/QH15, the following is clearly stipulated:

• Construction packages, goods procurement packages, and mixed packages for goods supply and construction using state budget funds with a package value not exceeding VND 20 billion are reserved for small and medium-sized enterprises (SMEs).
• If a tender has already been held, and no SMEs meet the requirements, a re-tender may be organized.

Free provision of accounting software and accounting and tax consulting services

Specifically, the State allocates funds to provide free digital platforms and common accounting software for small and micro enterprises, business households, and individual businesses as prescribed by the Government.

In addition, the State also supports businesses in researching, developing, and applying science, technology, innovation, and digital transformation through policies such as:

• Allowing businesses to deduct up to 20% of their taxable income to establish a fund for the development of science, technology, innovation, and digital transformation;
• Allowing businesses to include as deductible expenses for research and development activities up to 200% of the actual costs of innovation and digital transformation activities.

Support for access to land and business production space

Based on Article 7 of Resolution 198/2025/QH15, the policy on supporting access to land and business production space for small and medium-sized enterprises (SMEs) is stipulated as follows:

• Local authorities may use local budgets to partially support investment in the construction of infrastructure systems for industrial parks, industrial clusters, and technology incubators, including: support for land acquisition, compensation, and resettlement; support for investment in infrastructure projects such as transportation, electricity supply, water supply, drainage, wastewater treatment, and telecommunications.
• Investors operating infrastructure in industrial parks, industrial clusters, and technology incubators who receive investment support must allocate a portion of the land with completed infrastructure for SMEs and innovative startups to lease or sublease.
• Provincial People’s Committees shall allocate an average of 20 hectares per industrial park or cluster, or 5% of the total land area of ​​industrial parks and clusters in their localities, for lease or sublease by high-tech enterprises in the private sector, small and medium-sized enterprises (SMEs), and innovative startups.
• SMEs and innovative startups will receive a minimum 30% reduction in sublease fees for the first 5 years from the date of signing the land lease contract with the investor developing the infrastructure of the industrial park, cluster, or technology incubator. This land lease fee support will be reimbursed by the State to the investor according to Government regulations.

Support for renting public property

• The State will support small and medium-sized enterprises (SMEs), supporting industrial enterprises, and innovative enterprises in renting unused or unused public property in the locality.
• The People’s Committee at the provincial level shall regulate the list of public assets for rent, criteria, support levels, support forms, procedures for renting each type of asset, and publicly announce them on the local government’s website.

Loan incentives from the Small and Medium-sized enterprise development fund

In the financial and credit support policy stipulated in Article 9 of Resolution 198/2025/QH15, there is a provision for the Small and Medium-sized Enterprise Development Fund with the following functions:

• Lending to SMEs;
• Lending to startups;
• Providing initial capital for innovative startup projects and incubator projects;
• Investing in local investment funds and private equity funds to increase the supply of capital for small and medium-sized enterprises (SMEs) and innovative startups;
• Receiving and managing loans, grants, aid, contributions, and trust funds from organizations and individuals to support SMEs.

The above is advice from Viet An Law Firm regarding the pros and cons of LLC vs. Sole proprietorship for entrepreneurs. If clients have any other questions related to current business types, please contact Viet An Law Firm for specific advice.