What is the legal status in Vietnam?

Legal entities are a basic subject when participating in civil legal relations. Therefore, determining the legal status of an organization is an important thing to determine the legal issues of the legal entity when participating in a legal relationship.

Legal basis

• Civil Code 2015.
• Law on Enterprise 2020.
• Decree No. 01/2021/ND-CP dated January 4, 2021 of the Government on business registration
• Circular No. 01/2021/TT-BTP.

What is the legal entity?

Currently, there is no legal document in the current Vietnamese legal system that defines legal entities. However, it can be understood that a legal entity is an organization that exists for a certain purpose and has clear basic background elements that allow it to be distinguished from its members and from other legal entities.

Classification of legal entities in Vietnam

The 2015 Vietnamese Civil Code divides legal entities into commercial legal entities and non-commercial legal entities, with the distinguishing criterion being the division of profits. Specifically:

• A commercial legal entity is a legal entity whose main goal is to earn profits and the profits are divided among its members.

For example: Vingroup Joint Stock Company is a commercial legal entity.

• A non-commercial legal entity is a legal entity whose main goal is not to seek profit. If there is profit, it’s not just the members.

For example: Vietnam Red Cross is a non-commercial legal entity. Because the main goal of the organization is not towards profit but towards humanitarian activities in the community.

What is the legal status in Vietnam?

• Legal status is the legal status recognized by the State for an organization (group of people) capable of existing, operating independently, and being responsible before the law.
• A company has legal status from the date it is issued an enterprise registration certificate.

Conditions for an organization to be recognized as a legal entity in Vietnam

First, it must be legally established

Legal entities in Vietnam can be legally established in 3 ways:

• According to the decision of the competent state agency.
• According to the order of permission for establishment.
• Recognized by a competent state agency.

Second, the legal entity must have a strict organizational structure and an executive agency

The executive agency of a legal entity is a collective of many people with specific workplaces. The organization, tasks, and powers of the executive agency are specified in the charter of the legal entity in the decision to establish the legal entity.

Third, have assets independent of other individuals or legal entities and be responsible for the assets of the legal entity

• The assets of a legal entity must be independent of the assets of other legal entities and independent of the assets of members of the legal entity. The independent element here is understood to mean that when a legal entity has property obligations, it is not allowed to take the private assets of members of the legal entity to fulfill the obligation, and vice versa when members of the legal entity have financial obligations. assets with someone, the legal entity’s assets are not allowed to be distrained to pay debts.
• Assets of legal entities are formed from the following sources:
• Capital contributions of members;
• Profits from production and business activities;
• Property given as a gift or inheritance;
• State assets are assigned the right to be managed and used by the state (for legal entities such as armed forces, state-owned enterprises, etc.).

Fourth, participate in relationships independently on your own behalf

As an independent subject, a legal entity participates in civil legal relations on an equal basis as other subjects. A legal entity has the ability to enjoy civil rights and obligations prescribed by the legal entity’s charter in accordance with the law, as well as being a defendant or plaintiff in court. Commercial legal entities may also be prosecuted for criminal liability under certain crimes.

Which organizations have legal status?

According to the Law on Enterprise 2020, there are currently 5 types of businesses including:

• Multiple-member limited liability company;
• Single-member limited liability company;
• Joint stock company;
• Partnerships;

Organizations that do not have legal status

• Private enterprise;
• Households, cooperative groups;
• Branches and representative offices of legal entities;
• The organization is a foreign securities investment or executive office in a business cooperation contract;
• Fellow countrymen, clan councils, clubs,…

How does legal status affect business establishment?

First, legal status affects the responsibility regime of businesses.

• For businesses with legal status:
  • Members have limited liability. Except in the case of general members of a partnership, they may be jointly responsible for paying off the remaining debts of the company, if the company’s assets are not enough to cover the debts.
  • When debts exceed the total value of the company’s assets, the company only has to pay all the company’s assets to creditors without the company members having to spend their personal assets to repay. pay the outstanding debt.
• For businesses without legal status:
  • A typical type of business without legal status is a private enterprise. The owner of a self-employed business has unlimited liability using his/her assets.
  • Establishing a sole proprietorship can involve a high level of risk. But it gains higher trust from customers.

Second, legal status affects the organizational structure and operating apparatus of the enterprise

For businesses with legal status, their organizational structure is more complex and more regulated by law.

Legal regulations on legal entities in Vietnam

Name of the legal entity

• Regarding the name of a legal entity, the law stipulates that a legal entity must have a name in Vietnamese, the name clearly stating the type of legal entity to distinguish it from other legal entities in the same field of operation.
• When performing civil transactions, legal entities will use their names
• The name of the legal entity is protected and recognized by law.

Headquarters of the legal entity

The headquarters of a legal entity is the place where the executive agency of the legal entity is located. If there is a change in headquarters, the legal entity must make a public announcement. The contact address of a legal entity is the address of the legal entity’s headquarters.

Nationality of the legal entity

According to the principle of the place of establishment of a legal entity, a legal entity established under Vietnamese law has Vietnamese nationality.

Assets of legal entities

Assets of a legal entity include contributed capital and assets whose ownership is established by members of the legal entity.

Establishment and registration of legal entities

• Legal entities are established by the decision of a State agency.
• Registration must be public.

How to reorganize legal entities?

Method 1: Consolidation of legal entities

• Legal entities can consolidate into a new legal entity.
• After consolidation, the old legal entities cease to exist from the moment the new legal entity is established; The civil rights and obligations of the old legal entity are transferred to the new legal entity.

Method 2: Merger legal entities

• A legal entity can be merged (hereinafter referred to as the merged legal entity) into another legal entity (hereinafter referred to as the merged legal entity).
• After the merger, the merged legal entity ceases to exist; The civil rights and obligations of the merged legal entity are transferred to the merged legal entity.

Method 3: Divide legal entities

• A legal entity can be divided into many legal entities.
• After division, the divided legal entity ceases to exist; The civil rights and obligations of the divided legal entity are transferred to the new legal entities.

Method 4: Separate the legal entity

• A legal entity can be separated into many legal entities.
• After separation, the separated legal entity and the separated legal entity shall exercise their civil rights and obligations in accordance with their operational purposes.

Method 5: Change the form

• A legal entity can be converted into another legal entity.
• After converting the form, the converted legal entity ceases to exist from the time the converted legal entity is established; The converting legal entity inherits the civil rights and obligations of the converted legal entity.

Cases of dissolution of legal entities

• According to the provisions of the charter;
• According to the decision of a competent state agency;
• Expiration of the operating term stated in the charter or in the decision of a competent state agency;
• Other cases as prescribed by law.

Payment of assets of dissolved legal entities

The assets of the dissolved legal entity are paid in the following order:

• Expenses for dissolution of legal entities;
• Salary arrears, severance pay, social insurance, health insurance for employees according to the provisions of law, and other benefits of employees according to the collective labor agreement and labor contract signed contract;
• Tax debt and other debts.

After paying all legal entity dissolution costs and debts, the remainder belongs to the legal entity owner and capital-contributing members.

If you have any concerns or problems related to the answer to the question “What is the legal status in Vietnam”, please contact Viet An Law Firm for specific support. Viet An Law Firm is always ready to accompany and support you. Support procedures throughout the process of establishing and operating businesses for domestic and foreign traders.