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Which limited liability company should businesses choose to set up nowaday?

With a typical legal nature, a limited liability company (LLC) is a type of company that is considered to be preeminent and popular in Vietnam. According to the Law on Enterprise 2020, limited companies include 2 types: single-member LLC and mutiple-member LLC. In order for customers to choose the type of company that best suits their needs, the following article of Viet An Law Firm will compare the similarities and differences between single-member LLCs and mutiple-member LLCs. tablets or more.

Which limited liability company should businesses choose to set up nowaday?

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    Legal basis

    • Law on Enterprise 2020.

    Similarities between single-member limited liability company and multiple-member limited liability company

    • Both a single-member LLC and a multiple-member LLC have legal status from the time the Enterprise Registration Certificate is granted.
    • The owner of a single-member LLC and a multiple-member LLC can be an organization or individual who is a capital-contributing member.
    • 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 Enterprise Registration Certificate and meets specific conditions (except for cases where the company members do not pay in full and within 90 days from the date of company establishment registration).
    • It is not required to set up a supervisory board.
    • Legal procedures for market entry and exit are the same: Business establishment procedures, bankruptcy procedures, company dissolution procedures.
    • Shares may not be issued, unless the limited company is converted into a joint stock company.
    • Both types of companies are allowed to issue bonds to raise capital.

    Common advantages of single-member LLCs and mutiple-member LLCs:

    • In terms of advantages, the limited liability regime has a great advantage for traders, which is to limit risks for business owners (traders). Specifically, in the case of a business trader making a loss, the business owner (trader) only loses his invested capital, the uninvested portion of assets, he is not required to make payment of financial obligations or merchants’ debts.
    • LLC has the characteristics of a partner company, specifically a limited number of members, ensuring selectivity and connection between members. At the same time, the capital transfer mechanism is not free, limiting the participation of outsiders in the company’s internal affairs.
    • When transferring capital, the capital transfer member must declare tax and pay personal income tax.

    Common disadvantages of single-member LLCs and mutiple-member LLCs

    • Regarding the disadvantages and limitations of the limited liability regime, when participating in a credit relationship, a trader can only use business assets within the scope of the trader’s charter capital as collateral when borrowing capital. The ability to borrow credit is therefore also more limited compared to the unlimited liability regime.
    • Single-member LLCs and mutiple-member LLCs are subject to stricter regulations than private enterprises or partnerships.
    • The capital mobilization of a LLC is limited because it does not have the right to issue shares like a joint stock company.

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

    According to the current law, it is possible to distinguish single-member LLCs and multiple-member LLCs based on the following characteristics:

    Characteristic Single-member LLC Multiple-member LLC
    Quantity of members In terms of number, there is only 1 member during the establishment and operation In terms of numbers, there are from 2 to 50 members during the operation.
    Property liability regime ·       Single-member LLC is responsible with all its assets;

    • The owner of a single-member LLC is responsible for the company’s debts and other property obligations within the company’s charter capital.
    • A single-member LLC has only one owner, so the capital contribution or commitment to contribute is the charter capital of the company.
    • Multiple-member LLC are responsible for all assets under their ownership;
    • Members are responsible for debts and other property obligations of the company in the amount of capital contributed to the company, except for 2 cases:
      • Members commit to contribute capital within 90 days from the date the company is granted the Enterprise registration Certificate. Within this time limit, the member is responsible for the amount of capital committed to contribute;
      • If a member commits to contribute capital at the time of establishment of the company but has not yet contributed or fully contributed the committed capital amount by the due date, within 30 days from the last day on which the capital must be fully contributed as prescribed, the company must register for a change in charter capital, the percentage of contributed capital and such member shall be responsible for the financial obligations of the company arising in the period before the date the company registers to change the charter capital and the percentage of the capital contribution. member’s capital contribution.
    Capital transfer mechanism
    • The owner can transfer his entire capital contribution to the company to another person, which means withdrawing all capital from the company;
    • If the owner transfers part of his/her contributed capital to another person (withdrawal of the capital portion), the company must register to convert the company model into a limited liability company with multiple-member or a joint stock company.
    A member of a multiple-member LLC has the right to transfer part or all of his/her contributed capital to another person in the following order:

    • Offer to sell their contributed capital to the remaining members in proportion to their contributed capital in the company;
    • Only transfer the contributed capital to other non-members if the remaining members of the company do not buy or buy it all within 30 days from the date of offering.
    Capital mobilization Single-member LLCs can raise capital by:

    • Raise capital contribution: the owner adds capital or mobilizes more capital from new members
    • Mobilization of loans: loans from organizations and individuals, bond issuance

     

    Multiple-member LLC can raise capital by:

    • Mobilizing capital contributions from effective members, from individuals and organizations wishing to contribute capital
    • Mobilizing loans from organizations and individuals, issuing bonds. In case of private bond issuance, the company complies with articles 128 and 129 of the Enterprise Law 2020.
    Legal status A single-member LLC has legal status from the time it is granted the Enterprise Registration Certificate Multiple-member LLC have legal status from the time of issuance of the Enterprise Registration Certificate
    Organizational 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:

    • Company President, Director or General Director;
    • Members’ Council, Director or General Director.
    Multiple-member LLC have a Board of members, a Chairman of the Members’ Council, a Director or a General Director.

    In addition, traders can refer to some comparison criteria at Law Viet An’s article on Compare a single-member limited liability company and a multiple-member limited liability company to better understand these two models.

    When should you choose the model of a single-member LLC?

    • In general, a single-member LLC is a type of enterprise with the simplest organizational structure of all types of businesses, the company owner has the full right to decide on all matters related to the company’s operations without not be dominated or difficult to make decisions related to the company’s operations.
    • The single-member LLC model will be suitable for individuals with small and medium-sized businesses.

    When should you choose the model of a multiple-member LLC?

    • Multiple-member LLC has the characteristics and characteristics of the counterparty company and the counterparty company.
    • Therefore, a multiple-member LLC will be the type of business often chosen when customers need to contribute capital with friends and partners who have closeness and mutual trust.

    Customers who have any concerns or problems related to the type of business in Vietnam, please contact  Viet An Law for specific support. Viet An Law is always ready to accompany and support procedures throughout the process of establishment and operation of enterprises for domestic and foreign traders.

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