Question:
I am considering whether to establish a joint-stock company or a single-member limited liability company. Could you please provide an analysis of the advantages and disadvantages of each type of business entity, particularly in terms of the owner's authority, legal liability, and the ability to raise capital in the future?
Answer:
SBLaw would like to advise you as follows:
1. Single-Member Limited Liability Company
On the Owner's Authority and Organizational Structure
Pursuant to Article 74 of the Law on Enterprises 2020:
“Article 74. Single-Member Limited Liability Company
- A single-member limited liability company is an enterprise owned by an organization or an individual (hereinafter referred to as the company owner). The company owner is liable for the company’s debts and other property obligations within the scope of the company's charter capital.”
Pursuant to Article 76 of the Law on Enterprises 2020:
“Article 76. Rights of the Company Owner
- The company owner, if it is an organization, has the following rights:
a) To decide on the contents of the company's charter and amend or supplement the charter;
b) To decide on the company's development strategy and annual business plan;
c) To decide on the organizational structure of the company’s management, appoint, dismiss, and remove the company's managers and Controllers;
d) To decide on investment and development projects;
đ) To decide on market development, marketing, and technological solutions;
e) To approve loan agreements, lending agreements, asset sales, and other contracts as prescribed by the company's charter, with a value of 50% or more of the total value of the company's assets recorded in the latest financial statement, or a smaller ratio or value specified in the company's charter;
g) To approve the company's financial statements;
h) To decide on increasing the company's charter capital; transferring part or all of the company's charter capital to other organizations or individuals; and to decide on bond issuance;
i) To decide on the establishment of subsidiaries or contribution of capital to other companies;
k) To organize the supervision and evaluation of the company’s business operations;
l) To decide on the use of profits after the company has fulfilled its tax obligations and other financial obligations;
m) To decide on the reorganization, dissolution, and bankruptcy petition of the company;
n) To recover the full value of the company’s assets after the company completes its dissolution or bankruptcy;
o) Other rights as prescribed by this Law and the company’s charter.”
Pursuant to Article 79 of the Law on Enterprises 2020, a single-member limited liability company owned by an organization shall be managed and operated under one of the following two models:
- Company President, Director, or General Director;
- Members’ Council, Director, or General Director.
On the Ability to Raise Capital
According to Article 87 of the Law on Enterprises 2020, a single-member limited liability company is not allowed to issue shares. Capital increases can only be achieved through the following means:
- The owner contributes additional capital;
- The owner mobilizes additional capital from other individuals/organizations and converts the company into a multi-member limited liability company.
On Legal Liability
Pursuant to Article 75 of the Law on Enterprises 2020, the owner is only liable for the company's debts and other property obligations within the scope of the charter capital contributed. However, if the owner fails to contribute the full charter capital as committed, they will be liable in proportion to the amount of capital committed but not contributed.
- Joint-stock company
On the Rights of Shareholders and Organizational Structure
Pursuant to Article 115 of the Law on Enterprises 2020:
“1. Ordinary shareholders have the following rights:
a) To attend and speak at the General Meeting of Shareholders, and to exercise their voting rights directly, through an authorized representative, or via other methods prescribed by the company's charter or law. Each ordinary share carries one vote;
b) To receive dividends at the rate determined by the General Meeting of Shareholders;
c) To be given priority to purchase newly issued shares proportional to their ownership percentage of ordinary shares in the company;
d) To freely transfer their shares to others, except as stipulated in Clause 3, Article 120, Clause 1, Article 127 of this Law, or other relevant legal provisions;
đ) To review, examine, and extract information on names and contact addresses from the list of voting shareholders; to request corrections of inaccurate information;
e) To review, examine, extract, or copy the company charter, minutes of General Meeting of Shareholders, and resolutions of the General Meeting of Shareholders;
g) Upon the company's dissolution or bankruptcy, to receive a portion of the remaining assets proportional to their share ownership in the company.
2. Shareholders or groups of shareholders holding 5% or more of total ordinary shares, or a lower percentage as prescribed by the company charter, have the following rights:
a) To review, examine, and extract the minutes and resolutions or decisions of the Board of Directors, interim and annual financial statements, reports from the Supervisory Board, contracts, transactions requiring Board approval, and other
documents except those related to trade secrets or business secrets of the company;
b) To request the convening of a General Meeting of Shareholders under the circumstances specified in Clause 3 of this Article;
c) To request the Supervisory Board to examine specific issues related to the company's management or operations when deemed necessary. Such requests must be in writing and include: full name, contact address, nationality, and identification number of the shareholder (if an individual); the name, enterprise code or legal document number, and headquarters address of the shareholder (if an organization); the number of shares and date of registration for each shareholder, total shares held by the group, and the ownership percentage in the company's total shares; the issues to be examined and the purpose of the examination;
d) Other rights as prescribed by this Law and the company's charter.
Shareholders or groups of shareholders specified in Clause 2 may request the convening of a General Meeting of Shareholders in the following cases:
a) The Board of Directors seriously violates the rights of shareholders, obligations of managers, or makes decisions beyond its authority;
b) Other cases prescribed by the company's charter.
Requests for convening a General Meeting of Shareholders under Clause 3 must be in writing and include: full name, contact address, nationality, and identification number of the shareholder (if an individual); the name, enterprise code or legal document number, and headquarters address of the shareholder (if an organization); the number of shares and date of registration for each shareholder, total shares held by the group, and the ownership percentage in the company's total shares; the grounds and reasons for the request. Accompanying the request must be documents and evidence of the Board's violations or decisions exceeding its authority.
Shareholders or groups of shareholders holding 10% or more of total ordinary shares, or a lower percentage as prescribed by the company's charter, have the right to nominate candidates for the Board of Directors and Supervisory Board. If the company charter does not provide otherwise, the nomination shall proceed as follows:
a) Ordinary shareholders form groups to nominate candidates for the Board of Directors and Supervisory Board and must notify other shareholders before the opening of the General Meeting of Shareholders;
b) Based on the number of members of the Board of Directors and Supervisory Board, shareholders or groups of shareholders as specified in this clause may nominate one or more candidates as determined by the General Meeting of Shareholders. If the number of candidates nominated is less than the number allowed, the remaining candidates shall be nominated by the Board of Directors, Supervisory Board, or other shareholders.
Other rights as prescribed by this Law and the company charter.”
Pursuant to Article 137 of the Law on Enterprises 2020, the organizational structure of a joint-stock company includes:
- The General Meeting of Shareholders (the highest decision-making body);
- The Board of Directors (managing the company, elected by the General Meeting of Shareholders);
- The Supervisory Board (mandatory for companies with more than 11 shareholders or when an organization owns over 50% of the charter capital).
On the Ability to Raise Capital
Pursuant to Article 120 of the Law on Enterprises 2020, joint-stock companies are entitled to issue various types of shares, including:
- Ordinary shares;
- Preferred shares.
The issuance of shares enables the company to flexibly raise capital from various investors. Article 123 also provides detailed regulations on private placement of shares, facilitating capital mobilization from strategic investors or specific partners.
On Legal Liability
Pursuant to Clause 1, Article 111 of the Law on Enterprises 2020, shareholders of a joint-stock company are only liable for the company’s debts and other property obligations within the scope of the capital they have contributed. This means:
- Shareholders are not personally liable for the company’s debts beyond their invested capital;
- Personal assets of shareholders are protected from the company’s financial obligations.
If you require a compact business model with centralized authority and do not need extensive capital mobilization, a single-member limited liability company is a suitable option. However, if you aim for long-term growth, scalability, and the ability to attract investments, a joint-stock company would be the optimal choice.
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