What are limited liability companies (LLC) in 2023? Its Advantages and Disadvantages

Limited liability companies, abbreviated as LLCs, have gained significant popularity as a business structure in recent times. In order to understand the characteristics of a limited liability company, it is essential to explore the conditions and procedures involved in its establishment. For a comprehensive understanding of these aspects, refer to the informative article provided by NT International Law Firm.

What is a limited liability company?

Limited liability companies (LLCs) are a popular business structure in Vietnam, offering flexibility and protection to their members. Understanding their definition, types, characteristics, and legal basis is crucial for anyone considering forming or participating in one.

Definition:

As defined by the Enterprise Law 2020 (Article 46), a limited liability company (công ty trách nhiệm hữu hạn) is a type of enterprise with legal status and recognized by Vietnamese law. It is a distinct legal entity from its owner, who can be either an individual or an organization. Both the company and the owner possess separate rights and obligations.

What is a limited liability company?

The types of limited liability companies

LLCs in Vietnam fall into two categories:

1. Single-member LLC:

• Owned by a single individual or organization.
• The owner bears all responsibility for the company’s debts and obligations up to the limit of the charter capital.
• Has a simple structure with the owner holding absolute power over company operations.

2. LLC with two or more members:

• Limited to a maximum of 50 members.
• Members are only responsible for debts and obligations within the amount of capital they contributed.
• Requires a more structured organization with a board of members, chairman, director/general director, and (if exceeding 11 members) a control board.

What are the characteristics of LLCs?

• Legal entity: Possesses independent assets and is responsible for its debts within the asset scope.
• Independent legal status: Starts with the issuance of a business registration certificate.
• Limited membership: Can include organizations and individuals, but not exceeding 50 members.
• Limited liability: Members are responsible only for the capital they contribute.
• No share issuance: Cannot raise capital from the public through share offerings.

The advantages and disadvantages of LLCs

LLCs offer numerous benefits and drawbacks for individuals and organizations considering this business structure. Understanding these aspects is crucial for informed decision-making.

Advantages

• Limited liability: Members’ personal assets are protected from business debts and obligations up to their contributed capital (Article 46, Enterprise Law 2020).
• Secured capital: LLCs with two or more members have stricter regulations on capital transfer, safeguarding invested capital.
• Bond issuance: LLCs with two or more members can issue bonds, facilitating capital mobilization.
• Sole proprietorship power: Single-member LLC owners have complete control over company operations and decisions, including personnel, business direction, and profit distribution (within legal boundaries).

Disadvantages

• Membership limitations: LLCs with at least two members are restricted to a maximum of 50 members.
• Limited capital raising: Single-member LLCs face challenges in raising capital due to the inability to issue bonds.
• Reduced trust: Limited liability may affect trust from customers and strategic partners seeking stronger financial guarantees.
• Increased legal sensitivity: The Enterprise Law 2020 adjustments have greater impact on LLCs compared to other business structures.

Considerations when establishing a LLC

1. Company Name:

• Must follow the formula: “Company + limited liability + personal name.”
• Unique, easy-to-pronounce, and distinct from other companies.
• May reflect the company’s products or services for branding purposes.

2. Charter Capital:

• Represents the capital the company commits to contribute within 90 days of business registration.
• Some industries have minimum legal capital requirements, while most have no restrictions.

3. Business Lines:

• Freedom to choose business sectors and fields, except for prohibited or conditional activities.
• Compliance with registration and coding requirements is crucial.

Establishment Procedure for Limited Liability Companies (LLCs) in Vietnam: A Step-by-Step Guide

Establishing a Limited Liability Company (LLC) in Vietnam involves several crucial steps, requiring careful attention to detail and adherence to legal regulations. This detailed guide outlines the process, highlighting key documents, submission methods, processing times, and associated fees.

1. Pre-establishment Preparation:

• Gather information: Research legal requirements, business regulations, and industry-specific guidelines.
• Choose a company name: Ensure it is unique, easy-to-pronounce, and complies with legal requirements.
• Determine business lines: Select appropriate sectors and fields, considering any restrictions or conditions.
• Define capital contribution: Decide on the initial capital and individual contributions of each member.

2. Document Preparation:

• Complete the application form: Use the designated form provided by the Department of Planning and Investment (DPI).
• Draft the company charter: Outline the company’s structure, objectives, operations, and governance policies.
• Prepare a list of members: Include all members with their personal details and capital contributions.
• Collect legal documents: Provide valid copies of individual or legal representative identification documents.
• Obtain additional documents: Depending on the situation, procure investment registration certificates for foreign investors or legal documents of overseas organizations.

3. Submission Process:

• Choose a submission method: Options include online submission through the National Information Portal on business registration or direct submission to the DPI’s Business Registration Office.
• Online submission: Requires a public digital signature or business registration account. Visit https://dangkylanhdoanh.gov.vn for the online portal.
• Direct submission: Submit the complete documentation package to the DPI’s office located in the business’s headquarters jurisdiction.

4. Processing and Approval:

• Review and verification: The DPI will review the submitted documents for accuracy, completeness, and compliance with legal requirements.
• Decision timeframe: The processing time for document review and approval is three working days from the date of receiving all valid documents.
• Issuance of business registration certificate: Upon successful approval, the DPI issues a business registration certificate, marking the official establishment of the LLC.

5. Fees and Expenses:

• Application fee: A fee of 50,000 VND is applicable for applications submitted directly to the DPI’s Business Registration Office.
• Online submission: There are no fees associated with online application submissions.
• Additional costs: Consider potential expenses for legal advice, document translation, and business registration service providers.

6. Post-registration Procedures:

• Open a bank account: Establish a corporate bank account for business transactions.
• Obtain seals and stamps: Acquire official company seals and stamps for document authentication.
• Tax registration: Register with the tax authorities and acquire a tax code.
• Social insurance and healthcare registration: Register employees for social insurance and healthcare benefits.
• Ongoing compliance: Maintain compliance with legal regulations and reporting requirements.

Remember: This guide provides a general overview. It is recommended to seek professional legal guidance for specific advice tailored to your individual circumstances.

NT International Law Firm has addressed the question of what are limited liability companies, its advantages and disadvantages. If you have any further questions or concerns regarding corporate law, please contact our law firm immediately for expert legal advice.

If you require any legal assistance, please feel free to reach out to us via phone at 090 252 4567 or through email: info@ntpartnerlawfirm.com. At NT INTERNATIONAL LAW FIRM, our team is committed to offering you prompt and personalized advice.

You also might be interested in:

• The 2020 Law on Enterprises in English
• The 2005 Law on Commercial in English
• Decree 145/2020/ND-CP: Provides detailed regulations and instructions for implementing the 2020 Law on Enterprises, including specific provisions for LLCs.