Business Type Conversion: A Comprehensive Guide in Vietnam

Businesses evolve, and so do their needs. In Vietnam, adapting to changing circumstances often involves business type conversion. This process allows companies to restructure their legal form, ownership, and internal organization to better suit their current size, goals, and development trajectory. However, navigating the complexities of business type conversion requires careful consideration and adherence to legal frameworks. Reading this article from NT International Law Firm will help you make more informed decisions.

Business Type Conversion: A Comprehensive Guide in Vietnam

Concept and Characteristics:

Business type conversion, as defined in the 2020 Enterprise Law, refers to the official change of a company’s legal structure and key elements, such as member relationships, responsibilities, and internal management organization. This can involve alterations to ownership, such as transitioning from a private enterprise to a single-member limited liability company (LLC) or vice versa.

Several key characteristics define business type conversion:

• Decision-making: The authority to convert rests with the owner or the highest decision-making body within the business.
• Motivations: Conversion often stems from a desire to adapt to new conditions, pursue strategic objectives, or avoid potential dissolution.
• Outcomes: The process results in a new business registration certificate issued by the competent authority, and potentially changes in ownership if new members or shareholders are introduced.

Forms of Conversion:

The 2020 Enterprise Law outlines various forms of conversion, each with specific conditions:

1. Limited Liability Company (LLC) to Joint Stock Company (JSC):

• Without mobilizing capital or selling shares: This requires the existing members to contribute their capital to the JSC.
• With capital mobilization: New organizations or individuals can invest and become shareholders in the JSC.
• Partial capital sale: Existing members can retain some ownership while selling part of their shares to new investors.
• Combined methods: Any combination of the above options is permissible.

2. JSC to Single-Member LLC:

• Single shareholder acquisition: All outstanding shares are transferred to one shareholder.
• Non-shareholder acquisition: All shares are acquired by an organization or individual who was not previously a shareholder.
• Remaining shareholder: The company is left with only one surviving shareholder.

3. JSC to LLC with Two or More Members:

• Without mobilizing capital or transferring shares: The existing shareholders simply convert their shares into LLC memberships.
• With capital mobilization: New organizations or individuals can contribute capital and become members of the LLC.
• Partial share transfer: Existing shareholders can retain some ownership while selling part of their shares to new members.
• Two remaining shareholders: The company is left with only two surviving shareholders.
• Combined methods: Any combination of the above options is permissible.

4. Private Enterprise Conversion:

Private enterprises can convert into LLCs, JSCs, or partnerships under specific conditions:

• The company must comply with all conditions for establishing the desired new business type.
• The private enterprise owner guarantees personal responsibility for all outstanding debts and commits to full payment.
• Existing contracts must be transferred to the converted company with the agreement of all parties involved.
• Existing employees must be retained by the converted company or their transfer must be agreed upon with all parties involved.

Legal Basis and Procedures:

The legal framework for business type conversion is primarily governed by the 2020 Enterprise Law, with specific procedures outlined in decrees and circulars issued by the Ministry of Planning and Investment. The process typically involves:

• Preparation: Drafting necessary documents, including conversion plans, shareholder resolutions, and financial statements.
• Application: Submitting the complete application package to the relevant authorities.
• Review and approval: The competent authority reviews the application and issues a new business registration certificate if approved.
• Post-conversion formalities: Completing any necessary registration and notification procedures with tax authorities, banks, and other relevant entities.

Seeking Professional Guidance for Business Type Conversion:

Navigating the complexities of business type conversion can be challenging. Consulting with experienced legal and financial professionals can help ensure a smooth and compliant process, minimizing risks and maximizing the benefits of restructuring your business.

Conclusion:

Business type conversion is a strategic tool for Vietnamese companies to adapt, grow, and optimize their operations. By understanding the different forms, legal requirements, and procedures involved, businesses can leverage this process to achieve their desired objectives and secure a sustainable future.

NT International Law Firm is Here to Help

NT International Law Firm has addressed the question of how you can change the business type of your company. 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 2015 Civil Code in English
• The 2020 Law On Enterprises in English