SOME NOTABLE POINTS FOR SETTING A PRIVATE BUSINESS

A private enterprise is one of the types of businesses often chosen to establish because of its simple, compact and easy-to-manage. However, there are some notes when customers choose to establish a private enterprise such as legal status or liability regime of the business because of certain differences compared to other types of businesses. To help customers understand more about the legal issues surrounding this type of business, ADK & Co will provide some legal infomation related to above content.

1. What is a private enterprise?

According to the provisions of Article 188 of Law on Enterprises 2020, a private enterprise is an enterprise owned by one individual who shall be liable for all activities of the enterprise to the extent of all his or her assets.

2. Legal characteristics of private enterprises

• Private enterprises do not have legal entity status.

• Private enterprises are not permitted to contribute capital to establish, or purchase shares or of capital contribution portions in partnerships, limited liability companies or shareholding companies.

• Private enterprises may not issue any type of securities.

About private enterprise owners

Private enterprise owners need to meet the following requirements:

• Owner of a private enterprise is an individual. Individuals who establish a private enterprise are not incudes one of the cases prohibited from establishing and managing an enterprise in Vietnam according to Article 17.2 of Law on Enterprises 2020;

• Each individual may only establish one private enterprise. The owner of a private enterprise must not concurrently act as the head of a business household or an unlimited liability member of a partnership.

Rights and obligations of owners towards private enterprises

The owner of a private enterprise shall have total discretion in making all business decisions of the private enterprise; and in deciding on the use of profit after payment of taxes and performance of other financial obligations as stipulated by law.

The owner of a private enterprise may directly act as or employ another person to act as the director or general director to manage and administer the business operations; in this case, the private enterprise owner shall remain liable for all business activities of the private enterprise.

The owner of a private enterprise shall be the legal representative and shall represent the private enterprise in the capacity of the person lodging the petition for resolution of a civil matter, the plaintiff, the defendant, or the person having related interests and obligations in arbitration or court proceedings, and represent the private enterprise to perform other rights and obligations in accordance with the law.

Invested capital of private enterprise owners

The invested capital of the owner of a private enterprise shall be registered by himself or herself. The law does not stipulate the maximum or minimum amount of capital when establishing an enterprise (except for the case where the enterprise conducts business in industries requiring legal capital)

The owner of a private enterprise is obliged to register accurately the total invested capital, specifying the amount of capital denominated in Vietnamese Dong, in freely convertible foreign currency, in gold or in other assets; in respect of capital denominated in other assets, the types of asset, quantity and residual value of each type of assets must be specified.

In the course of operation, the owner of a private enterprise may increase or reduce the capital invested in the business operations of the enterprise. The increase or reduction of the invested capital of the private enterprise owner must be recorded fully in the books of account. The owner of a private enterprise may only reduce the invested capital below the amount of invested capital registered after registration with the Business Registration Office.

Legal liability of private enterprise owners

Private enterprises owners shall be liable for all activities of the enterprise to the extent of all his or her assets. This liability includes both assets that the business owner invests in the business and even those assets not put into the business. In case there are debts in the course of business, the business owner is responsible for paying the debts with the assets of the business and his/her personal property. Therefore, customers should pay attention to this issue when intending to set up a private business to avoid risks, especially when customers are starting a business for the first time or do not have much business experience.

This is also a difference compared to limited liability companies and joint-stock companies (members and shareholders are only responsible for the amount of capital contributed to the enterprise).

ADK & Co Vietnam Lawyers Law Firm