There are many options of business entities for foreign investors when they decide to tap into Vietnam markets, key of which a limited liability company in Vietnam is widely-chosen.
In this article, we cast light upon key features and requirements of a limited liability company in Vietnam that foreign investors should know!
1. An overview of a Limited Liability Company in Vietnam
A limited liability company in Vietnam is one of four types of business entity under which local and foreign investors are allowed to carry out business in Vietnam pursuant to Vietnam’s Law on Enterprise.
A limited liability company (LLC) is a legal entity which is formed by the capital contributions of each member to the company. The number of members in an LLC in Vietnam cannot exceed 50 members. Remarkably, the liability of an LLC’s member for financial obligations of the company would depend on this person’s capital contribution, but not his/her personal assets.
Depending on certain business sector, the foreign investor can choose either one of the following business forms of an LLC in Vietnam:
- An LLC as a 100% foreign-owned enterprise in which all members must be foreigners; or
- An LLC as a partially foreign-owned enterprise (aka a joint venture enterprise) in which members must include foreign investors and at least one Vietnamese member.
There are two types of a limited liability company under Law on Enterprise in Vietnam: one-member LLC and multi-member LLC. In what follows, we will delve into key feature of each type!
2. Key features of a Limited Liability Company in Vietnam
A limited liability company in Vietnam is formed based on the capital contributions of its members. Capital contribution refers to the total assets contributed to constituting the charter capital of the company.
Therefore, a limited liability company’s members are only responsible for the liability and financial obligations of the company corresponding to the amount of capital they contributed to the company’s charter.
Similarly, in case of a one-member or single-member limited liability company, this structure has only one member who is also the company owner. For this reason, this person must be liable for all relevant debts and obligations of the company to the extent of his/her capital contribution to the company.
Right to issue shares and bonds
Unlike a joint-stock company in Vietnam, a limited liability company, regardless of a one-member LLC or an LLC with two or more members, is NOT allowed to issue shares.
Under Law on Enterprise 2014, there is also no provision to allow the right for bonds issuance of a Vietnam limited liability company. However, in accordance with Article 46 and 74 under the amended Law on Enterprise 2020, which will come into force from 2021, an LLC in Vietnam can issue bonds providing that it abides by Vietnam laws.
A limited liability company in Vietnam with two or more members is typically structured by following components:
- Member’s council: This is the body with the highest position for making decisions of the company. It is mandatory that the Member’s council must hold at least one meeting per year.
- The chairperson of the Member’s council: An LLC has the duty to select a member to become the council’s chairperson who can be the director or general direct of the company. Note that the applicable tenure of the chairperson is within a period of 5 years.
- Director/Director General: Main responsibilities of director/director general is to manage daily business operations of the limited liability company, as well as hold the liability for his/her exercise of rights to the Members’ Council.
- Supervisory Board: If your multi-member LLC in Vietnam is a state enterprise or a subsidiary of a state enterprise in Vietnam, then you must establish a Supervisory Board as stipulated by Article 54, Law on Enterprise 2020. Other circumstances on whether this Board should be formed or not is at the discretion of the LLC itself.
As for a one-member limited liability company, the corporate structure can be one of two following models (roles and duties of each component are similar to the above-mentioned features of multi-member LLCs):
- Company president and Director/Director General (applied for the one-member LLC of both individual owners and organizational owners);
- Member’s council and Director/Director General (only available for the one-member LLC of organizational owners).
3. Requirements for setting up a Limited Liability Company in Vietnam
To set up a limited liability company in Vietnam, you need to take into account the following requirements:
Naming requirement for a Vietnam LLC
Choosing an appropriate name for your intended LLC is of vital importance. Some of key criteria for an eligible LLC name include:
- The name in Vietnamese of an LLC must have two parts: type of company which must be written as “công ty trách nhiệm hữu hạn” (or its abbreviation as “công ty TNHH”), and a proper name using the Vietnamese alphabet, the letter F, J, Z, W, numbers, and symbols;
- The name of an LLC must not be identical or similar to other already existing names, overlap with the name of a state agency or other social organizations without consent for use from such units, or contain symbols or words marking a contrast to Vietnam culture and customs.
- An LLC’s foreign name should comply with the provision prescribed in Article 39, Law on Enterprise 2020.
Documents required for registering a Vietnam LLC
Obtaining an Enterprise Registration Certificate is the key step to start a limited liability company in Vietnam. Below are documents that you should prepare before the application:
- The application for LLC registration;
- The company charter;
- List of LLC members;
- Copies of identification documents like passports, ID card (for individual members);
- Copies of establishment decision, business registration certificate, or other equivalent documents (for organizational members); identification documents of the authorized representatives;
- Copies of registration documents of the organizations which have been legalized by the consular (for foreign organizations);
- Investment Registration Certificate (for foreign investors);
Capital contribution and Business license application
Note that a limited liability company incorporated in Vietnam can be subject to the submission of a business license to legally operate in Vietnam. Depending on your business sector of choice, you may be required to apply for a license to the relevant authority. It should be noted that regardless of conditional or unconditional business lines, the business license, if required, can only be obtained after the IRC and ERC applications have been successfully issued.
Furthermore, an LLC in Vietnam must make its capital contribution as stated in the company registration process within 90 days after the receipt of its Enterprise Registration Certificate.
4. Other considerations in setting up Vietnam LLCs
Tax matters. Like other types of business entities, a limited liability company in Vietnam is subject to basic forms of tax, including corporate income tax, business license tax, and many others.
To give an example, an LLC shall be taxed a standard CIT rate of 20%. Note that companies engaging certain industries like oil or gas exploitation may be levied higher CIT rates under Vietnam laws. Good news is that the Vietnam government does offer tax incentives for investment projects of LLCs if specific conditions are met.
There is no withholding tax levied on profits that foreign corporate shareholders received.
>>Further information about types of taxes in Vietnam can be found here.
Length of the registration process. The whole process for registering an LLC in Vietnam can be not less than one month. In particular, it takes a foreign investor around 15 days to obtain the Investment Registration Certificate, and 3 working days for the Enterprise Registration Certificate application.
If your intended LLC is going to engage certain “conditional” business sectors as regulated by Vietnam laws, then you may need to wait longer to complete further licensing procedures before getting approval.
A limited liability company can be established under the form of either a wholly foreign-owned company or a partially foreign-owned company in Vietnam. This is one of the most popular business structures for foreign investors in desire of business expansion to the Vietnam market.
We hope you find useful information about what a limited liability company in Vietnam is, and what you need to prepare to set up this type of company. If you have more questions about Vietnam LLCs and need to consult a professional expert, feel free to drop us a message!