In Vietnam A Limited Liability Company is a business entity with one to 50 members. Unlike a Joint-Stock Company, a Limited Liability company doesn’t issue shares. However, it allows members to have different capital contributions that results in membership units, giving members de facto similar rights and responsibilities to shareholders.
A Limited Liability Company is established through the contribution of capital from founders. The liability of the founders is restricted to the amount of capital recorded within the company’s charter.
A Limited Liability Company must obtain a licence for the areas of activity it conducts its business in. The licences can be obtained both prior and after the registration of the company. All capital contribution within the LLC must be made within 90 days after receiving the business registration certificate.
Depending on the industry, a LLC can be a wholly foreign owned enterprise (WFOE) or a partially foreign owned venture. Every LLC in Vietnam must have one legal representative residing in the country.
Forms of Limited Liability Companies in Vietnam
There are two forms of Limited Liability Companies in Vietnam, single-member or multi-member. A single-member LLC can be owned by an organization or an individual. A multi-member LLC is made up of no more than 50 members. or organizations.
Single-member limited liability company
- Corporate structure consisting of only one member
- The owner of a single-member LLC has the ultimate authority on all business operations
- Owner is only liable within the enterprise’s charter capital
- All members are responsible for debts and other liabilities of the company to the extent of the capital contributed
- Purchase and transfer of capital between members are strictly regulated by law
- Managers can easily control the capital contributed by members
- Outsiders entering the company is limited
Corporate structure of a limited liability company
Limited Liability Company corporate structure is made up of a Member’s Council, a General Director and an Inspection Committee (for enterprises with more than 11 founders). In a multi-member LLC, each member is part of and participates in the Member’s Council, or appoint representatives to manage their investment (if they are organizations).
The member’s council is the highest decision-making body and is formed by the founders, in case of corporate founders of the authorised representatives. The Members’ Council elects a Chairman to lead and organise the work of the council. The Chairman of the Members’ Council must be a member or authorised representative of a corporate member. Unlike the General Director, the Chairman of the Members’ Council does not have to reside in Vietnam.
Director / General director
The Director is responsible for managing the day to day activities of the company. This role can be allocated to a member. This position can also be outsourced.
If the director is a foreign citizen, he or she requires a work permit for which he or she needs to have at least 3 years’ experience in a managing role. In Vietnam a director must earn revenue.
The Inspection Committee is the main supervisory board of the management structure. For enterprises with less than 11 members, there is no need to allocate an Inspection Committee.
Within a Limited Liability Company, all owners have to contribute capital in full and on time. In a multi-member Limited Liability Company, the members are required to contribute capital in the form of assets with any changes subject to the consent of other members.
Adding new members
In the event of adding new members to an already established Limited Liability Company, the existing founders must redefine the agreement of distribution of units (or ownership percentage) as LLCs are not able to exchange or issue shares.
There are several options to add new members to an existing Limited Liability Company. The first option is to issue new units which will increase the total capital of the company; which will then require a re-definement of structural and/or procedural rules. The second option is for the existing owners to each transfer a portion of their units to the new member
.Another option is for one member to sell their unit or part of it to a non-member. However, this option is limited as the other members have a preemption right to the unit to be sold. Assignment of units or part of it by way of gifts is also possible.
If the recipient of the gift is a family member, such as spouse, parent, child or relative up to the third level of heirs, the recipient will automatically become the member of the company. In other cases the Members’ Council must approve the gift.
The addition of a new member is entirely dependent on the existing operating agreement and decisions of the Member’s Council. In a single-member LLC, if the individual member wants to transfer part of the charter capital, they must first change to a multi-member company.
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