Vietnam Type of Companies
One member Limited Company
One member Limited Liability Company is usually chosen by small-to-medium-sized foreign investors. The advantage and disadvantages are summarized as below.
- The liability obligation of the owner for the company’s debts is limited to the amount of his/her respective capital contribution.
- The owner of the company has all power for the entire company activities
- The capital transfer regime is tightly regulated so the investor can easily control the change of owner to limit the penetration of strangers into the company.
- Capital can be transferred freely.
- One member Limited Liability Company does not allow for share issuance.
Joint Stock Company
Each type of company has the following natures:
- Possess legal person status.
- The liability obligation of each shareholder limited to capital contribution.
A Joint Stock Company is usually chosen by the foreign investors with medium size to large scale.
The advantages and disadvantages are summarized below.
- Joint-Stock Company normally can raise capital easily by issuing shares to the public, which is a unique feature of a joint-stock company.
- The liability of the shareholders for the company’s debts is limited to the amount of their respective shareholding.
- The management and operations of a joint-stock company are complicated because the number of shareholders can be very large, there are many people who do not know each other. So the Board of Management and Board of Directors of a joint-stock company need to ensure the benefits of the company, benefit of shareholders and benefit of employees.
- Business and financial security capabilities are limited because the company must be public and report to shareholders; the listed companies must be widely publicized.
The branch of the company is a dependent unit of the enterprise and is responsible for implementing all or part of the functions of the enterprise, including the function of authorized representative. The business lines of the branch must be suitable for the business lines of the enterprise.
Foreign business entities registered as companies under foreign laws shall first apply for recognition as a foreign company and its establishment of a branch office in Vietnam with the Department of Planning and Investment (DPI).
Advantage of Branch Office
- The branch has the right to sign economic contracts on behalf of the branch, affixing a branch seal.
- Can operate independently in other areas/region of the company.
Disadvantage of Branch Office
- Foreign investors have been operating for at least 5 years from the date of establishment or registration.
- The license for establishing a branch of a foreign trader has a maximum term of 5 years.
- If the enterprise registration certificate of the foreign trader mentions the limitation of the period of operating, the remaining time must be at least 1 year.
- Branches often experience difficulty opening a bank account from some international banks.
- The head of the branch of a foreign trader must not concurrently hold the following positions:
+ The head of the Representative Office of another foreign trader;
+ The head of the Representative Office of the same foreign merchant;
+ The legal representative of an economic organization is established in accordance with the laws of Vietnam.
Representative Office (RO)
A representative office is one of the easiest ways to establish a legal business presence in Vietnam.
It is a form that many foreign companies take during the early development stages of investing in Vietnam. A representative office is basically a legal agent of the foreign company that is permitted to engage in price negotiations, provide quotations, participate in tenders, and sign procurement agreements. However, a representative office is not permitted to engage in income-generating business activities such as signing sales contracts, providing services, or receiving funds from clients.
Advantage of Representative Office
- The most efficient form of entity to set up in Vietnam
- There are neither VAT nor corporate income tax filing, financial statement requirements for representative offices.
- However, RO still needs to make responsible for personal income tax on the salary paid to employees as well as perform the obligations related to insurances regulated by Vietnam’s regulation.
Disadvantage of Representative Office
- Cannot issue invoices to customers or import goods to Vietnam.
- Cannot claim for a VAT refund.