Updated at 19/07/2022 - 04:35 pm
Which type of business should you choose to establish is a question that Entrepreneurs want to find a satisfactory answer to. Each type has its respective advantages and disadvantages, in order to choose correctly, it is necessary to understand the advantages and disadvantages of different types of businesses.
The economic market is expanding, the business opportunities and needs of the people are increasing. Therefore, the law is also gradually loosening and creating more favorable conditions for businesses. To be able to operate stably and long-term, businesses must choose a suitable model. So what type of business should be established?
Type of enterprise is a form that individuals and organizations that want to do business choose to build their own operating structure and development scale in accordance with the law. Currently, the Enterprise Law 2020 has 05 basic types of enterprises as follows:
– Private enterprise;
- One member limited liability company;
– Limited liability company with two or more members;
- Joint stock company.
Each type of business will have its own regulations and also have its own advantages and disadvantages. The business entity choosing which type of business will have to comply with certain binding requirements for that type of business.
To answer the question: "What type of business should be established?" analyze the unique characteristics of each type of business.
a) Private enterprise #
A sole proprietorship is an enterprise owned by an individual who is solely responsible for all his/her assets for all activities of the business.
Advantages of Sole Proprietorship:
+ The owner of a private enterprise has the full right to decide on all business activities of the private enterprise, the use of profits after paying taxes and performing other financial obligations as prescribed by law;
+ The owner of a private enterprise has the right to lease out his entire private enterprise;
+ Owners of private enterprises have the right to sell their private enterprises to other individuals or organizations;
Disadvantages of Sole Proprietorship:
+ Private enterprises without legal status;
+ The owner of a sole proprietorship has unlimited liability (not only the assets of the business but also all the assets of the business owner) for the financial obligations of the business;
+ Private enterprises are not allowed to issue securities of any kind;
+ Each individual is only entitled to establish a private enterprise;
+ The owner of a private enterprise must not concurrently be the owner of a business household or a general partner of a partnership;
+ A private enterprise is not entitled to contribute capital to the establishment or purchase shares or contributed capital in a partnership, limited liability company or joint-stock company.
b) Partnership company #
A partnership is an enterprise with at least 02 members who are common owners of the company, doing business together under a common name. In addition to general partners, the company may have additional capital contributors.
Advantages of a Partnership:
+ Partnership company with legal person status;
+ General partners have the right to use the company's assets to conduct business in the company's lines of business;
+ Capital contributors are only liable for the debts of the company within the amount of capital they have committed to contribute to the company;
+ The assets of the partnership are separate from the personal assets of the members of the company.
Disadvantages of Partnership:
+ General partners must be individuals, responsible with all their assets for the obligations of the company;
+ The partnership is not allowed to issue any type of securities;
+ General partners are not allowed to own private enterprises; not be a general partner of another partnership unless otherwise agreed by the remaining general partners;
+ A general partner may not conduct business in the name of an individual or in the name of another person in the same line of business of the company for personal gain or for the benefit of other organizations or individuals;
+ A general partner may not transfer part or all of his/her capital contribution in the company to another organization or individual without the consent of the remaining general partners.
c) One member limited company #
Single-member limited liability company is an enterprise owned by an organization or individual (hereinafter referred to as the company owner).
Advantages of one member limited liability company:
+ The company owner is only responsible for the company's debts and other property obligations to the extent of the company's charter capital;
+ One-member limited liability company with legal person status;
+ To issue bonds in accordance with the Law on Enterprises and other relevant laws;
+ There may be one or more legal representatives;
The owner has full decision-making power over all business activities of the enterprise.
Disadvantages of One Member Limited Liability Company:
+ Not to issue shares except for conversion into a joint stock company;
+ When the company wants to raise capital from other people through capital contribution to the company, the company must convert to another type of enterprise.
d) Limited liability company with two or more members #
A limited liability company with two or more members is an enterprise with between 02 and 50 members who are organizations and individuals.
Advantages of a limited liability company with two or more members:
+ A member is only liable for debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise;
+ A limited liability company with two or more members has legal status;
+ To issue bonds in accordance with the Law on Enterprises and other relevant laws;
+ The number of members is from 02 to 50 members being organizations and individuals;
+ There may be one or more legal representatives
Disadvantages of LLC with two or more members:
+ Not to withdraw the contributed capital from the company in any form, except for the case specified in Articles 51, 52, 53 and 68 of the Law on Enterprises;
+ Not to issue shares, except for conversion into a joint stock company;
+ Company members are not allowed to conduct business activities of the company on their own behalf;
+ The number of members is limited to more than 02 members and not more than 50 members.
e) Joint stock company #
A joint stock company is an enterprise whose charter capital is divided into equal parts called shares. Shareholders can be organizations or individuals; The minimum number of shareholders is 03 and there is no limit to the maximum number.
Advantages of Joint Stock Company:
+ Shareholders are only responsible for debts and other property obligations of the enterprise to the extent of the amount of capital contributed to the enterprise;
+ Shareholders have the right to freely transfer their shares to others, except for the cases specified in Clause 3, Article 120 and Clause 1, Article 127 of the Law on Enterprises;
+ Joint stock company with legal person status;
+ Have the right to issue shares, bonds and other securities of the company;
+ The number of shareholders is not limited to the maximum number;
+ Flexible structure, wide scale, easy to mobilize large capital;
Disadvantages of Joint Stock Company:
+ The number of shareholders must be at least 03 shareholders or more;
+ Shareholders are not allowed to withdraw the capital contributed by ordinary shares from the company in any form, except in the case that shares are bought back by the company or another person;
+ Within 03 years from the date the company is granted the Certificate of Business Registration, the common shares of founding shareholders are freely transferable to other founding shareholders and can only be transferred to persons who are not be a founding shareholder if approved by the General Meeting of Shareholders;
+ Company shareholders are not allowed to conduct business activities on behalf of the company;
+ The company's organizational structure and model is relatively wide, so the operation and management is complicated.
Thus, it can be seen that each type of business will have its own advantages and disadvantages. Depending on the purpose, ability and vision of each person, choose the right type of business for business and development.
Legal basis of the article: Enterprise law and practical experience on management and operation of various types of enterprises.
Enterprise Law 2020 #
Updated at 26/07/2022 – 04:35 pm Place of issue: National Assembly Effective date: 01/01/2021 Issued date