1. Why is it necessary to choose the right type of business?

Establishing a business is one of the first but decisive steps in the process of starting a business. A suitable choice of business type will help investors optimize benefits, minimize legal risks, and support sustainable business development in the long term.

According to the provisions of the Enterprise Law 2020, the current legal system recognizes many types of enterprises with different characteristics, rights and legal obligations. Making the wrong choice from the beginning can lead to serious financial consequences, legal responsibilities, and even affect the ability to raise capital and expand the business.

2. Types of enterprises according to the Enterprise Law 2020

Based on the Enterprise Law 2020, the types of enterprises in Vietnam can be divided as follows:

a) Private enterprise

According to Article 188 of the Enterprise Law, a private enterprise is a type of enterprise owned by an individual who is personally responsible for all activities of the enterprise with all of his/her assets. This type does not have legal status and is not allowed to issue securities. Although simple in terms of procedures and structure, the financial risks are very high due to the lack of separation between personal assets and enterprise assets.

b) Single-member LLC

Stipulated from Article 74 to Article 87, a single-member LLC has legal status, owned by an individual or an organization. The owner is only responsible for debts and other financial obligations within the scope of the contributed charter capital. This model is suitable for individuals with average investment capital, who want to manage the company independently but still limit financial risks.

c) LLC with two or more members

This type is regulated in Articles 46 to 73. LLC with two or more members has the number of members contributing capital from 2 to no more than 50 people. Members are responsible for limited liability according to their capital contribution, have legal status and are not allowed to issue shares. This is a popular model for small and medium-sized enterprises, with from two to several dozen people contributing capital to the foundation.

d) Joint Stock Company

This is the type of enterprise with the best capital mobilization capacity, suitable for companies with the orientation of expansion, calling for investment capital or listing on the stock exchange. Regulated in Articles 111 to 176, a joint stock company requires at least three founding shareholders and does not limit the maximum number of shareholders. Shares can be freely transferred, the company is allowed to issue stocks and bonds, creating favorable conditions for capital mobilization.

d) Sole proprietorship

Although not considered a type of enterprise under the Enterprise Law, sole proprietorship is still a popular choice in practice. Sole proprietorships are often used by individuals or households for small-scale trading activities and limited-scale service provision. This type does not have legal status, the owner is responsible for all business activities.

3. Comparison and analysis:

Choosing the type of enterprise cannot follow a fixed formula, but must be based on specific criteria such as:

Level of legal risk: If you want to minimize personal liability, you should choose the LLC or joint stock company model. On the contrary, if you do not mind taking full responsibility with your personal assets, a private enterprise can be a quick choice.

Number of members contributing capital: If there is only one person, the private enterprise model or a single-member LLC is reasonable. If there are 2 or more people, you can consider a two-member LLC or a joint stock company.

Long-term development goals: A joint stock company is suitable for businesses with an expansion orientation and needs to mobilize capital from the market. Meanwhile, a limited liability company is suitable for medium-sized businesses with simpler management requirements.

Nature of operation: If the business is simple and the income is not large, a household business is an economical and flexible model.

4. Conclusion:

There is no type of business that is absolutely optimal for all subjects. Each model has its own advantages and limitations, and should be selected based on business goals, financial capacity, governance structure and the level of risk that the investor can accept.

To avoid legal troubles or time-consuming conversions later, businesses should consult legal experts from the beginning. A correct decision will be the foundation for the sustainable development of the business in the future.

This article is for reference only, not intended as advice. For more specific advice, please contact: info@barrso.com