As one of the top five fastest-growing economies in the world, setting up a business in Vietnam is certainly appealing to foreign entrepreneurs who are planning to expand to other markets. Aside from its highly-skilled but relatively inexpensive workforce, the government has shown its commitment through regulatory reforms aimed at improving the ease of doing business in Vietnam and helping the country attract FDI.
But before you go ahead and make inquiries on how to secure a business license or how to set up a business in Vietnam, it is important to explore the different types of legal entities and choose which one is right for your business.
The four most common types of legal entities are limited liability companies, joint stock companies, representative offices, and incorporated partnerships, which will be explored in greater details below.
Limited Liability Company
In Vietnam, a limited liability company is an entity registered under the Vietnam Companies Act with one to 50 members (a single-member or a multi-member limited liability company). As a legal entity separate from its shareholders, the personal assets of the owners are protected from company creditors.
Foreign companies and individuals can partially or fully own a limited liability company in Vietnam except for some industries such as advertising, logistics, and tourism where there are restrictions on foreign ownership. For licensing requirements, a foreign-owned company must have one legal representative residing in Vietnam. Shareholders are required to complete their capital contribution within 90 days of receiving the company’s business registration certificate.
As its name suggests, one of the advantages of limited liability companies is that members are responsible for debts and liabilities with only the maximum capital they contribute. Management will have easier control over its business activities due to the simple organizational structure. Outsiders will find it harder to pull off a hostile takeover of a limited liability company as purchases and transfers of ownership or membership units between members are controlled by law.
Of course, this type of business entity has its disadvantages as well. For instance, it’s harder to raise capital when needed as a limited liability company can’t issue shares. Owners of a single-member limited liability company must also be careful when withdrawing capital from the firm as one could end up being liable for the company’s debts if the capital withdrawal is not done properly. Withdrawing his capital from the company must be done by transferring the capital to another individual or corporation.
Joint Stock Company
Setting up a joint stock company is more complicated than a limited liability firm as the former is founded with the subscription of shares in the company. Foreign individuals and companies are allowed to either partially or fully own a joint stock company.
However, there is a required minimum number of shareholders a joint stock company should have and it should not be less than three, but there is no limit when it comes to the maximum number. The charter capital is divided into shares and the number of shares owned by a shareholder corresponds to the amount of their capital contribution.
One advantage of a joint stock company is that shareholder liability is only limited to the capital invested into the company. It is likewise easier to raise capital when necessary through the issuance of additional shares.
With no cap on the number of shareholders, a joint stock company can have, conflicts between groups within the company are bound to arise especially when benefits are involved. Adding to the challenge of managing this type of business is that its structure is more complicated where shareholder meetings and a management board are the norm.
Representative Office
Setting up a business in Vietnam is a lot easier for companies that have been operating abroad for at least five years, with the option of putting up a representative office in Vietnam as stipulated in the Vietnam Law on Commerce. The representative office can be a hundred percent foreign-owned but it is prohibited from engaging in commercial or production-related activities in the country.
The representative office is only allowed to promote its parent firm’s business or conduct market research in the country. The office is required to have a resident representative.
Given the restrictions on the type of activities it can engage in, the representative office will only suit foreign firms that seek to maintain a presence in the country. However, it won’t suit the needs of companies engaged in manufacturing or trade and retail.
Incorporated Partnership
Another option when setting up a business in Vietnam is to form an incorporated partnership. This option is available when there are two or more people who want to start a business together.
However, it must be noted that an incorporated partnership offers no protection to the personal assets of the partners. Thus, the acts of one partner will affect the whole business which could be very problematic in some instances.
Top Reasons Why You Should Choose Vietnam
Vietnam has been attracting tons of foreign investors since it implemented economic reforms in 1986. The Asian financial crisis in 1997 might have temporarily slowed down its economic growth but the country’s economy eventually recovered and even outpaced the global average becoming one of the fastest-growing economies in the world. Here are the top reasons why the country continues to attract foreign investors and why Vietnam should be your first choice when expanding your business overseas.
Economic growth. The recent coronavirus pandemic might have momentarily derailed the economic growth of most countries but Vietnam’s economy proved to be resilient and is now back on track. In fact, a recent study ranked Vietnam as the fourth fastest growing economy worldwide over the 2021-2025 period with a projected average annual growth of 6.7 percent.
Once among the world’s poorest countries, Vietnam was able to transform into a manufacturing hub for labor-intensive products. Experts project that the country is on its way to challenge China’s dominance in terms of economic performance.
Young but highly-skilled workforce. Vietnam has the third-largest population in Southeast Asia behind Indonesia and the Philippines. What’s more important for foreign investors is that Vietnam’s population is relatively young with more than half of the country’s inhabitants below the age of 30.
One of the country’s major advantages over other destinations is its young, well-educated, and relatively affordable workforce. Thus, setting up a business in Vietnam is advantageous for foreign investors thanks to its cheaper but globally competitive labor.
Pro-investor government policies. The country’s government has long been cognizant of the importance of foreign investments to the economy. Thus, it initiated reforms and amendments to its regulations to make Vietnam an even more attractive FDI destination.
These efforts have significantly improved the ease of doing business in Vietnam. Foreign investors have noted that it is now easier to secure a business license in Vietnam as the country is now ranked 82nd out of 190 countries by the World Bank Group in this area.
In Conclusion
Vietnam offers an ideal environment for establishing a business. Entrepreneurs and enterprises have several structures and options to choose from, and the economic growth, workforce, and policies are ideal for investments.
However, doing business in Vietnam successfully requires a keen understanding of what it takes to succeed in this market. With yearly experiences, our dedicated team of veterans can help your business succeed in Vietnam. Feel free to contact us for an free in-depth discussion.
Or if you are a tech company who already possessed commercial-ready solutions, join our Vietnam Immersion Programme: Smart City to explore more business opportunities!
