Limited Liability Company And Related Legal Issues In Accordance With The Law On Enterprises 2020

Limited Liability Company And Related Legal Issues In Accordance With The Law On Enterprises 2020

Limited liability company (“LLC”) is lately a common type of company and is divided into single-member limited liability company and multi-member limited liability company.

On June 17th 2020, the National Assembly of Vietnam promulgated the Law on Enterprises no. 59/2020/QH14 (hereinafter referred to as “Law on Enterprises 2020”) which took effect from January 1st 2021 and replaced the Law on Enterprises no. 68/2014/QH13 (hereinafter referred to as “Law on Enterprises 2014”). The Law on Enterprises 2020 regulates new provisions pertaining to limited liability company. This newsletter shall explain the notable changes in the regulations on limited liability company.

Issuing shares: In the former law, an LLC was not allowed to issue shares. However, according to the Law on Enterprises 2020, for the purpose of converting to Joint stock company, both single-member LLC and multi-member LLC are allowed to issue shares. Besides, the new regulations allow LLCs to issue bonds.

Responsibility for information disclosure: For a multi-member LLC which has more than 50% of its charter capital or total voting shares held by the State, the Law on Enterprises regulates that such LLCs have to disclose information on the website of the company, website of the state ownership representative body, and the National enterprise registration portal. Such disclosed information must include: (i) periodic information (basic information about the LLC, Company charter, (ii)  Report on the results of the implementation of the annual production and business plan, (iii) Report on management status and organizational structure in 06 months of the LLC, and (iv) Annual report and summary of financial statements audited by an independent auditing organization, including financial statements of the parent company and consolidated financial statements (if any) and (ii) irregular information.

Organizational structure: The Law on Enterprises 2020 regulates that the title of the legal representative of the LLC must be specified in the Company charter. For a single-member LLC owned by an organization, it is obliged to record whether the legal representative is the Company Chairman, or the Chairman of the Members’ Council, or the General Director or Director (depending on the company’s structure). If the Company charter does not record the title of its legal representative specifically, it is considered as follows: (i) For Members’ Council model, Chairman of the Members’ Council; (ii) For Company Chairman model, Company Chairman. Further, a multi-member LLC is obliged to record whether the legal representative is the Chairman of the Members’ Council, or the General Director or Director. If the Company charter does not record specifically as mentioned, the title of the legal representative will be recorded as the Chairman of the Members’ Council.

Board of Controllers (“BOC”): For multi-member LLC which has 11 members or more, the Law on Enterprises 2014 required to establish BOC. However, according to new regulation, a multi-member LLC does not have to establish BOC, except in case the LLC decides to do so. It is only mandatory to establish BOC for State-owned multi-member LLCs, subsidiaries of State-owned enterprise holding more than 50% of charter capital or the total voting shares, and subsidiaries of State-owned enterprise holding 100% of charter capital. For single-member LLC owned by an organization, it is not mandatory to establish BOC, except in case the LLC decides to do so or in case the LLC is owned by a State enterprise holding 100% of its charter capital or more than 50% of its charter capital or the total voting shares. This omission reduces the financial and physical burden on the company as well as is flexible in accordance with the conditions and size of the company.

Handling of contributed capital in special cases for multi-member LLC: The Law on Enterprises 2020 stipulates two new cases to be handled as follows:

  • If an individual member of a company is temporarily detained, or serving an imprisonment sentence, or serving an administrative penalty in a correctional institution or rehabilitation center, such member shall authorize another person to exercise some or all of their rights and obligations at the company.
  • In case an individual member is banned by the Court from taking part in certain occupations or doing certain jobs, or if a member of the company being a commercial legal entity is banned by the Court from doing business or operating in certain areas within the scope of business lines of the company, such member is not allowed to do any of the prohibited jobs at that company or the company has to suspend or terminates him/her from taking part in related business lines under the decision of the Court.

LLC is the type of company that is commonly chosen when establishing enterprise. This is because the member(s) of the LLC only have to take responsibility for property obligations and debts of the enterprise in accordance with the amount of capital contributed by such member(s) to the company. This separation of capital and assets helps enterprises limit many risks. In addition, this type of company is easy to manage and control and is not limited to specific business lines. Enterprises need to pay attention to the legal regulations pertaining to their type of company in order to operate in accordance with the law and not be entangled in legal proceedings.

Writing time: 25/05/2021

This article is based on the current laws at the above recorded time and may no longer be relevant at the time readers access this article due to changes in applicable law and specific cases which the readers want to apply. Therefore, this article is for reference only.

Source: plf.vn