Establishing a Company in Vietnam
We have shared how rapidly Vietnam is developing in its entirety which could be strategic for foreign corporate or entrepreneurs to invest and set up a business in Vietnam. Some could be interested but there are understandably a number of important questions such as “what kind of company should I set up in Vietnam?” and “are foreigners even allowed to do so?”. In this article, we will answer some of the uncertainties that you may have and give you the opportunity to break into one of the fastest growing economies in the world.
First and foremost, let us clarify one essential point, foreign ownership is allowed in Vietnam! For most industries such as trading, IT and education, even 100% foreign ownership is possible. The first thing to do is to decide what activities will your business be engaged in as that will determine the allowed percentage of foreign ownership. The two most common legal entity types to set up in Vietnam for foreign investors are a limited liability company (LLC) and a joint-stock company (JSC).
Limited Liability Company (wholly foreign-owned LLC)
In Vietnam, a limited liability company is a legal entity established by its members through capital contributions to the company and does not have shares or shareholders. The capital contribution of each member is treated as equity (charter capital). In most cases, the founder will determine how many members to include in the incorporation process. The maximum is 50 members while the minimum can be a single person. For a one-person company, the individual can be of any nationality and does not need to be a resident of Vietnam. The entity will need to appoint 1 director as the company’s legal representative, who can be a foreigner but will be required to travel to Vietnam, obtain a work permit and show evidence of 12 months of experience in a managerial position.
As the name implies, member’s liability is limited. Should the company get into financial difficulties, only the member’s contribution, take for example USD 10,000 is liable, all of the member's personal assets and funds will remain safe.
Although there is no minimum capital requirement in Vietnam, the capital you contribute must reflect your planned expenses. From experience, the most common minimum capital amount for setting up an LLC in Vietnam is USD 10,000, and you can register a service sector company with even as little capital as USD 5,000. A LLC is fit for most uses and may trade with both Vietnamese and foreign customers and may have local manufacturing operations. Hence, if you are planning to establish a small or a medium-sized enterprise (SME) in Vietnam, the most suitable option would be to set it up as a LLC.
Joint-stock company (JSC)
A Joint-Stock Company in Vietnam is similar to an LLC, but more suited for larger businesses, however the corporate structure is slightly more complex. The minimum number of shareholders is 3 for JSCs and there is no limit on the maximum number of shareholders. The shareholders can be of any nationality and do not need to be residents of Vietnam. The entity will also need to appoint 1 director as the company’s legal representative with its conditions similar to LLC.
Under Vietnamese law, this is the only type of company that can issue shares. The charter capital of a JSC is divided into shares and each shareholder holds shares corresponding to the amount of capital the shareholder has contributed. The governance of a JSC includes a General Meeting of shareholders, the board of management, the general director and a board of supervisors (where the JSC has more than 11 individual shareholders or if a corporate shareholder holds more than 50% of the shares of the JSC).
Note that by default, you are not required to list shares on a public stock exchange. The requirement applies when your capital exceeds USD 475,000. A JSC can be a good option when you are planning to form a business with several partners or plans to finance its business through the issuance of equity.