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CORPORATE GOVERNANCE ( FNSACCT604B )

2011

Question 2 :

There are four main forms of Enterprise such as Sole Proprietorship (chapter IV), a Partnership (chapter V) , a

Limited Liabilities Company (chapter III and IV) and Shareholding company (or Joint Stock Company)

available to carry on a business in Vietnam under the Enterprise Law of 2005.

Sole Proprietorship

Characteristic of a private firm is that an individual participates directly in economic events. Sole trader sets up

the business in their own name and signs any contract by themselves. Normally, the sole trader doesn’t need to

obtain a Business Registration Certificate but depending on the size of the business it will be necessary or not

(chapter II)

Advantages:

The owner has a whole power to control their business and can do anything with their business .And they can

keep whole profit and no need to share for anyone else. Besides, there is low cost organization for running the

business.

Disadvantages:

-Unlimited liabilities are relatively high risk for entrepreneur. All rights and responsibilities arise directly in the

person of the proprietor. The owner carries out the entire business risks and liability is unlimited- this means

that they might lose all their personal assets if their business fails or they have no ability to pay.

-Limited fund- raising power

Partnership

Vietnam follows a Civil Law system so that Vietnam government restricts the partnership except the

professional associations such as doctors, lawyers, accountants but has to be registered with a government

department and authority. It means that there is a limited liability to its members in the same way as company

(Part 1, chapter IV of the Civil Code).

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There are two types of Partnership that you might choose to run the business:

1- General Partner If you are the general partner, the advantages are you have the right to vote or the power to

control the business. However, you have unlimited liabilities with the business. It means you must pay all debts

if the company cannot pay.

2- Limited Partner You invest some money that called as capital contribution into the business and become

the limited partner; you have limited responsibility on the business. If the business died, you have no more

responsibility to pay debts or something else for a company (article 120). You only lost amount of money that

you invested. Moreover, you won’t have power to control or take part in the management of the company or

business – you are invisible person (chapter V).

Company

1- Limited Liability Company (LLC)

LCC is an enterprise consisting of at least 2 legal persons joined under one firm. Furthermore, it often describes

as the family business but restricted by number of members of the company with maximum 50 members –

article 46.Generally, a LCC must be registered under Enterprise Law. In Vietnam, one member can be possible

to register a LCC (article 63). Chapter III, part II of Enterprise Law shows that a LCC may be set up with a sole

member or an individual

Advantages:

LCC is not strictly regulated under Enterprise Law. It is easy to keep control because of no more than 50

members. However, the most advantage for members who run the business as Limited Liability Company is

limited liability. A LCC exists as a separate entity much like a corporation. Members cannot be held personally

liable for debt unless they have signed the personal guarantee. In addition, LCC can raise more funds and select

varying forms of capital distribution than sole trader or partnership. Furthermore, the company tax is normally

much lower than personal income tax so that the members of LCC do not have to pay a high tax rate.

Disadvantages:
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One of the disadvantages of LCC is limited life. That means the company will be dissolved when a member dies

or undergoes bankruptcy. However, the huge disadvantage is that LCC cannot join the stock exchange because

it issues no transferable shares. Therefore, it is really difficult to raise the capital. Moreover, the members of

LCC cannot be able to transfer their capital distribution to anyone else (article 43- 45 of the Enterprise Law )

unless having the permission of all other members.

Joint Stock Company (Or Shareholding Company)

Joint stock company is known as public company where is made up by shareholders.

Advantages: In case of joint stock, the liability of its member is limited to the value of shares held by them.

Personal property of members is separated for business. This advantage attracts many people to invest their

money into Joint Stock Company. In addition, Shareholding Company is able to collect a large of money of

capital through issuing shares which listed on stock exchange. In addition, shareholders will pay a lower income

tax than sole traders or partnerships.

Disadvantages:

Shareholding Company is strictly regulated under Enterprise Law. Annually, the auditors will check

shareholding company‘s accounts and related financial statements. Besides, under Securities Law 2007,

Shareholding Company is required an application documentation including prospectus- it is a legal document

that businesses use to describe the securities they are offering for participants

Question 3: What is the company or partnership Charter?

Charter is the document which sets out the rules for running an enterprise.

What legal effect does it have?

Charter is very similar to the contract between a company, its members and its managers. Specifically, all

members or managers must obey the rules of charter. However, there is important different between contract

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and charter. Normally, you set up the contract with someone else and then you cannot change the rules of the

contract. Conversely, the charter can be altered by 75% majority of members under Enterprise Law.

What provisions must be included in the Charter of a LCC or a SHC or Partnership?

One of the important documents you have to prepare before you can register the business is charter.

Article 22 indicates the content of the charter you need to put in the company or partnership rules. In the very

first thing, you must show the company name or any branches or representative offices and then list of the

business activities. Besides, you also give the full name, address, signature or anything related to general partner

or shareholders. The next thing is to announce the capital share or capital contribution of each member. The

very important things in content of company is rights and obligations of members for each form of business;

principle for distribution of profit or settlement of losses and other agreements made by members or

shareholders in compliance with the law. Moreover, there are many things you have to cover in the content of

charter to fulfill the procedure.

Why is the Charter Document an important document to consider for individuals or legal person making

an initial capital contribution?

The charter is as same as the contract between company, its members and its managers. Therefore, they must

comply with the rules of the charter. All the rules need to be cleared in the Charter. In addition, it clear about

what the company internal rules are so that if the problems happen, the company can avoid the internal fighting

or conflicts among members or shareholders

The Enterprise Law tries to protect the shareholders or members by making the charter to be difficult to change.

Besides, it also protects the members who are disagreeing with the alternation the charter rules. Under article 45

for LCC and article 90 for Shareholding Company, if members disagree with change of charter, they can ask the

company to buy back their shares. The company must buy back the capital contributions at the market price or

at the price determined in agreement with the principles provided for the company’s charter within a limit of 15

days ( article 45 for LCC ) and 19 days ( article 90 for SHC) from the date of receipt of the request.
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Therefore, the charter is important for individual or legal person making a capital contribution.

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