As one of the fastest growing economies in Southeast Asia, Vietnam is attracting more and more foreign investors. However, the first step to successfully starting a company in Vietnam is to choose the right company type and obtain the corresponding business model. For companies and entrepreneurs interested in entering the Vietnamese market, it is crucial to understand the characteristics, establishment conditions and operational requirements of different types of companies.
This article will focus on comparing the two most common corporate forms in Vietnam: limited liability company (LLC) and joint stock company (JSC). We analyze share capital registration, shareholder structure, management model, foreign investment access and other angles to help you make a wise choice when entering the Vietnamese market.
The main differences between a Limited Liability Company (LLC) and a Joint Stock Company (JSC)
In Vietnam, Limited Liability Company (LLC) and Joint Stock Company (JSC) are the two most common company forms. They differ significantly in many aspects and are suitable for different sizes and types of enterprises. In order to help entrepreneurs choose the right company form in the Vietnamese market, we need to fully understand the main differences between these two types.
First, in terms of corporate structure, a limited liability company (LLC) is generally suitable for small and medium-sized businesses, with a limited number of shareholders. Vietnamese law stipulates that the maximum number of shareholders of an LLC is 50, which makes its shareholder structure more compact and suitable for family businesses or joint investment by minority shareholders. LLCs have high flexibility, close relationships among shareholders, and relatively simplified management and decision-making processes. A joint stock company (JSC) is suitable for larger enterprises. There is no limit on the number of shareholders, and at least three founding shareholders are required. The structure of JSC is more complex, and shareholders can transfer their shares through the stock market, which makes JSC more liquid in the capital market and more suitable for companies that plan to go public or attract large investments.
In terms of liability limitation, both limited liability companies and joint-stock companies embody the principle of “limited liability”, that is, shareholders only bear limited liability for their capital contributions. In an LLC, the liability of shareholders is limited to the amount of capital they subscribed, and the company’s debts will not implicate personal assets. In a JSC, the liability of shareholders is also limited to the shares they hold. This means that, whether it is an LLC or a JSC, the personal assets of shareholders will not be affected by the company’s debts, which provides investors with a certain degree of safety.
Financing capabilities are a key difference between the two. Limited liability companies have relatively weak financing capabilities due to restrictions on the number of shareholders and equity liquidity. Such companies often rely on capital increases from internal shareholders or through bank loans for funding. Joint-stock companies have stronger financing capabilities because they can attract more investors through public offerings of shares. In addition, JSC can also raise funds through bond issuance, private equity financing and other methods, which gives JSC a significant advantage in large-scale projects or expansion plans.
In terms of management structure, the management of a limited liability company is relatively simple. The board of directors or managers are usually responsible for daily operations, and the shareholders’ meeting is responsible for major decisions. LLCs have fewer management levels and a more flexible decision-making process, making them suitable for small businesses that need quick decisions and flexible operations. In contrast, the management level of a joint-stock company is more complex, generally including the shareholders’ meeting, the board of directors, the board of supervisors and other institutions. Major decisions of JSC usually require approval at multiple levels. The general meeting of shareholders is the highest decision-making body, the board of directors is responsible for daily management, and the board of supervisors is responsible for supervising the behavior of the board of directors. Although this multi-level management structure is complex, it can ensure that the company’s decision-making is more transparent and fair, and is especially suitable for larger companies with dispersed shareholders.
Another aspect to consider is corporate governance and shareholder protection. Limited liability companies generally have easier corporate governance because they have fewer shareholders, and there are relatively fewer conflicts of interest among shareholders. However, since a joint-stock company has many shareholders, especially when the company’s shares are traded in the public market, how to balance the interests of all shareholders becomes an important challenge. Vietnamese law has relatively strict regulations on JSC’s corporate governance, including the need to establish a board of supervisors and an audit committee. These mechanisms help protect the rights and interests of small and medium-sized shareholders and prevent abuse of power by management.
In terms of applicable industries and business sizes, limited liability companies are suitable for small and medium-sized enterprises, especially those that do not plan to raise funds in the capital market. Due to its financing advantages and standardized management structure, joint-stock companies are more suitable for companies that operate on a large scale, plan to go public, or expand their business in the international market. For example, capital-intensive industries such as manufacturing, large-scale infrastructure projects, and financial services are more likely to choose the joint-stock company form to better utilize the resources of the capital market.
Summary There are significant differences between limited liability companies and joint stock companies in many aspects such as structure, liability, financing, management, governance and applicable industries. When enterprises choose a company form, they should comprehensively consider factors such as their own scale, development goals, financing needs, and management capabilities to ensure that they choose the type of company that best suits their business needs.
Conditions and procedures set by various types of companies
The conditions and procedures for establishing different types of companies have their own characteristics. Understanding these conditions and procedures is crucial to ensuring the smooth registration and legal operation of the company. The following will elaborate on the key steps and requirements in the establishment process of limited liability companies (LLC) and joint stock companies (JSC) to help companies better understand and cope with the complexity of the registration process.
First of all, the basic conditions for establishing a limited liability company (LLC) are relatively simple. Vietnamese law sets an upper limit on the number of shareholders of an LLC, that is, no more than 50 people. This type of company can be established with one or more legal entities or natural persons as shareholders. In addition, there is no minimum requirement for the registered capital of an LLC, but it needs to be declared based on the actual needs of the industry and project. The amount of registered capital should match the company’s business scope. In certain industries, such as financial services or real estate development, there may be higher capital requirements. Therefore, when setting up an LLC, companies should carefully review industry regulations to ensure that relevant registered capital requirements are met.
In terms of specific establishment procedures, LLC registration is relatively simple. First, the applicant needs to prepare and submit relevant materials such as company articles of association, shareholders’ agreement, and shareholder identity documents. These documents need to be certified by a local notary public to ensure their legal validity. Subsequently, the applicant needs to submit an application for establishment through the Vietnam National Enterprise Registration Portal and select a company name during the registration process. The company name must comply with Vietnamese legal regulations, cannot be the same as a registered company name, and must avoid using some legally prohibited words. After submitting the application, usually within 3 to 5 working days, the industrial and commercial administration department will review the application materials. If the materials are complete and meet the requirements, the applicant will receive an Enterprise Registration Certificate (ERC), which proves that the company is formally established and has legal personality.
The conditions for establishing a joint stock company (JSC) are relatively complex, especially in terms of the number of shareholders and registered capital. According to Vietnamese law, a JSC must consist of at least three shareholders, which can be individuals or legal entities. Unlike LLCs, JSCs usually require higher registered capital when established because JSCs often involve large-scale projects or plans to raise capital in the capital market. Although Vietnamese law does not have uniform requirements for the minimum registered capital of JSCs, there may be clear capital thresholds in specific industries (such as banking, insurance, securities, etc.). In addition, JSC also needs to prepare articles of association, founding shareholder agreement, and identity documents of relevant shareholders when establishing it.
In terms of establishment procedures, the registration process for joint-stock companies is more complicated. First, the JSC needs to decide on the company’s charter and management structure through a shareholders’ meeting and elect board members. Next, the company must submit an application for establishment through the Vietnam National Enterprise Registration Portal, providing documents such as the company’s articles of association, resolutions of the general meeting of shareholders, list of board members, and proof of registered capital. Like an LLC, the company name must also comply with legal regulations and pass the review of the industrial and commercial administration department. After obtaining the Enterprise Registration Certificate (ERC), JSC also needs to register the stock issuance, which usually requires approval from the Vietnam Securities Commission, especially when the company plans to publicly issue stocks.
In addition to the above basic procedures, whether it is an LLC or a JSC, there are also some general legal requirements that must be met when setting up a company. First, the company needs to register with the local tax authority within 10 days of establishment and obtain a tax registration certificate (TIN). This step is crucial because tax registration is the basis for a business to operate legally and pay taxes. In addition, the company needs to open a bank account for capital injection and daily transactions. For companies involving foreign investment, they also need to meet special regulations for foreign-invested enterprises in Vietnam, such as obtaining an investment license or other relevant approval documents before establishment.
In addition, when setting up a company, companies should also consider compliance requirements such as environmental impact assessment, labor contract registration, and social insurance registration, especially when it involves specific industries or larger-scale projects.
Differences in registered capital requirements
There are significant differences in the registered capital requirements between a limited liability company (LLC) and a joint stock company (JSC). These differences not only affect the establishment process of the company, but also have a profound impact on the company’s operations, financing capabilities, and legal liabilities. Registered capital is the amount of capital committed when the company is established. It not only represents the financial strength of the company, but also reflects the company’s ability to assume external responsibilities. In order to help companies better plan their capital structure during the establishment process, it is important to understand the registered capital requirements for different types of companies.
First, Vietnamese law does not provide for uniform minimum registered capital requirements for limited liability companies (LLCs). In other words, the registered capital of an LLC can be flexibly set according to the actual operating needs of the enterprise. However, companies need to consider multiple factors when determining registered capital, such as industry characteristics, scale of operations, and the funding requirements of the project. Especially in certain industries, such as construction, real estate, banking, etc., although the law does not have clear minimum capital restrictions, relevant industry regulations may have special requirements for registered capital. In addition, the company also needs to ensure that the registered capital is sufficient to support initial business operations, including paying rent, purchasing equipment, hiring employees, etc. If the registered capital is too low, it may lead to a shortage of funds in the early stages of operation and affect the normal operation of the enterprise.
The registered capital requirements for joint stock companies (JSCs) are relatively more stringent, especially when it comes to public offerings of shares or large-scale projects. Although Vietnamese law does not have uniform regulations on the registered capital of joint-stock companies, JSC usually requires higher registered capital to reflect the company’s credibility and strength in the capital market. For JSCs planning to be publicly listed, the company must meet the relevant capital requirements of the Vietnam Securities Commission, such as reaching a certain capital scale before applying for a public offering. In addition, the registered capital of JSC must be paid in full when the company is established, that is, shareholders need to inject all capital as promised at the time of establishment. This requirement ensures that the company has sufficient funds to support business operations in the early stages of establishment, and also provides potential investors with a certain degree of protection.
It is worth noting that JSC’s registered capital not only determines the company’s financial foundation, but also directly affects the rights and responsibilities of shareholders. In a JSC, the shareholder’s shareholding ratio is usually linked to the proportion of his or her capital contribution. The greater the capital contribution, the greater the shareholder’s decision-making and income distribution rights in the company. Therefore, the setting of registered capital requires comprehensive consideration of the balance of interests among shareholders and the company’s future capital expansion needs. Especially when multiple shareholders are involved or plans are to attract external investment, reasonable planning of registered capital is crucial to the company’s long-term development.
In addition to legal and industry requirements, foreign-invested enterprises also need to pay special attention to the issue of registered capital when establishing in Vietnam. For foreign-controlled limited liability companies and joint-stock companies, the setting of registered capital is also subject to the supervision of Vietnam’s Foreign Investment Law. In some restricted industries, such as education, medical care, transportation, etc., foreign-invested enterprises may need to meet higher registered capital requirements to obtain an operating license. In addition, when setting registered capital, foreign-funded enterprises also need to consider issues such as foreign exchange management and profit repatriation to ensure that the registered capital is sufficient to cover the company’s long-term operating needs in Vietnam.
Another factor to consider is the timing of the capital injection. In Vietnam, the injection of registered capital of a company does not have to be completed in one go at the time of establishment, especially for limited liability companies. Enterprises can stipulate the time of capital injection in the articles of association and inject registered capital in stages to reduce initial capital pressure. However, for joint-stock companies, especially those planning to be publicly listed, the registered capital is usually required to be injected in one go at the time of establishment to ensure that the company has a sufficient capital base.
Finally, the adjustment of registered capital is also an issue that companies need to pay attention to. As an enterprise develops, it may face insufficient registered capital or require additional capital. In Vietnam, companies can adjust their registered capital by increasing capital, but they need to go through strict legal procedures, including shareholder meeting resolutions, amendments to the company’s articles of association, and approval from the industrial and commercial authorities. For joint-stock companies, capital increase is usually carried out by issuing new shares, while for limited liability companies, this can be achieved by increasing shareholders’ capital contributions or absorbing new shareholders. No matter which method is adopted, the enterprise must ensure that the capital increase process complies with Vietnamese legal requirements and complete industrial and commercial registration in a timely manner to ensure that the registered capital after the capital increase is legal and effective.
Therefore, when establishing a company, it is necessary to reasonably plan the registered capital based on industry requirements, business scale, shareholder structure, and long-term development goals. This not only helps with the smooth set-up of the business, but also provides a solid foundation for future financing and expansion. In the process of setting and adjusting registered capital, enterprises should strictly abide by relevant laws and regulations and fully consider various potential risks.
Differences in management structures and decision-making mechanisms
There are also significant differences in the management structures and decision-making mechanisms between limited liability companies (LLCs) and joint stock companies (JSCs) . These differences reflect the different characteristics of the two corporate forms in terms of corporate governance, power distribution, and operational management. This difference not only affects the company’s daily operations, but also has an important impact on the company’s strategic decision-making, risk management and long-term development. Therefore, understanding and selecting appropriate management structures and decision-making mechanisms are crucial to a company’s success in the Vietnamese market.
The management structure of a limited liability company (LLC) is relatively simple, usually consisting of a general meeting of shareholders and a board of directors (or directors). In Vietnam, the LLC’s general meeting of shareholders is the company’s highest decision-making body and is composed of all shareholders. The responsibilities of the shareholders’ meeting include approving the company’s articles of association, electing or removing directors, and deciding on major company matters. For smaller LLCs, the company may not have a formal board of directors, but one or several directors may be directly responsible for the day-to-day management of the company. In this case, the functions of the board of directors are exercised by these directors, and shareholders have more direct influence over the management of the company.
However, for larger limited liability companies, there is usually a board of directors whose members are elected by the shareholders at a general meeting. The board of directors is responsible for the company’s strategic decision-making and supervision, and the company’s general manager or CEO is responsible for specific implementation work. The general manager is usually appointed by the board of directors and is responsible for the day-to-day operations and management of the company. In an LLC, the decision-making mechanism of the board of directors is relatively centralized, and major decisions are usually passed by a majority vote of the board of directors. This management structure is suitable for those types of companies with a small number of shareholders who want to maintain high management efficiency.
In contrast, the management structure of a joint stock company (JSC) is more complex, usually consisting of a general meeting of shareholders, a board of directors, a supervisory board and senior management. First of all, the shareholders’ meeting of a joint-stock company is also the company’s highest decision-making body and is composed of all shareholders. The functions of the shareholders’ meeting include electing board members, approving amendments to the company’s articles of association, approving annual financial statements, and deciding on profit distribution plans, etc. Since the number of shareholders of a JSC is usually larger and may include external investors, decision-making at the shareholders’ meeting usually requires a more complex process to ensure that the interests of all parties are treated fairly.
The board of directors plays an important role in a joint-stock company and is responsible for the company’s strategic direction and major decisions. Board members are usually elected by shareholders at a general meeting, and the composition of the board may be more diverse, including internal executives, external independent directors, etc. This diverse board structure helps enhance the company’s governance and decision-making quality. In joint-stock companies, the decision-making mechanism of the board of directors is relatively more democratic, usually adopting the majority rule principle, but certain major matters (such as mergers, asset sales, etc.) may require the consent of a higher proportion of shareholders or board members.
In addition, joint-stock companies usually have a Board of Supervisors (Board of Supervisors), which is responsible for supervising the behavior of the board of directors and senior management, ensuring that the company complies with laws and regulations, and protecting the rights and interests of shareholders and other stakeholders. Members of the supervisory board are elected by the shareholders’ meeting and may not overlap with members of the board of directors. This independence helps enhance the transparency and impartiality of corporate governance. The existence of the supervisory board makes the joint-stock company’s management structure more complete and better able to deal with potential corporate governance risks.
In joint-stock companies, senior management (such as general manager, chief financial officer, etc.) are appointed by the board of directors and are responsible for the company’s daily operations and management. This hierarchical management structure enables the company to balance shareholder interests and management efficiency in the decision-making process. Especially in large-scale, cross-regional enterprises, decentralized management helps to improve the professionalism and execution of decision-making. However, complex management structures also mean that the decision-making process can be lengthy, especially where multiple interests are involved, requiring more time and resources to coordinate and execute decisions.
The management structures and decision-making mechanisms of limited liability companies (LLCs) and joint stock companies (JSCs) each have their own advantages and disadvantages. The management structure of an LLC is relatively simple and the decision-making efficiency is high. It is suitable for companies with a small number of shareholders and a relatively small business scale. The management structure of a joint stock company (JSC) is more complex, with stronger governance capabilities and decision-making diversity, and is suitable for companies with a large number of shareholders, large business scale, and may involve capital market financing.
Differences in Tax Treatment and Financial Reporting Obligations
Understanding these differences in tax treatment and financial reporting obligations is critical to a business’s day-to-day operations, compliance, and tax planning. Correct handling of tax and financial reports not only ensures that companies operate legally, but also helps companies optimize tax expenditures and improve financial management efficiency.
From a tax treatment perspective, both limited liability companies (LLCs) and joint stock companies (JSCs) are subject to corporate income tax (CIT), which is the basic tax levied on all businesses in Vietnam. The current corporate income tax rate is 20%, which applies to most industries and company types. However, for certain industries, such as oil extraction, tax rates can be as high as 32% to 50%. In addition, companies that engage in high-tech, infrastructure construction or other specific fields may also enjoy tax incentives, such as tax reductions or exemptions. In this regard, LLCs and JSCs enjoy the same tax treatment, and the specific preferential treatment depends on the company’s business field and the policies of the investment location.
The two may have slightly different treatment of value-added tax (VAT). Value-added tax is an indirect tax levied on goods and services in Vietnam, with a standard tax rate of 10%. How a business calculates VAT depends primarily on the type and size of its business. For smaller limited liability companies, especially small businesses that have just been established, they may choose to adopt the direct calculation method, which means paying VAT based on actual income without deducting input tax and output tax. On the contrary, larger JSCs usually use the deduction method to calculate VAT, that is, by deducting input tax and output tax to calculate the tax payable. This method is suitable for more complex business operations and can help companies optimize cash flow management and reduce tax burdens.
There are major differences between limited liability companies (LLCs) and joint stock companies (JSCs) when it comes to financial reporting obligations. First, financial reporting preparation and disclosure requirements vary by company type and size. For limited liability companies (LLCs), especially smaller LLCs, financial reporting requirements are relatively relaxed. Typically, LLCs only need to submit financial statements and tax returns to tax authorities on a quarterly and annual basis. The statements include a balance sheet, profit and loss statement, and cash flow statement. For LLCs that are not publicly traded, the law does not require them to publicly disclose financial information unless the company has borrowed money or other specific legal requirements.
In contrast, the financial reporting obligations of joint stock companies (JSCs) are more stringent, especially publicly listed JSCs. According to regulations of the Vietnam Securities Commission, publicly listed JSCs must regularly disclose financial information, including quarterly, half-year and annual financial statements. In addition, JSC’s financial statements must be independently audited and need to comply with Vietnamese Accounting Standards (VAS) and International Financial Reporting Standards (IFRS). This requirement ensures the financial transparency of joint-stock companies, helps protect the rights and interests of investors, and complies with the regulatory requirements of the capital market. For unlisted JSCs, although the disclosure requirements for financial reports are not as strict as for publicly listed companies, they still need to follow relevant accounting standards and ensure the authenticity and completeness of financial reports.
In addition, the shareholder structure of a joint stock company (JSC) is more complex and involves multiple stakeholders, so its financial reports usually contain more information disclosure content. For example, JSC needs to report in detail changes in shareholders’ equity, related transactions, major investment projects, etc. These disclosure requirements are designed to improve corporate governance and ensure that shareholders and potential investors have a comprehensive understanding of the company’s financial condition and operating performance.
In terms of tax compliance, joint stock companies (JSCs) usually require more professional tax management and compliance measures due to their larger scale and complex business. JSC may need to hire a specialized tax consultant or accounting firm to help the company with tax planning and respond to tax audits. For large JSCs, tax audits and tax compliance are important parts of managing risks, and companies need to regularly review their tax policies and procedures to ensure compliance with Vietnamese tax laws and international tax treaties. For limited liability companies (LLCs), especially smaller companies, tax compliance requirements are relatively simple, but companies still need to ensure that their tax declarations and tax payments are legal and compliant to avoid tax risks caused by negligence.
The differences in tax treatment and financial reporting obligations between a limited liability company (LLC) and a joint stock company (JSC) reflect the differences in administrative complexity, transparency requirements, and compliance costs of the two corporate forms.
Foreign investment access restrictions and related policies
In Vietnam, entry restrictions and related policies for foreign-invested enterprises vary from industry to industry and are constantly changing with the adjustment of the national economic development strategy. For foreign investors interested in entering the Vietnamese market, understanding these policies and ensuring compliance are keys to successful operations.
The Vietnamese government has set different restrictions on the access of foreign-invested enterprises based on different industries. Certain strategic industries, such as telecommunications, banking, media, real estate, etc., have strict restrictions on foreign shareholding ratios. For example, in the telecommunications industry, foreign ownership is generally limited to 49%, while in the banking industry, the upper limit for single foreign ownership is 20%, and the upper limit for overall foreign ownership is 30%. These restrictions are intended to protect the country’s critical industries and maintain the stability of the domestic market. In addition, the Vietnamese government also implements a complete ban on foreign investment in certain sensitive industries, such as weapons manufacturing and drug production. These industries are considered to be closely related to national security and public interests and therefore do not allow foreign investment.
Vietnam’s policy on foreign investment access is not static, but is constantly adjusted according to the needs of national development. In recent years, the Vietnamese government has gradually opened up some once-strictly restricted industries, such as retail, e-commerce and manufacturing, relaxed restrictions on foreign shareholding ratios, and simplified investment approval procedures. This policy adjustment reflects Vietnam’s strategic goal of attracting more foreign investment and promoting economic transformation and upgrading. Especially in the manufacturing field, the Vietnamese government actively promotes foreign investment participation to enhance the competitiveness and technological level of the country’s manufacturing industry. The entry threshold for foreign-invested enterprises in these industries has gradually been lowered, and the investment approval process has become more transparent and efficient.
Moreover, Vietnam has signed free trade agreements (FTAs) with many countries and regions, further promoting the facilitation of foreign investment access. For example, agreements such as the Vietnam-EU Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) not only reduce tariff barriers, but also promote the liberalization of foreign investment access to a certain extent. These agreements provide more opportunities for foreign-invested enterprises to invest and operate in Vietnam, and also create a favorable environment for foreign-invested enterprises to enjoy more preferential market access conditions.
Although the Vietnamese government has gradually relaxed restrictions on foreign investment access, foreign-funded enterprises still need to face a series of compliance requirements when operating in Vietnam. Foreign-invested enterprises must strictly abide by Vietnam’s investment laws and regulations, especially in aspects such as investment approval, business registration, tax declaration and labor management. For example, foreign-funded enterprises need to submit an investment application to the Ministry of Investment and Planning of Vietnam before investing, and can only establish a company after obtaining an investment license. In addition, foreign-invested enterprises are required to submit regular operational reports to the government to ensure that their business complies with national regulations.
It is worth noting that Vietnamese local governments have also been strengthening their supervision of foreign-invested enterprises. As the number of foreign-invested enterprises in Vietnam increases, local governments pay more attention to the compliance and environmental protection requirements of foreign-invested enterprises. For example, in the field of environmental protection, foreign-invested enterprises must meet Vietnam’s strict environmental protection standards to ensure that their production activities do not have a negative impact on the environment. Companies that violate environmental protection regulations may face fines, suspension of business or even the revocation of investment licenses. Therefore, when operating in Vietnam, foreign-funded enterprises must maintain a high degree of compliance awareness and strictly abide by various laws and regulations to ensure that the enterprise operates legally.
Therefore, Vietnam’s foreign investment access policy has both opportunities and challenges. Although the Vietnamese government has gradually relaxed restrictions on foreign investment access in certain industries and actively attracted foreign investment, foreign-invested enterprises still need to face strict industry access requirements and compliance obligations. Understanding and complying with these policies is crucial for foreign-invested enterprises to successfully operate in Vietnam. Therefore, before entering the Vietnamese market, foreign-funded enterprises must conduct sufficient market research and, with the help of professional consulting agencies, formulate investment strategies that comply with local regulations and policies.
Analysis of advantages and disadvantages of different types of companies
When choosing to set up a company in Vietnam, understanding the advantages and disadvantages of different types of companies is crucial to the long-term development of your business. Limited Liability Company (LLC) and Joint Stock Company (JSC) are two main corporate forms, each with different characteristics and suitable for enterprises of different sizes and business nature. Below is a detailed analysis of the advantages and disadvantages of both corporate forms.
First, the biggest advantage of a limited liability company (LLC) is its simple structure, relatively quick and low-cost establishment process. An LLC has a limited number of shareholders (usually no more than 50), which makes corporate governance relatively flexible and the decision-making process more efficient. This simplicity of an LLC makes it an ideal corporate form for a small business or startup. In addition, LLC shareholders are only liable for company debts up to the amount of their capital contribution, which effectively protects the safety of shareholders’ personal assets. This feature is particularly suitable for investors who want to start a business with limited risk. In addition, LLCs are relatively simple in tax treatment, especially for small businesses with fewer financial reporting requirements.
Of course, limited liability companies (LLCs) also have some disadvantages. Due to the limit on the number of shareholders, LLCs have certain challenges in financing. Compared with joint-stock companies, LLCs cannot raise funds through public issuance of shares, and financing channels are relatively limited. This can be detrimental to businesses that require large-scale financial support. In addition, the transfer of shares by LLC shareholders is relatively complicated and must obtain the consent of other shareholders, which limits the exit mechanism of shareholders and affects the liquidity of the company’s equity.
On the other hand, the advantage of a joint stock company (JSC) is its strong financing capacity. JSC can raise funds through public issuance of shares, which makes it particularly suitable for businesses that require large amounts of capital, especially companies that plan to expand their business scale in Vietnam or international markets. In addition, JSC’s equity is highly liquid and shareholders can freely buy and sell shares without the consent of other shareholders. This flexibility makes JSC more attractive in the capital market and can more easily attract external investors and strategic partners.
Another significant advantage of a joint stock company (JSC) is its relatively complete corporate governance structure. JSC usually has a board of directors, a board of supervisors and senior management, forming a relatively complete corporate governance system. This governance structure helps ensure the company’s management transparency, improves the quality of decision-making, and reduces conflicts of interest between management and shareholders. For large enterprises, this governance system can effectively manage complex business operations and improve company management efficiency.
Secondly , a joint stock company (JSC) also has its disadvantages. First, the establishment and operation costs of JSC are relatively high. Establishing a JSC requires more complex procedures, including high requirements for registered capital, more legal compliance obligations and regular financial reporting. In addition, JSC’s corporate governance is more complex and requires more human resources and management costs to maintain its operations. For small and medium-sized businesses, this complexity and cost can become a significant burden.
In addition, joint stock companies (JSCs) face more stringent regulatory and disclosure requirements, especially for publicly listed JSCs. The law requires JSC to regularly disclose its financial status to the public, which increases the company’s operational transparency, but may also lead to the leakage of sensitive information and bring potential competitive risks to the company. This can become an important disadvantage for businesses that are reluctant to disclose their financial information or wish to keep their business private.
Summary: Limited liability companies (LLC) and joint stock companies (JSC) each have their own pros and cons and are suitable for different types of businesses. LLC is suitable for start-ups, small businesses and investors who want to maintain a relatively simple corporate structure, while JSC is more suitable for medium and large enterprises that require large amounts of capital and plan for long-term development.
Recommendations for company types suitable for different industries and sizes
When choosing the type of company suitable for their own development, enterprises must make comprehensive considerations based on their industry and business size. Different types of company structures have advantages and disadvantages in terms of governance, financing, taxation and legal liability, which means that the type of company that is suitable for one industry or business size may not be ideal in another area. Therefore, providing suggestions on company types suitable for different industries and sizes can help companies better adapt to market needs and improve their competitiveness.
For small businesses or startups, especially those in service, consulting, retail, or small-scale manufacturing, a limited liability company (LLC) is often the more ideal choice. The establishment process of an LLC is relatively simple, requires less initial investment, and has lower tax processing and financial reporting requirements, which helps reduce the operational burden of start-up companies. Especially in the start-up stage, companies usually need more flexibility to respond to market changes, and the shareholder structure and decision-making mechanism of an LLC can provide companies with this flexibility. For example, small businesses in industries such as catering, e-commerce, and personal care services can reduce initial operating costs and protect personal assets by choosing an LLC.
For medium-sized companies, especially those that require larger investments or plan to expand rapidly, a joint stock company (JSC) may be more suitable. For example, industries such as manufacturing, technology industries, medical equipment, and real estate development usually require large amounts of capital investment and attract external investment during the development process. JSC’s shareholding structure and ability to issue shares publicly make it an ideal choice in these industries. JSC is able to quickly raise funds through the capital market to support the company’s expansion and research and development needs. For example, after a technology startup reaches a certain scale, it may want to raise funds through an IPO to support its international expansion plans. In this case, the JSC structure can help the company quickly attract more investors and attract and retain high-end talents through equity incentive mechanisms.
For those large enterprises involving high-tech and highly capital-intensive industries, such as energy, heavy industry, financial services, etc., the advantages of joint stock companies (JSC) are even more prominent. JSC’s corporate governance structure is relatively complete and can effectively respond to the complex management needs of large enterprises. At the same time, it can achieve higher operational efficiency through a multi-level management structure. In addition, JSC’s high equity liquidity and financing capabilities can provide continued financial support to these capital-intensive industries. For example, banks, insurance companies or large manufacturing companies usually require large amounts of capital to support their business operations and risk management. In this case, choosing JSC can not only help the company obtain the required funds, but also reduce the company’s operational risks by diversifying equity.
For foreign-invested enterprises, regardless of their size, that want to operate in the Vietnamese market for the long term and establish a solid market position, the Joint Stock Company (JSC) is also an option worth considering. The Vietnamese government has strict restrictions on the shareholding ratio of foreign investment in certain industries, especially those involving national security or sensitive fields. Therefore, for foreign-invested enterprises, setting up a JSC and cooperating with local enterprises can better adapt to Vietnam’s market environment. For example, foreign-invested enterprises entering Vietnam’s real estate, media or telecommunications industries usually need to establish a JSC and operate it with local partners to comply with local legal requirements.
In industries such as agricultural product processing, tourism, education and healthcare, companies need to evaluate specific market needs and policy orientations when choosing a company type. For small and medium-sized enterprises in these industries, the flexibility and low-cost advantages of a limited liability company (LLC) may be more significant. For example, agricultural product processing companies often face uncertainties in seasonal production and sales. Choosing an LLC can provide companies with flexible management methods and reduce financial burdens. In the education and healthcare industries, although joint stock companies (JSCs) have strong governance structures and financing capabilities, if the company is smaller or has a more focused market positioning, choosing an LLC can also bring higher operational efficiency and market share. flexibility.
In summary, when setting up a company in Vietnam, it is crucial to choose the type of company that suits its industry and size. A limited liability company (LLC) is suitable for small businesses, start-ups, and industries that require flexible management, while a joint stock company (JSC) is more suitable for medium and large enterprises, capital-intensive industries, and companies that require public financing. By choosing an appropriate company structure based on its business nature and development needs, companies can better adapt to the legal and economic environment of the Vietnamese market and achieve long-term and stable development.
