Should You Establish an LLC or JSC When Entering Vietnam?

Since the Vietnamese government introduced an overhaul of the investment laws allowing foreign individuals and companies 100% ownership of a company in Vietnam, FDI has been pouring into the country. To understand your incorporation options, you need to be aware of two of the most common entities registered by foreigners in Vietnam: a Limited Liability Company (LLC), which is for SMEs looking for a simple structure, and a Joint Stock Company (JSC), for larger companies who wish to be listed on the stock exchange. 

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Basic Comparison of Legal Entities in Vietnam

	Limited Liability Company (LLC)	Joint Stock Company (JSC)
Number of owners	1-50	3+
Initial capital	Required for some (e.g., real-estate), for the rest “sufficient capital” is needed	Requiring for some (e.g., real-estate), for the rest “sufficient capital” is needed VND 10B, if listed
Time	1-3 months	1-3 months
Corporate governance	For limited liability companies with two members or more: Member’s Council, The chairman of the members’ Council, The Director (General Director) Note: The company has at least 01 legal rep holding one of the titles of Chairman of the Members’ Council, Director, or General Director. If there is no provision in the company’s charter, the chairman of the Board of Directors will be the legal rep. For a one-member limited liability company, which an organization owns, you have the right to choose an organization to manage and operate according to one of the following two models: the President of the company, Director (General Director), and Board of members. The company has at least 01 legal rep holding one of the titles of Chairman of the Members’ Council, President of the company, or Director or General Director. Unless otherwise provided by the company’s charter, the Chairman of the Members’ Council or the company’s President shall be the company’s legal representative. For a one-member limited liability company owned by an individual: Company president, Director (General Director The company’s owner is the President of the company and may concurrently hire another person to act as the Director or General Director. Based on Article 54	A joint-stock company has the right to choose an organization to manage and operate according to one of the following two models: (1) The General Meeting of Shareholders, The Board of Directors, The Supervisory Board, Director (General Director) Note: In case a joint-stock company has less than 11 shareholders, and the shareholders are organizations holding less than 50% of the total shares of the company, it is not required to have a Supervisory Board. (2) General Meeting of Shareholders, Board of Directors, Director (General Director) In this case, at least 20% of the members of the Board of Directors must be independent members and have an Audit Committee under the Board of Directors. The organizational structure, functions, and tasks of the Audit Committee are specified in the company’s charter or the operation regulations of the Audit Committee issued by the Board of Directors. Based on Article 137

• The government defines the minimum Capital Amount, and current legislation is being updated. Please check with our team for more info.

In terms of establishment, LLC and JSC are very similar. Even though it costs the same and takes about the same amount of time, creating an LLC may simplify the registration procedure.

The main advantage of an LLC is that it allows registration with only 1 or 2 shareholders and its simplified business structure.  For LLCs that have less than two shareholders, there are two ways to construct one of the two models: (1) A president of the company and a Director (General Director) or (2) A Board of members and a Director (General Director).

If there are more than two owners (members), the company needs to appoint the member’s council, the Chairman of the members’ council, and the Director (general director)

In contrast, a JSC needs a minimum of three shareholders, with no maximum restrictions on how many shareholders. A JSC may be publicly listed at the Hanoi Stock Exchange (HNX) or the Ho Chi Minh Stock Exchange if the capital exceeds 30 billion VND..

RELATED: How to Set Up a Company in Vietnam in 2021

What are the steps to set up an LLC?  

1. Apply for an ERC (Enterprise Registration Certificate) with the following requirements

• An application for enterprise registration.
• The company’s charter.
• List of members.
• Copies of the following papers:

2. Legal identification papers of individuals, for members being individuals or legal representatives;

3. Legal documents of the organization for members appointed an authorized representative; legal papers of individuals for authorized representatives of members being organizations.

For members being foreign organizations, copies of legal papers of the organization must be consular legalized;

4. Investment registration certificate for foreign investors by the Law on Investment.

What is the requirement to start a JSC?

• An application for enterprise registration.

• The company’s charter.

• List of members for limited liability companies with two or more members; the list of founding shareholders and the list of shareholders who are foreign investors for joint-stock companies.

• Copies of the following papers:

a) Legal papers of the individual for the legal representative of the enterprise;

b) Legal papers of individuals for company members, founding shareholders, shareholders being foreign investors who are individuals; Legal papers of the organization for members, founding shareholders, shareholders being foreign investors being organizations; Legal papers of individuals for authorized representatives of members, founding shareholders, shareholders being foreign investors being organizations and documents on the appointment of authorized representatives.

For members and shareholders being foreign organizations, copies of legal papers of the organization must be consular legalized;

c) Certificate of investment registration, in case the enterprise is established or participated in the establishment by a foreign investor or a foreign-invested economic organization by the provisions of the Investment Law and other legal documents; implementation manual.

Can a  Vietnamese JSC be listed on the foreign stock exchange?

Yes. Conditions for listing and trading securities on a stock exchange in Vietnam are as follows:

1. Not on the list of industries prohibited by law from foreign parties, and you must ensure the foreign ownership ratio as prescribed.

2. Issuing organizations registering for listing and trading securities at foreign Stock Exchanges must be associated with an offshore securities offering.

3. There is a decision approving the listing and trading of securities at foreign stock exchanges by the General Meeting of Shareholders (for joint-stock companies) and the Members’ Council (for limited liability companies). Limited liability company with two or more members) or the company owner (in the case of a single-member limited liability company).

4. Satisfy the conditions for listing and trading at the Stock Exchange of the country with which the securities market management agency or the Stock Exchange has a cooperation agreement with the State Securities Commission or the Stock Exchange in Vietnam.

5. Comply with Vietnam’s regulations on foreign exchange management.

6. Issuing organization being a conditional business organization, must be approved by a specialized state management agency.

Further Differences between LLCs and JSCs

	LLC	JSC
Liability	Limited to the charter capital	Limited by the investment to the company.
Adding/changing capital and shareholders	All shareholders must agree to change.	Can issue both ordinary and preference shares. Shares can be sold and traded on the stock exchange. The initial shareholders’ common shares can be transferred freely during the first three years. If claims are transferred to other founding shareholders, they need to be approved by a meeting of shareholders.
Dividend tax for overseas shareholders	0% withholding tax for corporate shareholders   5% for individuals	0% withholding tax for corporate shareholders   5% for individuals
Corporate Income Tax	20%	20%
Capital Gain Tax	It should be taxed as income tax (CIT).   20% for corporates and tax residents in Vietnam. For non-residents, the tax is 0.1% of the total selling price.	It should be taxed as income tax (CIT).   20% for corporates and tax residents in Vietnam. For non-residents, the tax is 0.1% of the total selling price.

The change of ownership and tax implications are the same or similar for LLC and JSC. Both types of entities can raise capital and change ownership. The transfer of shareholders is, however, more difficult in the case of an LLC due to the required permission from other shareholders. A JSC can also publicly issue both common and preferential trade shares.

For any of the two mentioned above, taxation depends on the investor’s type, nationality, and status. Generally, a foreign company will have a better term on repatriation of profit (dividends), which will not be taxed. In contrast, the foreign individual without tax residency in Vietnam will be required to pay lower taxes in Vietnam on the capital sale. It will only be 0.1% of the total sale proceeds.

LLC or JSC?

In conclusion, both company types are thus viable choices for international investors expanding in Vietnam. As a rule of thumb, we advise forming a JSC for larger firms with more owners or businesses that intend to go public instead of an LLC for smaller companies with fewer owners.

Resources

Article 126 of the law on the foreign stock exchange

Article 68 of the law on charter capital 

Article 54 of the law on corporate governance 

Article 79 of the law on organizational governance of a single-member limited liability company owned by the organization 

Article 85 of the law on organizational governance of a single-member limited liability company owned by an individual 

Article 120 of the law on Shares of founding shareholders

This article was originally published in March 2019, and was updated with the newest information in November 2022.

Originally published: 20 March 2019; latest update: 14 November 2022.