1. Introduction to Setting Up a Company for Foreigners in Vietnam
Vietnam has become one of the most attractive destinations for foreign investors, thanks to its rapidly growing economy, favorable policies, and business-friendly environment. Foreign nationals setting up a company in Vietnam will encounter many exciting business opportunities, but also face challenges that investors need to understand before entering the market.
In this article, let’s explore the different types of companies foreign nationals can choose when setting up a company in Vietnam, brought to you by FTA LAW.
2. Types of Companies Foreigners Can Set Up in Vietnam
2.1. One-Member Limited Liability Company (LLC)
A One-Member Limited Liability Company (LLC) is one of the most popular types of businesses for foreign individuals or organizations who want to set up a company in Vietnam without a partner.
Characteristics of a One-Member LLC:
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Owned 100% by one individual or organization.
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Has legal status independent of its owner.
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The owner is only liable to the extent of their capital contribution.
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Can expand by converting into a two-member LLC or a joint-stock company.
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Suitable for small and medium-sized enterprises (SMEs).
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Easy to manage with no need for board meetings.
Advantages:
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Full control of the business: Since there is only one owner, foreign investors have complete control over business operations without the need to compromise with partners.
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Minimal personal risk: The owner is only liable up to the amount of their investment, reducing financial risks.
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Easy management: Quick decision-making process as there is no division of power between multiple shareholders.
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Flexible operations: It’s easy to change the capital structure or ownership without needing consensus from multiple parties.
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Tax optimization: The business owner can take advantage of flexible tax policies to optimize profits.
Disadvantages:
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Limited capital raising options: It cannot issue shares to raise capital from external sources, which may limit the company’s expansion.
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Capital transfer restrictions: If the owner wants to transfer capital, certain legal procedures must be followed.
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Restrictions in some industries: Certain sectors may require a minimum number of shareholders, making a one-member LLC unsuitable.
Figure 1: A One-Member LLC helps investors manage easily with minimal risks.
2.2. Multi-Member Limited Liability Company (LLC)
If a foreign investor wants to partner with one or more individuals or organizations, establishing a multi-member LLC is a viable option.
Characteristics of a Multi-Member LLC:
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Has between 2 and 50 capital contributors.
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Members are only liable up to the amount of their contribution.
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Has legal status independent of its members.
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Cannot issue shares like a joint-stock company.
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Members vote based on their capital contribution.
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The organization includes a board of members, a director, or a general director.
Advantages:
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Increased capital raising capability: It can raise capital from multiple investors without the pressure of public financial disclosure like joint-stock companies.
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Flexible management: Responsibility can be shared among capital contributors.
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Minimized personal risk: Members are only liable up to the amount of their contribution, protecting personal assets from business risks.
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Easy profit distribution: Profits can be distributed based on capital contributions.
Disadvantages:
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More complex management: With more members, clear mechanisms need to be in place to resolve internal conflicts.
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Capital transfer limitations: When a member wishes to transfer their share, approval from the other members is required.
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Limited expansion opportunities: Without the ability to issue shares, a multi-member LLC may struggle when large-scale capital raising is needed.
Figure 2: A Multi-Member LLC makes it easier for investors to raise capital and share profits.
2.3. Joint-Stock Company
A Joint-Stock Company is an ideal choice for foreign investors wanting to establish a large-scale company with strong capital-raising abilities.
Characteristics of a Joint-Stock Company:
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There is no limit to the number of shareholders.
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Can issue shares to raise capital from the public.
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Has legal status independent of its shareholders.
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Shareholders are only liable up to the amount of their contribution.
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Can be listed on the stock exchange to expand its scale.
Advantages:
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Strong capital-raising potential: It can issue shares to attract investment from various sources.
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Easy share transfer: Shareholders can transfer shares freely without the need for approval from other shareholders.
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High credibility: Joint-stock companies are often more highly regarded in business transactions and international partnerships.
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Rapid scale expansion: Can access large sources of capital to grow the business.
Disadvantages:
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Complex management: Due to the number of shareholders, decision-making can take longer, and a clear governance structure is needed.
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High financial transparency requirements: Must comply with strict financial reporting and information disclosure regulations.
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Potential internal disputes: Without effective governance, disputes among shareholders may impact business operations.
Figure 3: A Joint-Stock Company helps investors expand rapidly.
3. Conclusion
Vietnam is a potential market for foreign investors seeking attractive profit opportunities. Choosing the right type of company when setting up a company will help optimize business efficiency. We hope this article provides you with an overview of the different company structures foreign nationals can set up in Vietnam. If you need advice on setting up a company in Vietnam for yourself or a foreign investor, please contact FTA LAW for detailed and professional support.
Note: The content above is for reference purposes only and does not constitute official legal advice from the FTA Law team. If you have any questions or need advice for a specific case, please contact us at support@ftalaw.vn. We are always ready to listen and assist you.