According to the Enterprise Law 2020, there are currently 5 types of enterprises, including: single-member limited liability companies, limited liability companies with two or more members, joint-stock companies, partnerships and private enterprises. . So when setting up a company, which type should you choose? MVA Law would like to provide some advice on choosing the type of business when establishing in the article below.

Choosing the type of business when establishing

Currently, there are 5 types of businesses:

• One member limited liability company
• Limited liability company with 2 or more members
• Joint Stock Company
• Private enterprise
• Partnerships

To choose the right type of business, businesses need to base on the following criteria.

1. Based on the number of members contributing capital

Based on the number of people contributing capital to the business. Depending on the number of people, choose a specific type of business.

• One-member limited liability company: is a model established and owned by an individual or an organization.
• Limited liability company with 2 or more members: is a model in which, when established and operating, there must be at least 2 members or more and no more than 50 members.
• Joint Stock Company: is a company model that requires at least 3 members and does not limit the maximum number of members.
• Private enterprise: is a model established and owned by an individual.
• Partnership: is an enterprise model that requires at least two members who are the joint owners of the company and may have other capital contributors (no limit to the maximum number).

2. Select the type based on the ability to contribute capital

Capital flexibility is the ability to raise capital of each type when needed.

One Member Limited Liability Company: The owner of the business can raise capital by transfer.

Limited liability company with 2 or more members: This is also a type of high capital mobilization when each member of the enterprise can transfer and resell their contributed capital.

Joint Stock Company: Because the law only stipulates the minimum number of members and does not stipulate the maximum number of members, the ability to raise capital of this company, can transfer capital to shareholders inside and outside the company. In a company, the number of shareholders in the company is unlimited, so a joint stock company can be considered as the type with the highest ability to raise capital among all types of businesses.

Private enterprise: This is a business model in which the business entity is unable to raise capital and issue shares or bonds.

Partnership: The partnership’s capital mobilization is also restricted when the partnership is not allowed to issue securities.

3. Select the type of business based on the organizational structure

Single Member Limited Liability Company: This is a business model that requires only one owner. Therefore, if an individual or organization has a start-up idea, they can choose this type of business without looking for other individuals or organizations to establish a company. Therefore, the individual is autonomous, proactive and has the full right to decide all activities of the company without being interfered by other individuals or organizations. The organizational structure of this type is also simple, so it is easy to manage and operate. Depending on the purpose, industry and business lines of the enterprise, the organizational structure of a single-member limited liability company basically includes: Board of Directors and Director or President and Director.

>>> Reference: What do you need to set up a one-member limited company?

Limited liability companies with 2 or more members: The basic organizational structure of the company includes: Chairman of the Members’ Council, Members’ Council, and Director. If the company has more than eleven members, the Supervisory Board must be established. A 2-member limited liability company consists of from 2 to 50 members, members can transfer capital to each other or withdraw capital from the company, but the number of members in the company cannot be reduced by more than 2 members. and cannot be more than 50 members.

>>> Reference: Procedure for setting up a 2 member limited company

Joint Stock Company: The basic organizational structure of the company includes: Board of Directors, General Meeting of Shareholders, Director. If the company has more than 11 shareholders, the Supervisory Board must be established. Just like a two-member limited liability company, the shareholders in a joint-stock company can also transfer shares to each other, as long as the number of shareholders is not less than 3, the company can still maintain the type of enterprise without do not have to change the type of company.

>>> Reference: Procedures for setting up a joint stock company

Private enterprise: The owner of a private enterprise directly or hires another person to manage and operate the business. In case of hiring someone else to act as the director of the enterprise, the owner of the private enterprise is still responsible for all business activities of the enterprise. Advantages and disadvantages of sole proprietorship. Select the type of business.

Partnership: The basic organizational structure of a partnership includes: chairman of the members’ council, members’ council, director/general director. This type of partnership is not very popular nowadays. Due to the nature of this type, very few business investors choose. Only some investors who want to rely on the influence of individuals or have business lines that need to establish a partnership will choose this type of business.

4. Criteria for property liability regime

1 Member Limited Liability Company: If there is any risk in the course of operation, the business entity is only liable to the extent of its committed capital. When there is a risk, the company is only responsible for the amount of capital committed, so it will be difficult to gain the trust of other business entities and businesses to do business with.

Limited liability company with 2 or more members: The members of the company will bear less risk because each member is only liable to the extent of the contributed capital.

Joint Stock Company: Shareholders are legally responsible to the extent of their capital contribution, so they can share the burden of risks with each other.

Private enterprise: This is an enterprise model in which the business entity is responsible for all activities of the company with all its assets (ie, not only within the scope of contributed capital but all its existing assets).

Partnership: Like a sole proprietorship, a partnership is also liable with all of its assets. However, this requirement only applies to owners, and capital contributors are only liable to the extent of the amount of capital contributed.