1. OVERVIEW OF BUSINESS ESTABLISHMENT
Establishing a business is no longer an unfamiliar term in Vietnam. Basically, establishing a business is a legal procedure that individuals and organizations must complete at the relevant government agency when they want to conduct business. To complete this procedure, they need to prepare all the necessary conditions such as human resources, office space, capital, business name, etc.
Businesses hold immense importance not only for the entities that establish them but also for the development of the economy, society, and the nation. Once established as a legally recognized economic organization, a business is recognized by the State and protected by law, enabling it to participate in production and business activities. This, in turn, contributes to enhancing its brand and promoting economic development.
So those Who has the right to establish a business?, Cases where business establishment is prohibited In Vietnam? This article provides a complete and detailed guide on the requirements for establishing a business in Vietnam.
2. WHO HAS THE RIGHT TO ESTABLISH A BUSINESS?
The conditions for establishing a business (company formation) generally refer to the requirements under which organizations and individuals can register to establish a business and be granted a business registration certificate by the competent authority (Department of Planning and Investment).
The State encourages investment and business activities and creates the most favorable conditions for all entities to participate in investment and business. Therefore, almost all organizations and individuals have the right to establish and manage businesses in Vietnam. However, the establishment of a business must meet the following conditions.
2.1. Conditions for civil subjects
i) Individual case:
When an individual wants to establish a business, that individual must have full legal capacity. An individual's legal capacity is their ability, through their actions, to establish and fulfill civil rights and obligations. It can be seen that only when an individual has full legal capacity can they be held responsible for the business they establish or invest in.
ii) In the case of organizations:
If the entity establishing the business is an organization, that organization must have legal personality. Only with legal personality can an organization possess independent assets and be independently liable for those assets.
2.2. Not subject to restrictions on establishing a business under the Enterprise Law.
For various reasons, Vietnamese law also excludes the right to establish businesses for certain individuals, even those with full legal capacity, or for organizations with legal personality, as follows:
According to the Enterprise Law, organizations and individuals have the right to establish and manage businesses in Vietnam, except in the following cases where they are not entitled to establish and manage businesses in Vietnam:
a) State agencies and units of the people's armed forces using state assets to establish businesses for the purpose of generating private profits for their respective agencies or units;
b) Officials, civil servants, and public employees as defined by the Law on Officials and Civil Servants and the Law on Public Employees;
c) Officers, non-commissioned officers, professional soldiers, workers, and defense employees in agencies and units of the Vietnam People's Army; officers, professional non-commissioned officers, and police workers in agencies and units of the Vietnam People's Public Security, except for those appointed as authorized representatives to manage the State's capital contribution in enterprises or to manage state-owned enterprises;
d) Professional leaders and managers in state-owned enterprises as prescribed in point a, clause 1, Article 88 of this Law, excluding those appointed as authorized representatives to manage the State's capital contribution in other enterprises;
e) Minors; persons with limited legal capacity; persons who have lost their legal capacity; persons with difficulties in understanding and controlling their behavior; organizations without legal personality;
f) Persons who are being prosecuted for criminal offenses, are being held in temporary detention, are serving prison sentences, are undergoing administrative sanctions at compulsory rehabilitation centers or compulsory education centers, or are prohibited by the Court from holding certain positions, practicing certain professions, or performing certain jobs; and other cases as prescribed by the Bankruptcy Law and the Law on Prevention and Combat of Corruption.
If requested by the Business Registration Authority, the person registering the establishment of a business must submit a criminal record certificate to the Business Registration Authority.
g) An organization that is a commercial legal entity prohibited from doing business or operating in certain fields as stipulated in the Penal Code.
Note: The following restrictions on capital contribution rights under the Enterprise Law also lead to restrictions on the right of the following entities to participate in the establishment of enterprises:
Organizations and individuals have the right to contribute capital, purchase shares, or purchase capital contributions in joint-stock companies, limited liability companies, and partnerships in accordance with the provisions of the Enterprise Law, except in the following cases:
a) State agencies and units of the people's armed forces use state assets to contribute capital to enterprises for the purpose of generating private profits for their respective agencies or units;
b) Individuals prohibited from contributing capital to businesses according to the Law on Cadres and Civil Servants, the Law on Public Employees, and the Law on Prevention and Combat of Corruption.
2.3. Not subject to the following specific restrictions on business establishment:
In addition to the regulations mentioned above, the right of individuals and organizations to establish businesses is also restricted in some specific ways as follows:
i) For private enterprises:
Each individual is only entitled to establish one private enterprise. The owner of a private enterprise cannot simultaneously be the owner of a sole proprietorship or a partner in a partnership. Furthermore, private enterprises are not permitted to contribute capital to establish or purchase shares or capital contributions in a partnership, limited liability company, or joint-stock company. This regulation exists because in a private enterprise, the owner is solely liable with all of their personal assets. This means that the owner's assets are inseparable from the business's assets.
ii) For partnerships:
A general partner is not allowed to own a private enterprise; nor is he/she allowed to be a general partner in another partnership unless agreed upon by the other general partners. Furthermore, a general partner must be an individual and is liable for the company's obligations with all of his/her assets. Similarly, a general partner will have unlimited liability with his/her assets to the company.
The inability to separately define assets as described above will affect the ability to hold other businesses liable, as well as the sole proprietor or partner company itself. Because both the sole proprietor and the partners in a partnership company bear unlimited liability, this leads to certain difficulties for the individual when simultaneously fulfilling obligations to both parties.
3. IMPACT OF BUSINESS SECTOR AND BUSINESS ESTABLISHMENT
Business & Investment A business is defined and identified as an organization with a distinct name, assets, and a registered office, established or registered in accordance with the law for the purpose of conducting business. Thus, the establishment of a business is closely linked to the business activities that the business undertakes.
Meeting the requirements regarding business lines is a prerequisite when considering establishing a business. The following guidelines will help clarify how to meet these requirements, in detail as follows.
3.1. Businesses are prohibited from engaging in activities that are banned from investment and business operations.
The following 8 sectors and professions are prohibited from investment and business activities:
a) Trading in narcotic substances as specified in Appendix I of this Law;
b) Trading in chemicals and minerals specified in Appendix II of this Law;
c) Trading in specimens of wild plants and animals originating from natural exploitation as stipulated in Appendix I of the Convention on International Trade in Endangered Species of Wild Plants and Animals; specimens of endangered, rare, and precious forest plants, forest animals, and aquatic species of Group I originating from natural exploitation as stipulated in Appendix III of this Law;
d) Engaging in prostitution;
e) Buying and selling people, tissues, corpses, human body parts, and human fetuses;
f) Business activities related to human cloning;
g) Trading in firecrackers;
h) Debt collection services business.
3.2. Conditions must be met if the business is in a conditional industry.
i) The enterprise to be established must meet the requirements for conditional business lines as stipulated in the following list of conditional business lines:
| List of conditional business sectors according to the 2020 Investment Law |
ii) Notes on conditional business sectors:
+ For industries and business activities subject to conditional investment, investors must meet the investment and business conditions as prescribed by law.
+ Investment and business conditions are the conditions that individuals and organizations must meet when carrying out investment and business activities in industries or professions subject to conditional investment and business regulations.
+ Conditional investment and business sectors are those in which investment and business activities must meet necessary conditions for reasons of national defense, national security, social order and safety, social morality, and public health.
In cases where there are differing provisions between the Investment Law and other laws enacted before the effective date of the Investment Law regarding prohibited or conditionally permitted investment and business sectors, the provisions of the Investment Law shall prevail.
There are investment and business conditions you must meet before you can submit an application to establish a business. Therefore, if you do not meet these conditions, you cannot establish a business.
However, some business investment conditions do not require proof of eligibility during business establishment, but demand that you maintain compliance with these conditions throughout the operation. This leads to some cases of investment law violations due to failure to meet regulations regarding conditional business sectors.
For example:
To operate a business in the Employment Services sector, after establishing the company, the following documents must be submitted to apply for a license:
- The business's application for a license;
- A certified copy of the business registration certificate;
- A certified copy of the confirmation letter stating that a deposit of 300 million VND has been made at the bank;
- Documents proving that the location meets the legal requirements.
Within 15 days from the date of receipt of the application (01 set), the competent state agency shall issue a license for employment service activities.
Within 10 days of issuing the license, the competent state agency that issued the license for employment service activities must notify the People's Committee of the district where the enterprise's head office is located in writing.
After completing the above procedures, the employment service company is allowed to conduct business in the employment service sectors registered on its Business Registration Certificate.
Therefore, even if a business has been established, it will not be eligible to operate if it does not meet the regulations of that specific industry.
4. APPLICATION OF INVESTMENT CONDITIONS FOR ESTABLISHING BUSINESSES WHEN THERE IS FOREIGN INVESTMENT
Foreign investors must meet the requirements regarding industry, occupation, and market access conditions for foreign investors, including:
a) Industries and occupations that have not yet accessed the market;
b) Industries and occupations that have conditional market access.
c) The percentage of charter capital owned by foreign investors in economic organizations;
d) Form of investment;
e) Scope of investment activities;
f) The capacity of the investor; and partners participating in the investment activity;
g) Other conditions as prescribed.
View the list of sectors and professions with restricted market access for foreign investors here:
| List of sectors and occupations with restricted market access for foreign investors. |
The conditions for establishing a foreign-invested enterprise are subject to many specific regulations. If you require advice on a particular case, please contact Expertis for free assistance.