How to distinguish a Limited Liability
Company and a Joint Stock Company?
Vietnam Law allows the establishment
of a company in Vietnam in various forms. It is an important
step in investment process.
Investors could choose different forms depending on the
needs and capacity on the ability to raise capital and sharing the risk in
business as well as the management and operating costs. Each form will have its
own organizational structure, operating mechanism, rights and obligations
specified under Law on Enterprise 2014.
Currently, Limited Liability Company (“LTD”) and
Joint Stock Company (“JSC”) are two popular enterprise forms operating in Vietnam.
What is the difference between these two forms of companies?
I. Organizational Structure
Number of members/shareholders:
LTD
· Single member LTD: Having only one member (member can be an
organization or an individual);
· Multi members LTD: Having at least 2 members and not exceed 50
members (member can be an organization or an individual).
JSC
Joint Stock Company
has at least 3 shareholders and not limit the maximum number.
Management structure
LTD
· Single member LTD
Single member LTD
owner by an organization shall be organized under two models: Company
president, Director/General director and Supervisor; (OR) Members Council,
Director/General director and Supervisor.
Single member LTD
owner by an individual shall be organized as follows: Company president,
Director/General director.
· Multi members LTD
Multi members shall
be organized by: LTD Council members, Chairman of the Members Council and
Director/General director;
Multi members LTD
having 11 members or more shall establish the Board of Supervisors.
JSC
JSC can be
organized under two models: General Meeting of Shareholders, Board of
Directors, Board of Supervisors and Director/General director; (OR) General
Meeting of Shareholders, Board of Directors (Board of Internal Supervisors
under Board of Directors) and Director/General director.
II. Capital
Contribution
Raising capital
LTD
· Single member LTD: Owner increases charter capital
· Multi members LTD: Members increase their charter capital, or
increasing the number of capital contributors
JSC
Different from LTD,
JSC can raise its capital by various methods as follows: Selling shares to
existing shareholders; Selling shares individually to non-shareholders; Issuing
shres on the stock market.
Transfer of
contributed capital
LTD
· Single member LTD: Owner transfers a part of contributed capital
to other persons and this could lead to changes of the type of business or
other procedures if all capital is transferred (for instance in a M&A deal).
· Multi members LTD: Offer the stakes to other members in proportion
to their stakes in the company under the same conditions; The stakes
could only be transferred to other persons if the members do not buy or do not
buy completely within 30 days from the offering date.
JSC
The shareholders of
JSC are free for transfer their contributed capital after 03 years from the
establishment.
Having said that,
LTD is a type of enterprise that the capital contribution is not the only link
between the members of the company but they are also linked together by
relationship. They may be acquaintances and trust each other to jointly
contribute capital to establish an enterprise. Therefore, the management of the
LTD is as complicated as JSC. With the larger the number of shareholders, the
level of capital mobilization, voting power to decide on issues of the company
based on the ratio of capital contribution of each shareholder, the management
and operation of the JSC is more complex.
The ability to
raise capital of a JSC is higher than a LTD. Because, JSC can issue shares to
the public in the form of securities. When the stocks are listed on stock exchange,
the information of company’s business operations must be public and more
transparent.
The procedure to set up a
company in form of an LTD or a JSC has not much differences.
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