Management Models of a Single-Member LLC under the Law

How is a single-member limited liability company organized and managed if owned by an organization? What conditions must the company owner meet?

1. Is everyone entitled to establish and manage enterprises in Vietnam?

Under Article 17 of the Law on Enterprises 2020 on the right to establish, contribute capital, buy shares, buy contributed capital and manage enterprises, as follows:

“1. Organizations and individuals have the right to establish and manage enterprises in Vietnam under this Law, except as provided in Clause 2 of this Article.

2. The following organizations and individuals have no right to establish and manage enterprises in Vietnam:

a) State agencies and people’s armed forces units using state assets to establish enterprises for their own profit;

b) Officials, civil servants and public employees under the Law on Officials and Civil Servants and the Law on Public Employees;

c) Officers, non-commissioned officers, professional soldiers, defense workers and public employees in agencies and units of the Vietnam People’s Army; professional officers, non-commissioned officers and police workers in agencies and units of the Vietnam People’s Public Security, except those appointed as authorized representatives to manage state capital at enterprises or manage state enterprises;

d) Leading officials and professional managers in state enterprises under point a, Clause 1, Article 88 of this Law, except those appointed as authorized representatives to manage state capital at other enterprises;

dd) Minors; persons with restricted civil act capacity; persons who have lost civil act capacity; persons with difficulties in cognition or behavior control; organizations without legal entity status;

e) Persons under criminal prosecution, in temporary detention, serving prison sentences, serving administrative handling measures at compulsory drug rehabilitation facilities or compulsory education facilities, or banned by the Court from holding positions, practicing a profession or doing certain work; other cases under the Law on Bankruptcy and the Law on Anti-Corruption.

Where the Business Registration Authority so requests, the enterprise establishment registrant must submit a Criminal Record Certificate to the Business Registration Authority;

g) Organizations that are commercial legal entities banned from trading or operating in certain fields under the Penal Code.

The Law on Enterprises allows individuals and organizations to establish enterprises in Vietnam; these subjects have the right to participate in enterprise legal relations, with equal rights and obligations as recognized by law.

However, not everyone is entitled to establish and manage enterprises in Vietnam, because the law also limits the right to establish and manage enterprises in certain specific cases as stated, to protect the interests of enterprises and other interests in participating in enterprise legal relations.

2. What conditions must the owner of a single-member limited liability company meet?

Under Clause 25, Article 4 of the Law on Enterprises 2020: “An enterprise founder is an individual or organization that establishes or contributes capital to establish an enterprise.”

Under Clause 24, Article 4 of the Law on Enterprises 2020: “An enterprise manager is a manager of a private enterprise and a manager of a company, including the private enterprise owner, general partners, the Chairman of the Members’ Council, members of the Members’ Council, the Company Chairman, the Chairman of the Board of Directors, members of the Board of Directors, the Director or General Director, and individuals holding other managerial titles under the company charter.”

And under Clause 1, Article 74 of the Law on Enterprises 2020: “A single-member limited liability company is an enterprise owned by one organization or one individual (hereinafter called the company owner). The company owner is liable for the company’s debts and other asset obligations within the company’s charter capital.”

Accordingly, the owner of a single-member limited liability company must meet the conditions stated above, as provided in Article 17 of the Law on Enterprises 2020 on the right to establish, contribute capital, buy shares, buy contributed capital and manage enterprises, as well as the specific provisions on single-member limited liability companies.

3. How is the management model of a single-member limited liability company owned by an organization regulated?

Article 79 of the Law on Enterprises 2020 provides that a single-member limited liability company owned by an organization is organized, managed and operates under one of the following two models:

– Company Chairman, Director or General Director;

– Members’ Council, Director or General Director.

For a company whose owner is a state enterprise under the Law on Enterprises, a Board of Controllers must be established; in other cases, it is decided by the company.

The organizational structure, working regime, standards, conditions, dismissal, removal, rights, obligations and responsibilities of the Board of Controllers and Controllers are carried out correspondingly under the Law.

The company must have at least one legal representative holding one of the titles of Chairman of the Members’ Council, Company Chairman, or Director or General Director.

Where the company charter does not provide, the Chairman of the Members’ Council or the Company Chairman is the legal representative of the company. Where the company charter does not provide otherwise, the organizational structure, operation, functions, rights and obligations of the Members’ Council, Company Chairman, Director or General Director are carried out as prescribed.

The management organizational structure of a single-member limited liability company owned by an organization or an individual has different provisions suitable to each type of subject. This meets the needs of the business owner while ensuring the operation of the organization when it becomes the owner of an enterprise. As a result, the organization can both exercise its rights and ensure compliance with legal principles.