Headlines 18/09/2020 11:51 SA

10 new regulations regarding business establishment in force on January 1, 2021

Thanh Lợi

Below are 10 new significant regulations regarding registration for establishment of enterprises in the 2020 Law on Enterprises (in force from January 1, 2021).

1. Adding more entities prohibited from establishing businesses

In comparison to the 2014 Law on Enterprises (currently in force), the 2020 Law on Enterprises will be supplemented with more entities prohibited from establishing enterprises, including:

- Police workers serving in agencies and units of the People's Police of Vietnam (except for those who are appointed as authorized representatives to manage the State's contributed capital at enterprises);

- Persons who have cognitive and behavioral difficulties;

- Entities which are legal commercial persons prohibited from business and operation in certain particular sectors prescribed in the Penal Code.  

2. Abolishing regulations regarding notification of corporate stamp specimens before use  

Article 43 in the 2020 Law on Enterprises sets forth regulations on corporate stamps as follows:

- Corporate stamps comprise those that may be engraved by stamp carving service businesses or those that exist in the form of digital signatures prescribed in the law on electronic transactions.   

- Enterprises may, on their own initiative, decide on the type of their corporate stamp, quantity of their corporate stamps and information shown on stamps of their own, branches or representative offices and other affiliates.

- Handling and custody or storage of corporate stamps must conform to regulations included in charters of enterprises holding corporate stamps or rules adopted by enterprises holding corporate stamps themselves, their branches, representative offices or other affiliates.    Enterprises must use their corporate stamps in transactions required by law.

This means that, in comparison with regulations on corporate stamps enshrined in the 2014 Law on Enterprises, the newly-adopted Law invalidates the regulation: “Before use of corporate stamps, enterprises are obligated to inform business registries of their corporate stamp specimens so that they are publicly posted on the National Corporate Registration Portal”.

3. Regulations regarding contracts made before registration of businesses in force from January 1, 2021

- The enterprise’s founder may sign contracts serving the establishment and operation of the enterprise before and during the process of enterprise registration.

- When the Certificate of Enterprise Registration is granted, the enterprise must continue exercising and performing the rights and obligations under the concluded contracts mentioned in Clause 1 of this Article, and the parties must transfer the rights and obligations in accordance with the Civil Code, unless prescribed by the contracts;

(Current regulations prescribe that “When an enterprise is established, the enterprise must continue exercising and performing the rights and obligations under the concluded contracts, unless otherwise agreed upon between contracting parties").

- In case the Certificate of Enterprise Registration is not granted, the persons who conclude the contracts mentioned in Clause 1 of this Article are responsible for their execution. Any other participant in the establishment of the enterprise is also responsible for the execution of these contracts;

(Current regulations prescribe that “If an enterprise refused the registration of its establishment, the person signing the contract must be responsible or the founder of the enterprise must be jointly responsible for executing that contract”).

4. From January 1, 2021, enterprises will assume the following responsibilities:

- Registering revisions to the Certificate of Enterprise Registration.

- Notifying changes to enterprise registration information.

- Applying for revision of the Certificate of Branch/Representative Office Registration whenever a change occurs in accordance with regulations.

(Current regulations prescribe responsibilities for registration of change of contents of Certificate of Enterprise registration, notification of change of contents of business registration of enterprises, registration for change of contents of Certificate of registration for operation of branches, representative offices of enterprises whenever such changes occurs are assumed by legal representatives of enterprises).

5. If an enterprise creates a business location, that business location’s name must be composed of the enterprise’s name and the phrase “Business location”.

(there are none of current regulations on this matter).

6. The following cases in which names are deemed to be confused with those that have already been registered, including:

- The Vietnamese name of the applying enterprise is pronounced similarly to a registered enterprise’s name;

- The abbreviated name of the applying enterprise is identical to the abbreviated name of a registered enterprise;

- The foreign language name of the applying enterprise is identical to the foreign language name of a registered enterprise;

- The proper name of the applying enterprise is only different from the proper name of a registered enterprise by a natural number or a letter in the Vietnamese alphabet or any of the letters F, J, Z, W that is written right after the proper name with or without a space;

- The proper name of the applying enterprise is only different from the proper name of an registered enterprise of the same type by the word “và” (“and”) or the symbol “&”, ”, “.”, “,”, “+”, “-”, “_”;

- The proper name of the applying enterprise is only different from the proper name of an registered enterprise of the same type by the word “tân” or “mới” (“new”) that is written right before or after the proper name;

- The proper name of the applying enterprise is only different from the proper name of an registered enterprise of one of the phrases “miền Bắc” (“north”), “miền Nam” (“south”), “miền Trung” (“central”), “miền Tây” (“west”), “miền Dông” (“east”);

- The proper name of the applying enterprise is identical to that of a registered enterprise.

7. Regulations on valuation of contributed assets upon establishment of enterprises in force from January 1, 2021

- Contributed assets that are not VND, convertible foreign currencies or gold must be valued by members/partners/shareholders or a valuation organization and expressed as VND.

- Assets contributed upon establishment of an enterprise must be valued by members/partners/founding shareholders by consensus or by a valuation organization.

In the latter case, the value of contributed assets must be accepted by more than 50% of the members/partners/founding shareholders;

(Current regulations prescribe that if the valuation is carried out by a professional valuing organization, the value of contributed assets must be accepted by a majority of the members/partners/founding shareholders”).

In case a contributed asset is valued at a value higher than its actual value at contribution time (overvalued), the members/partners/founding shareholders must jointly contribute an amount equal to the difference and are jointly responsible for the damage caused by the overvaluation.

8. Main contents of the company’s charter, including:

- The company’s name, addresses of the headquarters, branches and representative offices (if any).

- The company’s business lines.

- The charter capital; total quantity of shares, types of shares and face value of each type (for joint stock companies).

- Full name, mailing address, nationality of each partner (for partnerships), the owner and each member (for limited liability companies) or the founding shareholders (for joint stock companies). Stakes held by each member or partner (for limited liability companies and partnerships) and values thereof. Quantity of shares, types of shares and value of each type held by founding shareholders (for joint stock companies);

(Current regulations prescribe not only full name, contact address, nationality, but also other basic characteristics).

- Rights and obligations of the members or partners (for limited liability companies and partnerships) or shareholders (for joint stock companies);

- The organizational structure.

- Quantity, titles, rights and obligations of each of the enterprise’s legal representatives; distribution of rights and obligations amongst legal representatives if a company has more than one legal representative;

(Current regulations prescribe that only limited liability companies or joint stock companies need to provide information about legal representatives).

- Method for ratifying the company’s decisions; rules for settlement of internal disputes;

- Basis and method for determination of salaries and bonuses of the executives and controllers;

- Cases in which members/shareholders may request the company to repurchase their stakes/shares (For limited liability companies/joint stock companies).

- Rules for distribution of post-tax profits and settlement of business losses.

- Cases of dissolution; procedures for dissolution and liquidation of the company’s assets.

- Procedures for revising the company's charter.

9. Time of capital contribution to setting up multiple-member limited liability companies

- The members must contribute sufficient and correct assets as promised when applying for enterprise registration within 90 days from the issuance date of the Certificate of Enterprise Registration. The time needed to transport or import the contributed assets and for completing ownership transfer procedures will be added to this 90-day period.

- In the cases where a member fails to contribute or fully contribute capital as promised, the company must register the change in charter capital and the members’ holdings within 30 days from the regulated deadline for contributing capital (currently, 60 days from the deadline for full capital contribution).

10. From January 1, 2021, sole proprietorships may be directly transformed into joint stock companies at their discretion if they meet the following conditions:

- The transformable company must fully meet the conditions:

+ The registered business lines are not banned;

+ The enterprise’s name is conformable with regulations of the legislation on enterprises;

+ The enterprise registration application is valid;

+ The enterprise registration fees are fully paid in accordance with regulations of law on fees and charges.

- The owner makes a written commitment to take personal responsibility for all unpaid debts and pay them when they are due with all of his/her assets;

- The owner has a written agreement with the parties of ongoing contracts that the new company will take over and continue executing these contracts;

- The owner has a written commitment or agreement with other limited partners to continue hiring the existing employees of the sole proprietorship.

Existing regulations: According to the 2014 Law on Enterprises, a sole proprietorship wishing to be transformed into a joint stock company is not allowed to be transformed straightly into a joint stock company, but has to be transformed into a limited liability company which is then transformed into a joint stock company under Article 196 in the 2014 Law on Enterprises.

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