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 inVietnam.
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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