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:
- 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).
Joint Stock Company has at least 3 shareholders and not limit the maximum number.
- 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 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
- Single member LTD: Owner increases charter capital
- Multi members LTD: Members increase their charter capital, or increasing the number of capital contributors
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
- 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.
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.