Regulations and procedures for business transformation

Business transformation is understood as reorganizing the company structure to match the future development orientation. If the company no longer meets the minimum number of company members or shareholders prescribed by law, the company must carry out the business transformation procedures accordingly. The new company, upon the business transformation, will inherit all the rights and obligations of the transformed company. So what is the business process transformation? Learn more in this article.

Types of business transformation

Under the current law, there are the following forms of business transformation:

• Transforming the company type from a private enterprise into a partnership, a one-member limited liability company, or a joint stock company.
• Transforming the company type from a one-member limited liability company to a limited liability company with two or more members, a joint stock company.
• Transforming the company type from a limited liability company with two or more members to a one-member limited liability company, a joint stock company.
• Transforming the company type from a joint stock company to a limited liability company with two or more members, a one-member limited liability company.

Why is it necessary to carry out procedures for business transformation?

If a company wants to reorganize its organizational structure to suit the orientation and business scale, transforming the type of company is one of the best choices wants to reorganize the company structure to suit the orientation and business scale of the company. In other cases, the company no longer has enough minimum members of that company type, it must carry out procedures for changing the type of company.

• If the company lacks investment capital, it can be transformed from a one-member limited liability company to a limited liability company with two or more members or a joint stock company. This transformation will help the company add new capital-contributing members to help solve the company’s investment capital problem.
• Suppose a limited liability company with two or more members wants to restructure its capital, or the number of members exceeds fifty. In that case, it must transform the type of company according to regulations. At the same time, the number of company owners is decreased to only one, it is necessary to change to the type of one-member limited liability company.
• If the owner of a private enterprise wants to enjoy the limited liability regime, it is necessary to carry out procedures for business transformation.
• For a joint-stock company carrying out capital restructuring or having less than three shareholders, it is also necessary to carry out procedures for transforming the type of company accordingly.

Latest regulations on transforming the type of business

In case of converting a limited liability company into a joint stock company

The 2020 Enterprise Law stipulates that a limited liability company can be transformed into a joint stock company by the following methods:

• Transforming a limited liability company into a joint stock company without mobilizing additional capital from other organizations and individuals and not selling the contributed capital to other organizations and individuals;
• A limited liability company transformed into a joint stock company by raising additional capital from other organizations and individuals.
• A limited liability company sells all or part of the contributed capital to one or several other organizations and individuals.
• Another method is as long as the minimum number of shareholders is three.
• For state-owned companies that want to convert into joint-stock companies, it is necessary to comply with relevant laws.

Companies must register to transform the type of company with the provincial Business Registration Agency. Within 03 working days of receiving the company’s business transformation applications, the Business Registration Agency will issue the updated Enterprise Registration Certificate if the application is valid. It will post the company’s new legal status upon the business transformation into the National Business Registration Portal.

Upon business transformation, the new company must still inherit all legal rights and interests, debts, and other obligations of the transformed company.

Converting a joint stock company into a one-member limited liability company

A joint-stock company may convert its type of company into a one-member limited liability company in the following methods:

• One shareholder in the company purchases all corresponding shares of all remaining shareholders of the company.
• An organization or individual that is not a current shareholder of the company purchases all shares of all shareholders in a joint-stock company.
• In case the joint stock company has only one shareholder remaining.

The new company, after the conversion, will inherit all previous legal rights and interests of the converted company. At the same time, it takes full responsibility for debts, employment contracts, and other obligations of the converted company.

The company must carry out the business process transformation within 15 days from when the joint-stock company has only one shareholder left or completes the share transfer. A joint-stock company must send the business transformation applications to the Business Registration Agency. Within 03 working days of receiving the company-type conversion applications, the Business Registration Agency will check whether the application is valid. Then they will issue the updated Enterprise Registration Certificate and post the legal status of the new company on the National Business Registration Portal.

In case of conversion of a joint stock company into a limited liability company with two or more members

According to the 2020 Enterprise Law, a joint-stock company can be converted to the type of limited liability company with two or more members in the following methods:

• A joint-stock company can be converted to the type of limited company with two or more members without raising additional capital or transferring shares.
• Mobilizing additional capital from other organizations and individuals to convert to a limited liability company with two or more members.
• Transferring a part or all the company’s shares to another organization or individual.
• The company has less than only 03 shareholders left.
• Combine all the methods above and other methods under the provisions of law.

Converting a private enterprise into a limited liability company, a joint stock company, a partnership company

A private enterprise can transform its type of business into a limited liability company, partnership company, or joint stock company based on the decision of the owner of the private enterprise. It must fully meet the conditions of Clause 1, Article 205 of the 2020 Enterprise Law as follows:

• The converted company must meet all the conditions specified in Clause 1, Article 27 of the 2020 Enterprise Law.
• The owner of the private enterprise must undertake in writing to take responsibility for all outstanding debts and pay the total amount of the debt when it is due with all their personal assets.
• The owner of a private enterprise must commit in writing or have a written agreement with the business partners whose contracts have not been liquidated on the inheritance and performance of such contracts when the company is transformed.
• The owner of a private company undertakes in writing or has a written agreement with other capital-contributing members on the reception and use of existing labor of the private company.

The application documents for converting type of company

In order to carry out the transformation of the type of business, it is necessary to prepare all the following legal documents:

• Application form for business registration (according to the prescribed form)
• Meeting minutes and resolution about the conversion of:
  • The owner of a one-member limited liability company.
  • The Members’ Council of a limited liability company with two or more members.
  • General Meeting of Shareholders of a joint-stock company.
• Charter of the company (applicable to limited liability companies and joint stock companies).
• List of members (applicable to limited liability companies with two or more members and joint stock companies).
• Legal documents proving the legal status of the new investor: valid identity card, passport, or another valid personal identification document (for individual investors);  a valid copy of the incorporation decision or business registration certificate or other equivalent documents (for corporate investors). For the foreign investor, the documents issued by the foreign State agency must be gone through the consular legalization procedure and be translated into Vietnamese.
• Documents of the Investment Registration Department approving the capital contribution, share purchase, or purchase of contributed capital of foreign investors or foreign-invested economic organizations in case it is required to carry out procedures for registration of capital contribution, share purchase, or purchase of contributed capital under the Law on Investment.
• Other documents as prescribed by law.

Business transformation consulting services at LTS LAW

LTS LAW, with a team of legal experts and lawyers, has many years of operation in corporate law consulting. We will help your business handle problems with business process transformation when using LTS LAW’s business transformation services. The preparation of documents and procedures will be completed promptly.

• LTS LAW supports the settlement of all documents and papers on the transformation of the type of business.
• A team of highly qualified experts enthusiastically advises customers.
• The process is simple, and preparing accurate documents is time-consuming.
• One-time quotation, no additional costs are hidden when carrying out procedures for transforming the type of company.
• Commit to delivering and receiving results on time with businesses.
• Ready to support customers 24/7, accompanying them in all issues.

Above is the information on the process of business transformation. You are in need of converting the company type to suit the actual situation of your business. Then you can contact LTS LAW through the hotline for more detailed advice.

LTS LAW FIRM

Address: Room 602, 6^th Floor, 520 Cach Mang Thang 8, Ward 11, District 3, Ho Chi Minh City, Vietnam.

Email: contact@lts.com.vn

Hotline: (+84) 902 798 066