Home > Joint stock company in Vietnam: Characteristics and establishment procedures

Joint stock company in Vietnam: Characteristics and establishment procedures

01
Jan

We guess you must have heard a lot about the type of joint stock company or shareholding company in Vietnam. This is a company type that many foreign investors choose when they open their companies in Vietnam. This company type legally has a complex organizational management structure. It is only recommended for medium and large companies, especially those aiming to make an initial public offering to raise capital from the stock exchange. So what is a joint stock company? How is it different from other types of companies? How to establish a joint stock company? These questions will be answered in detail in the following article!

Order and procedures for registering a Joint Stock Company
Order and procedures for registering a Joint Stock Company

Definition of Joint Stock Company

A joint stock company or JSC is a company whose charter capital is divided into many equal parts, called shares. It can issue additional shares to raise capital from the public. Those who own shares of a joint stock company are called shareholders.

Organizational management structure of a joint stock company in Vietnam

According to the 2020 Enterprise Law of Vietnam, the organizational management structure of a joint stock company includes:

  • Shareholders’General Meeting: itis the highest decision-making body of a joint stock company, gathering all shareholders with voting rights, such as those that hold ordinary or preferred shares.
  • ManagementBoard: it is the governing body of a joint stock company. The ManagementBoard has the full authority on behalf of the company to decide and perform the rights and obligations of the company, except for the rights and responsibilities under the authority of the Shareholder’s General Meeting.
  • Director or General Director: This position will run the company’s daily business operations under the supervision of the Management Board. The Management Board appoints the Director or General Director of the company. Suppose the charter of a jointstock company does not stipulate that the Chairman of the Management Board is the legal representative of the company. In that case, the person holding the Director or General Director position will be the jointstock company’s legal representative.
  • Supervisory Board: For jointstock companies with more than 11 shareholders or institutional shareholders owning more than 50% of the company’s total shares, a Supervisory Board is required. The number of members in the Supervisory Board is 3-5 members. The term of office of the members of the Supervisory Board shall not exceed five (5)
  • Audit Committee: a joint stock company can have an Audit Board under the Management Board if it doesn’t want to have a Supervisory Board as long as at least 20% of the members of the Management Board must be independent members.
The organizational management structure of a joint stock company in Vietnam
The organizational management structure of a joint stock company in Vietnam

Characteristics of a Joint Stock Company

A joint stock company or JSC, according to Article 111 of the 2020 Enterprise Law in Vietnam, has the following characteristics:

  • The company’s charter capital is divided into equal parts, called shares.
  • The person who owns shares of the company is called a shareholder.
  • A joint stock company must have at least three (3) shareholders, and the maximum number of shareholders is not
  • A shareholder is only responsible for debts and property obligations of the company within the amount paid for their shares subscribed. A shareholder will enjoy after-tax profits in proportion to their total shares held in the company.
  • Joint stock companies in Vietnam can raise their charter capital by issuing additional shares to existing or new shareholders.

Shareholders can freely transfer their shares to others, except for the cases specified in Clause 3, Article 120, and Clause 1, Article 127 of the 2020 Enterprise Law.

Characteristics of joint stock companies in Vietnam
Characteristics of joint stock companies in Vietnam

Characteristics of types of shares in joint stock companies

Ordinary shares

Ordinary shares are a type of shares that a joint stock company must always have. Those who hold ordinary shares are called ordinary shareholders. Each ordinary share is entitled to only one vote. Voting rights are exercised by shareholders directly or through an authorized representative in accordance with the company’s charter and law.

Within three (3) years of the company registration, ordinary shares of founding shareholders are freely transferable to other founding shareholders. They can only be transferred to those not founding shareholders if approved by the Shareholders’ General Meeting. In this case, the founding shareholders who intend to transfer ordinary shares do not have the right to vote on the transfer of such shares. One thing to remember is that ordinary shares are not convertible into preference shares.

Preference shares

Preference shares are divided into three (3) types:

  • Dividend preference shares: This type of share will pay dividends at a higher rate than ordinary shares and are maintained at a stable annual rate. The holders of this type of share are prescribed by the company’s charter or decided by the Shareholders’ General Meeting. Annual dividends of this type of share include fixed dividends and bonus dividends. The fixed dividend will not depend on the company’s profits. The bonus dividend depends on the business situation of the company.
  • Redeemable preference shares: It is a type of share that the company shall refund at the request of shareholders or according to the company’s charter. Redeemable preference shares will not have voting rights except for the cases specified in Clause 5, Article 114, and Clause 6, Article 148 of the 2020 Enterprise Law. These shares are freely transferable.

Voting preference shares: These are ordinary shares with more than one vote. The number of votes for one share depends on the company’s charter. Voting preference shares will be held by an organization authorized by the Government or a founding shareholder. These are also shares that can be converted into ordinary shares.

4 types of shares in a joint stock company
4 types of shares in a joint stock company

Advantages and disadvantages of a joint stock company in Vietnam

Advantages

Low risk: Shareholders can quickly exit their investments in a joint stock company. Within three (3) years of the availability of an enterprise registration certificate, ordinary shares of founding shareholders are freely transferable to other founding shareholders. They can only be transferred to those who are not founding shareholders if approved by the Shareholders’ General Meeting. In this case, the founding shareholders who intend to transfer ordinary shares do not have the right to vote on the transfer of such shares. One thing to remember is that ordinary shares are not convertible into preference shares.

Easy to raise capital: Joint stock companies can raise their charter capital by issuing additional shares on the market. This is a prominent feature and is only available in joint stock companies. Shares of joint stock companies are freely transferable. The ability of shares to be freely transferable and to issue additional shares allows a joint stock company to acquire more shareholders or increase its charter capital, and shareholders efficiently can flexibly perform transactions of buying and selling shares of the company.

A joint stock company can exist independently for a long time without being affected by the existence of shareholders. Regardless of the shareholder’s death, retirement, or other problems and cannot continue to hold shares in the company, the company will continue to exist and operate until it is liquidated or dissolved in accordance with the laws of Vietnam.

The large scope of activities: Joint stock companies are suitable to operate in most fields and industries. But this is no longer the exclusive advantage of joint stock companies.

Simple share transfer procedure: The procedure for transferring shares is straightforward; a joint stock company will not limit the number of shareholders. Therefore, joint stock companies attract many individuals or organizations to buy shares issued by joint stock companies in Vietnam.

Advantages of a joint stock company in Vietnam
Advantages of a joint stock company in Vietnam

Disadvantages

A joint stock company has a complex structure; the management of the company may face many difficulties if there are many shareholders. This may lead to the division of factions to dispute internal interests.

Joint stock companies will face many difficulties in making decisions, whether on company management or business methods. Because joint stock companies must disclose and report essential issues in terms of finance, material transactions, or business strategies in annual shareholder meetings, they will face difficulties in keeping that information private and confidential.

Finally, when transferring shares, individual shareholders must declare personal income and pay a tax of 0.1% on the share transfer price each time.

Disadvantages of a joint stock company in Vietnam
Disadvantages of a joint stock company in Vietnam

Conditions for establishing a joint stock company in Vietnam

Who is the founder of a joint stock company: Individuals and organizations are allowed to establish joint stock companies, except those prescribed in Article 17 of the 2020 Enterprise Law. For instance, State officials, employees, people who do not have the capacity for civil acts, and persons who are being examined for penal liability, detained, are serving prison sentences are not allowed to establish joint stock companies.

The number of shareholders: There must be a minimum of three (3) shareholders. At the same time, the company must maintain at least three shareholders during its operation.

Company name: According to the 2020 Enterprise Law, a JSC name must not be identical to or confusingly similar to other companies’ names nationwide. Company names with different company types are still counted as identical or confusingly similar.

Company headquarters: Joint stock companies must always have headquarters that meet the law’s requirements. Like other types of companies, joint stock companies are not allowed to have their headquarters in an apartment building or a dormitory. Company headquarters can be located in a private house or commercial building.

Business lines: The national industry code will be applied according to the Decision promulgating the system of economic sectors in Vietnam. For conditional business sectors, foreign investors must meet all the relevant requirements regarding market access conditions, investment forms, foreign ownership rate, etc., to be issued an investment registration certificate and enterprise registration certificate.

Conditions for charter capital: The time to fully contribute capital is 90 days from the date of the enterprise registration certificate. Suppose the shareholders fail to pay fully for their shares subscribed. In that case, the company needs to change the information of founding shareholders and reduce the charter capital within 30 days of the capital contribution deadline. In addition, the charter capital will determine the annual license tax to pay.

Legal capital requirements: Most business sectors require no legal capital, except for specific conditional industries, such as banking, securities, insurance services, etc.

Requirements of legal representatives: A joint stock company can have one or more legal representatives. A representative of a joint stock company can still act as a representative of other companies, except for individuals holding the director or general director position of state-owned enterprises.

Conditions for establishing a joint stock company
Conditions for establishing a joint stock company

Procedures for establishing a joint stock company in Vietnam

To set up a joint stock company, the following procedures must be followed:

Step 1: Collect information and prepare documents to register a joint stock company

Vital information to prepare for the establishment of a joint stock company:

  • An application form for registration of a joint stock company.
  • A draft charter of the joint stock company.
  • List of founding shareholders and shareholders being foreign investors.
  • List of authorized representatives if there are corporate
  • For individual shareholders: A valid copy of a citizen identity card, identity card, or
  • For corporate shareholders:
    • A copy of establishment decision, enterprise registration certificate, corporate of incorporation or documents of equal value; a letter of authorization for managers of authorized capital (documents of foreign companies must be legalized by the embassy or general consulate of Vietnam in the given country);
    • A copy of a citizen identity card, identity card, or passport of the authorized representative of corporate shareholders.
  • Decision on capital contribution and appointment of capital managers; List of authorized representatives of corporate
  • A copy of an investment registration certificate if foreign investors are involved.

Step 2: Submit the application for registration of a joint stock company

There are two (2) ways to submit the application, you can refer to:

  • Option 1: Submit the application dossier directly to the Business Registration Office of the provincial Department of Planning and Investment.
  • Option 2: Register online at the National Business Registration Portal using a digital signature or a business registration account.

Step 3: Receive and process the application for registration of a joint stock company.

In case of direct submission: The Business Registration Office will return a receipt upon receiving the application dossier. The Business Registration Office will issue an enterprise registration certificate if the application dossier is valid. Otherwise, the Business Registration Office will give the applicant a written notice requesting to amend and supplement the dossier.

In case of online submission: when the online submission of the application dossier is complete, the National Business Registration Portal will automatically generate a receipt of the dossier. The Business Registration Office will issue an enterprise registration certificate if the application dossier is valid. Otherwise, the Business Registration Office will send the applicant a notice email requesting to amend and supplement the dossier.

Step 4: Receive the enterprise registration certificate

The processing time is three (3) working days from the receipt of valid dossiers.

Steps to set up a joint stock company in Vietnam
Steps to set up a joint stock company in Vietnam

Procedures after setting up a joint stock company in Vietnam

After establising a joint stock company, the company must carry out specific post-licensing procedures by the deadlines prescribed by law. LTS LAW has summarized the procedures that the newly registered joint stock companies must perform as follows:

Hanging the company signage in front of the company headquarter

Joint stock companies should prepare company signage and have it hung up in front of their head office upon the availability of enterprise registration certificates. The company signage must be written in Vietnamese with the required information: company name, tax code, and address.

Make capital contributions on time

According to the 2020 Enterprise Law, the shareholders of a joint stock company must fully pay for their shares subscribed within 90 days of the availability of an enterprise registration certificate.

Submission of a dossier for initial tax registration

The dossier for initial tax registration includes:

  • A application for registration of accounting form and type of invoice to be used by the company.
  • Adecision on the appointment of the company’s
  • Adecision onappointment of the company’s
  • Registration form for method of fixed asset depreciation.
  • Alicense tax declaration form.
  • Registration form for information exchange via electronic means.

After completing the application dossier, it shall be submitted to the relevant tax agency where the company is located.

Obtain digital signature tokens, and register the electronic tax declaration method

Digital signature tokens will help joint stock companies digitally sign documents when submitting documents to social insurance, customs, tax agencies, etc.

When registering the electronic tax declaration method, joint stock companies must provide the correct phone number and email of the companies’ contact person to the tax agency to contact and exchange information in the future.

Procedures after setting up a Joint Stock Company in Vietnam
Procedures after setting up a Joint Stock Company in Vietnam

Open bank accounts and register electronic tax payment

The opening of bank accounts for a joint stock company is performed by the director cum legal representative of the company. The application dossiers for opening bank accounts must meet the requirements of each bank. Basically, there will be the following documents:

  • A copy of enterprise registration certificate.
  • 1 copy of ID card/ citizen ID card/ passport of the company’s director.
  • Letter of appointment of a chief accountant.

Notice of issuance of electronic invoices

When a joint stock company conducts sales of goods or service provision, etc., it must issue value-added invoices to its clients. Joint stock companies can only use value-added invoices after the tax agency’s approval. It will take around two (2) days from the submission of the relevant documents to get the tax agency’s approval.

The order of issuing e-invoices is as follows:

  • Choose a reputable e-invoice provider.
  • Have the e-invoice provider design your invoice with the necessary Besides, there should be specific essential information such as logo, phone number, and contact email, …
  • Issue a written decision to use electronic invoices.
  • Prepare and submit a written notice of electronic invoice issuance and other supporting documents to the tax agency.

Submit a dossier for registration of depreciation method for fixed assets

Joint stock companies will decide on the depreciation method and depreciation time for fixed assets as prescribed in Circular No. 45/2013/TT-BTC on the depreciation method for fixed assets and notify the relevant tax agency before the implementation thereof.

Comparison between Two or More-Member Limited Liability Companies and Joint Stock Companies

TWO OR MORE-MEMBER LIMITED LIABILITY COMPANIES JOINT STOCK COMPANIES

SIMILARITIES

 

 – Operating under the 2020 Enterprise Law.

– They both have legal status from the date of registration.

– There are many co-owners.

– The co-owners have limited liability towards the debts and financial obligations of the companies.

– Company members or shareholders must make capital contributions within 90 days of the enterprise registration certificate.

– When the company members or shareholders do not meet the capital contribution deadlines, the unpaid amounts are considered debts to the companies.

– All must follow the same order of establishment, dissolution, bankruptcy, etc.

– There is no minimum and maximum capital restriction except for specific business sectors, such as banking, insurance, etc.

– Company assets and personal assets of company members or shareholders in the company are segregated.

DIFFERENCES

 

  

Legal basis

 Article 46 – Article 73 of the 2020 Enterprise Law Article 111 – Article 176 of the 2020 Enterprise Law
Number of

members

 There are at least 02 members and a maximum of 50 members for a two or more-member limited liability company. A joint stock company needs to have a minimum of 03 members and no maximum member limit.
Charter capital structure The company’s charter capital is not divided into equal parts. Each company members own a capital contribution portion in proportion to their capital contributed to the company. The company’s charter capital is divided into equal parts called shares and held by shareholders.
     
Issuance of shares A two or more-member limited liability company is not allowed to issue shares to raise its charter capital. A joint stock company can issue shares to its current or new shareholders to raise its charter capital.
Capital transfer The transfer is conditional, specifically prioritizing existing members of the company. Easy, freely transferable. Restrictions on the transfer of shares of founding shareholders to those not founding ones are applied only in the first three (3) years of establishment.
Organizational structure A two or more-member limited liability company has the organizational structure as follows: Members’ Council, Director or General Manager, and Supervisory Board (optional for companies with less than 11 members). Unless otherwise provided for by the law on securities, a joint-stock company has the right to choose an organization to manage and operate under one of the following two models:

a) Shareholders’ General Meeting, Management Board, Supervisory Board, and Director or General Director. In case a joint stock company has less than 11 shareholders, and the shareholders are organizations holding less than 50% of the total shares of the company, it is not required to have a Supervisory Board; or  b) Shareholders’ General Meeting, Management Board, and Director or General Director. In this case, at least 20% of the members of the Management Board must be independent members and have an Audit Committee under the Management Board.

Prestigious and quality service to establish a joint stock company in Vietnam

There are too many complicated procedures and documents when setting up a joint stock company in Vietnam. It will be more complex if you are a foreign investor. In such a case, you should find a reputable legal service provider to save time, effort, and cost.

Referring to the prestigious and quality service of setting up a joint stock company in Vietnam, it is impossible to ignore LTS LAW. Our firm provides solutions for establishing foreign-owned companies and representative offices of foreign companies in Vietnam.

  • Have a team of professional consultants and lawyers with extensive experience in the legal field.
  • Ensure that our services adhere to legal regulations and professional ethics.
  • Support many legal issues in business areas.

Provide quality, efficient service at a reasonable cost.

LTS LAW - Prestigious and quality service to establish a joint stock company in Vietnam
LTS LAW – Prestigious and quality service to establish a joint stock company in Vietnam

In this article, LTS LAW has gathered all the information about establishing a joint stock company in Vietnam. For your reference, if you need support, please get in touch with LTS LAW immediately. Our professional consultants and lawyers are always ready to answer your questions.

Immediately contact LTS LAW for the most detailed advice:

LTS LAW LAW COMPANY LIMITED 

Address: Room 602, 6th Floor, 520 CMT8, Ward 11, District 3, City. HCM, Vietnam

Email: contact@lts.com.vn

Hotline: (+84) 902 798 066

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