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What are the characteristics of a single-member limited liability company?

02-06-23 MTParners

A single-member limited liability company is always the type of enterprise that is registered to establish the most among the types of enterprises in Vietnam. So what are the characteristics that make this type of company attractive to investors? Let’s find out with us in the article below.

The characteristics of a single-member limited liability company are stipulated in Article 74 of the 2020 Enterprise Law:

“ Article 74. Single-member limited liability company

1. A single-member limited liability company is an enterprise owned by an organization or an individual (hereinafter referred to as the company owner). The company owner is responsible for the debts and other property obligations of the company within the scope of the company’s charter capital.
2. A single-member limited liability company has legal status from the date of being granted the Business Registration Certificate.
3. A single-member limited liability company is not allowed to issue shares, except in case of conversion into a joint-stock company.
4. A single-member limited liability company is allowed to issue bonds in accordance with the provisions of this Law and other relevant legal provisions; the issuance of private bonds in accordance with the provisions of Article 128 and Article 129 of this Law:

1. CHARACTERISTICS OF A SINGLE-MEMBER LIMITED LIABILITY COMPANY

Based on the above legal provisions, it can be seen that a single-member limited liability company has the following basic characteristics:

1.1. Company members

The number of members consists of only one member throughout the operation. The company member can be an individual or an organization. This member is the person who contributes capital, and at the same time is the founder, the manager of the company.

If compared with the type of private enterprise, a single-member limited liability company has a similar point in that it is a type of one-owner enterprise. However, a single-member limited liability company can be established by an organization or an individual, while the owner of a private enterprise can only be an individual. In addition, compared to a limited liability company with two or more members, these two types of companies differ in the number of members participating in capital contribution. A single-member limited liability company has only one member, who is also the owner of the company.

1.2. Property liability

The company owner is responsible for the debts and other property obligations of the company within the scope of the company’s charter capital. A single-member limited liability company must have a separation of assets between the assets of the company owner and the assets of the company. The principle of asset separation is applied in all property, debt and legal liability relationships of the company during operation.

1.3. Legal status

According to Article 74 of the 2015 Civil Code, an organization is recognized as a legal entity when it meets the following conditions: It is legally established; It has a tight organizational structure; It has assets independent from other individuals and organizations and is responsible for those assets; It participates in relationships independently on its own behalf. Combined with the analysis of property liability above, it can be seen that a single-member limited liability company meets all the conditions to be recognized as a legal entity. A single-member limited liability company has legal status from the date of being granted the Business Registration Certificate.

1.4. Capital mechanism

The owner is allowed to transfer part or all of his/her contributed capital to another person. If the owner transfers all of his/her contributed capital to another person. In this case, the new owner will take over the company and continue to operate the business on the basis of the existing company, and can also change it to suit his/her needs and direction. If the company owner transfers part of the charter capital to another organization or individual that may change the company model, the company must register to change the business registration content with the business registration authority to reorganize the company’s operation according to the type of Limited liability company with two or more members or Joint-stock company.

A single-member limited liability company is not allowed to issue shares. A single-member limited liability company is not allowed to issue shares, which shows that the participation of outsiders in the company is more restricted than in a Joint-stock company. However, a single-member limited liability company is allowed to issue bonds to mobilize capital when meeting all the provisions of the law, the company charter and based on the needs of the company.

2. ADVANTAGES AND DISADVANTAGES

From the characteristics, we can draw out the advantages and disadvantages of a single-member limited liability company:

2.1. Advantages

• The limited liability regime means that the owner’s risk exposure is lower.
• Because it is a one-owner company form, the owner has full authority to decide on all matters of the company without fear of sharing power. When it is necessary to decide on urgent matters, the company owner will make quick and timely decisions without waiting for the unanimous vote from other co-owners.
• The organizational structure is compact, flexible, and the business registration procedures are simple and convenient for individuals and organizations who want to establish this type of enterprise

2.2. Disadvantages

• Limited capital mobilization ability.
• With the nature of limited liability for assets, many individuals and organizations who do business with a single-member limited liability company are quite wary and cautious. Because if the owner takes advantage of the company to do business with fraudulent purposes, it can pose a very big risk for customers and creditors.
• An individual who is the owner will be limited in management and operational capacity, financial capacity and market dominance in a fiercely competitive era, which limits the development potential, competitiveness, integration and growth of the enterprise, the contribution to the budget, solving employment, etc.

MT & Partners hope that the article will bring useful knowledge to our readers.