• NEW fdi legislation part I
• NEW fdi legislation part II
• NEW fdi legislation part III

NEW FDI LEGISLATION, Part II

Date: 10 July 2006

Whilst Part I of this article looked at the new investment forms available under the Common Investment Law and Law on Enterprises (“New Laws”), this Part II takes a closer look at one of the investment forms.

To summarise, the New Laws allow the following new investment forms:
(a) Limited Liability Companies;
(b) Shareholding Companies;
(c) Partnerships;
(d) One-member LLCs; and
(e) Private Enterprises.

1. Limited Liability Companies (“LLCs”)

1.1 Members. A LLC must have at least 2 members, but not more than 50. A member may be either an individual or an organization, and each member is liable for the debts of the enterprise to the extent of the amount of capital which it has undertaken, but failed to contribute to the enterprise. Members must be registered in a register of members.

1.2 Rights of members. Members of LLCs have, amongst others, the following rights:
(i) to attend meetings of the Members' Council (the Members' Council is the highest decision making body of the LLC);
(ii) to have numbers of votes proportional to each member’s share of capital contribution;
(iii) to receive dividends proportionally to each member’s share of capital contribution;
(iv) to be given priority in making additional capital contributions to the enterprise upon any increase in charter capital; and
(v) to take court action against the Director/General director (see below) of the enterprise when such director fails to perform his/her obligations which causes damage to the interests of such member or the enterprise.

1.3 Assignment of members’ interests. Existing members have priority to purchase the shares of any other member which wishes to sell its shares. In order to transfer his/her interest to non-members, the non-transferring members must have failed to purchase or failed to purchase in full, such member’s shares within 30 days of the offering date.

1.4 Organisational structure of an LLC. A LLC must have a Members’ Council, a Chairman of the Members’ Council and a “director” or “general director” (see below). A LLC with more than 11 members must also have an Inspection Committee. LLCs with less than 11 members may have an Inspection Committee in accordance with the management needs of the enterprise. Whilst not specifically referred to in the context of LLCs, an Inspection Committee’s role is to monitor the Members’ Council and directorship in the management of the LLC. Either the Chairman or the director (or general director) must be the legal representative of the LLC, and such representative must be a permanent resident in Vietnam.

1.5 Members’ Council. The Members’ Council must meet at least once a year and makes decisions on the most important issues affecting the enterprise, such as:
(i) annual business plans and development strategies;
(ii) the increase or reduction of charter capital of the enterprise;
(iii) loans; (iv) remuneration of the chairman and directorship;
(v) organisational and management structure of the LLC;
(vi) amendments to the charter; and (vii) establishment of subsidiary companies.

1.6 Director or General Director. The "Director" or "General Director" (the owner(s) can determine which title to use on establishment of the enterprise) manages the day-to-day business operation of the enterprise. The Director/General Director has, amongst others, the following rights and duties:
(i) to organise the implementation of resolutions of the Member's Council;
(ii) to make decisions on all matters relating to the day to day operations of the enterprise;
(iii) to organise the implementation of the business and investment plans of the enterprise;
(iv) to sign contracts on behalf of the enterprise; and
(v) to recruit employees.

1.7 Distribution of profits. Profits may only be distributed to members after the enterprise has fulfilled its tax and other financial obligations, whilst at the same time ensuring that due debts and other property obligations can be paid in full after distribution of profits. In the next Part, further information regarding the various forms of investment under the Law on Enterprises will be provided.

Central Plaza Office Building, 8F • 17 Le Duan Boulevard, District 1
Ho Chi Minh City • Vietnam
Phone: +84 8 824 4395 • Fax: +84 8 824 4396