Corporate Governance of a Single-Member LLC in Vietnam

The establishment of a Limited Liability Company (LLC) is a popular investment option in Vietnam, especially for investors from abroad due to its relatively practical setup process compared to other forms of Foreign Direct Investment (FDI), such as Joint Stock Companies.

The owner/s of an LLC can be either an organization/s or individual/s, and each of them bears responsibility for debts or other property obligations of the company, limited to the amount invested.

Before starting, it is worth noting that Vietnam LLCs are classified into two categories based on their ownership structure: the Single-Member LLC, comprising of a sole member, and the Multi-Member LLC, with a maximum of 50 members. It is also important to keep in mind that the organizational structures vary for these two types of LLCs.

This article will focus on the corporate governance of a single-member LLC, which is regulated by the Law on Enterprise 2020 (hereinafter referred as “LOE 2020”) and other relevant laws.

When setting up a Single-Member LLC, this choice shall be taken when applying for the Enterprise Registration Certificate (ERC). In case of an FDI, we must remind our readers that before such application it’s necessary to obtain the Investment Registration Certificate (IRC).

If the LLC is owned by an individual, the only organizational structure available consists of Company President + Director/General Director, where the company’s owner corresponds to the role of “Company President” and may concurrently hold the position of “Director/General Director”. However, the company owner may choose to hire another person as Director/General Director, which will take care of the ordinary management activities of the company and the further rights as well as obligations as specified by the relevant laws, the company’s charter and the employment contract.

In contrast with a single-member LLC owned by an individual, in case the owner of the company is an organization, the company can apply one of the two models outlined below as specified in Article 79 of the LOE.

a-Member’s Council and the Director/General Director.

b-Company’s President and the Director/General Director.

Let’s now look at the rights, obligations, and other relevant information regarding the management of a single-member LLC.

•Members’ Council

The Member’s Council is a peculiar organ which is present within the first structure we mentioned (Member’s Council and the Director/General Director). It is formed by a number of members (from a minimum of 3 to a maximum of 7) who are appointed and dismissed by the owner of the company with a 5-year term of office. The Member’s Council will act on behalf of the owner of the company and each member will represent a certain percentage of the charter capital invested by the owner.

The responsibilities of the Members’ Council consist in making important decisions such as approving the business plan of the company, approving the yearly financial statements, increasing or decreasing the charter capital, borrowing or selling assets, electing/dismissing the Chairman of the Members’ Council and the Director/General Director, as well as dissolving or requesting the bankruptcy of the Company.

Therefore, the Member’s Council, in consideration of its role, can be assimilated to a “Board of Shareholders” and not as a Board of Directors. Indeed, a common mistake for foreign investors to make is to confuse the concept of Members’ Council (Hội đồng thành viên) with that of “Board of Directors”. As a matter of fact, in Vietnam, the Board of Directors (“Hội đồng quản trị”) is an organ provided for Joint Stock Companies only, while the management functions in Vietnamese LLCs shall be assigned to the Director/General Director.

Among the members of the Council, a Chairman of the Member’s Council shall be designated by the owner of the company or elected by the members under the majority rule following the procedures specified in the Company’s charter and may concurrently be the Director/General Director of the Company (but cannot be the Director/General Director of other companies and enterprises at the same time). He/she mainly acts as a moderator of the Council and is generally in charge of internal arrangement of this organ, including the formulation of quarterly and annual plans, preparing agendas/content/documents in the meetings, as well as collecting the opinions of members of the Members’ Council.

•Company President

Company President is present in the second kind of structure (Company’s President and the Director/General Director) as mentioned above, which is therefore appointed by the company owner and will act on his/her behalf, except for the responsibilities of the Director/General Director. Moreover, the President’s duties and responsibilities are identical with that of the “Member’s Council” as explained above. “

•Director/General Director

According to Article 82 of the LOE 2020, the Director/General Director is appointed by the Member’s Council or the Company’s President for a maximum term of five years. This person should have professional qualifications and experience of business administration, and his/her duty is to oversee the daily operations of the Company.

The Member’s Council or the Company’s President is also accountable for the Director/General Director’s performance. In addition, unless stated otherwise in the Company’s Charter or by law, the Chairman of the Member’s Council (or the Company’s President) can also hold the role of Director/General Director simultaneously.

The main duties of the Director/General Director include organizing the implementation of resolutions of the Member’s Council (or the Company President), deciding everyday operating issues of the company, implementing the company’s business and investment plans, issuing the Company’s rules & regulations and recruiting or dismissing the employees.

Conclusion

When setting up a single-member Limited Liability Company (SM-LLC) in Vietnam it’s extremely important to have clear idea upon the possible structures provided by the LOE 2020 and increasing the efficiency of the internal management by choosing the most suitable option for one’s business and ensuring that management will duly perform the relevant operation for the benefit of the company owner.

Should you need assistance with the incorporation of a foreign-invested company in Vietnam, or consultation on the choice of the system of corporate governance, please don’t hesitate to reach out to us at info@dandreapartners.com.