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TABLE OF CONTENTS
ACNKOWLEGEMENT 2
ABSTRACT 3
I. INTRODUCTION 4
II.PRIVATE COMPANY 5
1. Definition 5
2. Features of Private Enterprise: 5
a. Legal status 5
b.
Capital 6
c. Management of sole proprietorship: 7
3. Advantages and disadvantages of private enterprise 7
a. Advantages 7
b. Disadvantages 8
III.PARTNERSHIP COMPANY 9
1. Definition 9
2. Features of Partnership Company 10
3. Advantages and disadvantages of Partnership Company 12
a. Advantages 12
b. Disadvantages 13
IV.COMPARISION 14
V.CONCLUSION 16
VI.BIBLIOGRAPHY 17
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ACNKOWLEGEMENT
It is a pleasure to express our gratitude to those who assisted us to make this assignment
possible. Firstly, we would like to thank our department Faculty of Management and
Tourism and our school Hanoi University for providing us adequate facilities including
classroom, computer andmaterial to take part in the business law course. Furthermore, we
owe our deep gratitude to our supervisors, Ms. Ho Thuy HangBusiness law lecturer and
Ms. Nguyen Bang Trung Business law tutor, who gave us guidance, suggestions and
encouragement during the time of completing the assignment. Also, we are indebted to our
classmates in Tutorial 4 AC09 for their advice and encouragement. Finally, we would like
to thank to the authors of books and articles which was referred with basic knowledge about
business law which is fundamental for us to conduct this assignment.
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ABSTRACT
It is very difficult to select the right form of the company. This is the
significant problem which make manager headache. To help manager
to choose the appropriate form, we conduct this assignment to give
the background knowledge about two types of company: Private
Enterprises and Partnership Company. Our assignment is divided
into three main parts. Firstly, we provide the definition of private
enterprises and analyze the features of it such as: legal status, capital
and management of sole proprietorship according to the enterprise
law 2005. Based on this analysis, we give the advantages and
disadvantages of private enterprises. Secondly, we focus on analyze
partnership company. Finally, we make the comparison about the
advantages and disadvantage of both type of company which
indicated in summary table. After doing all analysis and summary thepros and cons of Private enterprises and Partnership Company, some
conclusions were drawn.
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I. INTRODUCTIONEnterprise law is one of the most important laws to the economy in general and to
organizations and individuals in particular. Enterprise means an economic organization that
has its own name, assets, stable office and is duly constituted for the purpose of conducting
business1. There are two categories of enterprise: state-owned ones and non-state-owned
ones. For non-state-owned enterprises, there are four types: Limited Liability Company,
Shareholding Company, Partnership and Private Enterprises. The choice of form of your
company before starting your own business is very essential and has strongly influence to the
existence and the development of company. Each of type of the company has their own
advantages and disadvantages. It is really a hard mission to choose the right form. In this
assignment, we will focus on the two types of enterprises consisting of Private enterprises
and Partnership to analyze their features. Especially, we will make a comparison on these two
types in terms of advantages and disadvantages in the context of Vietnam. As a result of our
analysis, though Private enterprises and Partnership emphasize a lot of differences, they stillhave some similar points in both advantages and disadvantages basing on Vietnamese
conditions. In addition, it is mentioned that the Enterprise Law 2005 by the National
Assembly used as the main reference which helps us understand more deeply about the nature
of both, their operations, rights and responsibilities in reality.
1The Vietnamese Enterprise Law 2005, Chapter I art 4
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II. PRIVATE COMPANY
1. DefinitionA private enterprise is also called a sole proprietorship which is defined as an enterprise
owned by an individual who is liable for all debts of the enterprise with his entire property.2
2. Features of Private Enterprise:a. Legal status
The feature that makes the private company different from other forms of enterprise is that, it
does not have a legal status. Master Pham Thanh Binh, Hong Ha Law Company, Hanoi said:
Private Company is not considered as a company that has a legal
status. The sole proprietor must be responsible unlimitedly for all
companys activities and its obligations with his or her total
properties.3
As evidences, he also provided some references to explain. According to the Civil Code
2005 about legal persons4, an enterprise has its legal status when all of the following
conditions are reached. Firstly, the enterprise must be legally established. Secondly, it must
have a well-organized structure. Thirdly, the enterprise must possess property, which is
independent of any individuals or other organizations and bear its own liabilities by
such property. Finally, it must independently enter into legal relationships under its name.
2The Vietnamese Enterprise Law 2005, Chapter VI art 141(1)
3Master Pham Thanh Binh, Doanh nghiep tu nhan khong co tu cach phap nhan (2010) VN Express at 16 September 20104The Vietnamese Civil Code 2005 , Chapter IV s 1 art 84
http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/ -
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However, the Enterprise Law of Vietnam 20055 stated that sole proprietorship is an
enterprise owned by an individual who is liable for all debts of the enterprise with his entire
property. That means, the enterprises properties are owners properties, they are not
independent of the sole proprietor. Therefore, the third condition is not satisfied, and we have
enough evidences to conclude that private enterprise does not have a legal status.
b.CapitalCapital contribution
The investment capital of private enterprise is contributed by its sole owner, from his or her
own properties or debts. This capital will be declared and registered by the sole proprietor6.
And, during the course of business, the sole proprietor is entitled to in crease or reduce
investment capital7. However, a private enterprise cannot raise capital by issuing securities8.
The reason why is that, if the enterprise issues shares, the shareholders who buy the
companys stocks will become the new owners of the company. That means, the company is
no longer owned by sole proprietor but by a number of individuals or organizations, its form
has been changed from sole proprietorship to Shareholding Company9.
Capital transfer: The sole proprietor is entitled to lease10
or sell11
his enterprise to
another. However, he is still liable for all of his companys debts.
5The Vietnamese Enterprise Law 2005, Chapter VI art 141(1)6The Vietnamese Enterprise Law 2005, Chapter VI art 142 (1)7The Vietnamese Enterprise Law 2005, Chapter VI art 142 (3)8The Vietnamese Enterprise Law 2005, Chapter VI art 141(2)9The Vietnamese Enterprise Law 2005, Chapter IV art 77. This article provides information about Shareholding Company: Shareholding
Company is an enterprise of which charter capital is divided into equal portions known as shares; shareholders can be organization or
individuals who buy such shares.10The Vietnamese Enterprise Law 2005, Chapter VI art 144. The owner must inform in writing the business registrar and the tax agency
about such business leasing which enclosed with a notarized leasing contract. Rights and obligations of the sole proprietor and the lessee
will be stipulated in leasing contract.11The Vietnamese Enterprise Law 2005, Chapter VI art 145. The owner must notify in writing the business registrar of the selling no less
than 15 days before the transferring date of the enterprise.
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c. Management of sole proprietorship12:There are four features about management of private enterprise which are stated in the
Enterprise Law of Vietnam 2005. Firstly, the owner of private enterprise is entitled to decide
on any business operation of his enterprise and the distribution of profits after paying off
taxes and financial obligations as stipulated by the laws. Secondly, the sole proprietor himself
manages and runs business operation of the enterprise or may employ a person to do so.
However, the sole proprietor remains fully liable to all business operations of the sole
proprietorship. Thirdly, the sole proprietor will act as plaintiff, defendant or related person
before arbitrat ion or court in all disputes relating to the sole proprietorship. Finally, the sole
proprietor will act as the legal representative of the sole proprietorship. All of these features
help the private enterprise to have the sense of initiative in operating and deciding all
companys activities.
3.
Advantages and disadvantages of private enterprise
a. AdvantagesSole proprietorship is the most common and simplest form of business. Many small
businesses operating in the Vietnam are sole proprietorships. As described above, an
individual proprietor owns and manages the business and is responsible for all business
transactions. The owner is also personally responsible for all debts and liabilities incurred by
the business. A sole proprietor can own the business for any duration of time and sell it when
he or she sees fit. As owner, a sole proprietor can even pass a business down to his or her
heirs.
12The Vietnamese Enterprise Law 2005, Chapter VI art 143
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Sole proprietors need to comply with licensing requirements in the provinces in which they're
doing business, as well as local regulations and zoning ordinances. The paperwork and
formalities, however, are substantially less than those of corporations, allowing sole
proprietors to open a business quickly and with relative ease - from a bureaucratic standpoint.
It can also be less costly to start a business as a sole proprietor, which is attractive to many
new business owners who often find it difficult to attract investors. Indeed, the legal fee to
establish a private company is only 100000 VND13.
Private enterprise is owned by sole proprietor. He has complete control and decision-making
power over the business. That means, private enterprise is substantially initiative in
controlling, managing and in solving problems related to its business operations. In other
words, private enterprise does not have much strict government control on its activities.
Moreover, because the owner is the legal representative of private enterprise and liable
unlimitedly for all obligations of the company, cautious partners have more belief and
incentives to co-operate with such kind of enterprise in comparison with others.
Another advantage is a benefit of the sole proprietor. A sole proprietor can own the business
for any duration of time and sell it when he or she sees fit. As owner, a sole proprietor can
even pass a business down to his or her heirs. Furthermore, the sole proprietor does not have
to pay any personal income taxes if the sole proprietorship has paid its corporate income
taxes14
b. DisadvantagesOne of the main disadvantages of private enterprise is the limitation in raising capital.
In a sole proprietorship business, it is not allowed to issue securities, the owner arranges for
13Decision 83/2008/QD/BTCdated on May 29th, 2000, Issuance of the license fees for business registration certificate14Dispatch 11971/BTC-TCT on personal income taxes for owners of private enterprises issued by the Ministry of Finance (2009)
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all the required capital for the business. The owners own funds as well as borrowed funds
sometimes become insufficient to meet the requirement of the businesss growth and
expansion. Venture capitalists and banks generally do not lend money to sole proprietorships.
More importantly, the unlimited liability is also a disadvantage of private enterprise. In case
the sole proprietor fails to pay the expenses arising out of business activities, his personal
properties may have to be used to pay for those. This generally discourages the sole
proprietor from taking risks. He thinks cautiously while deciding to start or expand the
business activities.
Moreover, the continuity of business operation is uncertain because, the existence of a sole
proprietorship business is dependent on the life of the proprietor. Illness, death etc. of the
owner brings an end to the business.
On the other hands, a sole proprietor may not be an expert in every aspect of management.
He/she may be an expert in administration, planning, etc., but may be weak in marketing.
Again, because of limited financial resources it is also not possible to employ a professional
manager. Thus, the business lacks benefits of professional management.
III. PARTNERSHIP COMPANY1. Definition
Before coming into the benefits as well as the drawback that entrepreneurs will face whenthey would like to establish a partnership company, it is essential to look at what partnership
form is. According to Article 130 - Enterprise Law in 2005, it is stated that:
1/ A partnership is an enterprise in which:
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a) There are no less than two partners who are joint owners of the company andcarry out business under one common name (hereinafter referred to as general
partner); in addition to general partner, there may be limited partners;
b) General partner must be individual and will be liable to all obligations of thepartnership with his entire property;
c) Limiter partners will be liable to debts of the partnership only to the extent of theircapital contributed to the partnership.
2/ A partnership will be given legal status from the issuing date of the certificate of
business registration
2. Features of Partnership CompanyNow, lets go into detail about partnership enterprise in several main points.
At the start, a partnership is not allowed to issue any type of securities15
. The reason is that it
will be changed structure (no longer be partnership) if mobilizing through issuance of stock.
This feature tends to be similar to Ltd. company and sole proprietorship but different from
Shareholding Company.
Then, as mentioned before, a partnership contains at least two general partners. They must be
individuals. They cannot be a private enterprise owner, a general partner of another
partnership or the owner of household business, unless otherwise agreed by the remaining
general ones. The regulation is released to guarantee the characteristic of partnership that is
an unlimited company. Each general partner is liable to all debts and other liabilities of the
company with his or her full assets. There are also some restrictions on what general partners
may or may not do. Firstly, he is not permitted to act on his own behalf or on other person(s)
behalf in carrying out the same business act ivities as that of the partnership for his benefit or
15The Vietnamese Enterprise Law 2005, Chapter V art 130(3)
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for the benefit of others. Furthermore, he is also not entitled to transfer a part or whole of his
capital contribution to others16
.
Besides, a partnership may have limited partner as well. Compared to general partners,
limited partners have some outstanding rights and obligations. The most considerable extent
is that he is responsible for only the liabilities and other obligations within his capital
contribution and can freely transfer it to others. However, he is not allowed to take part in the
management of enterprise17
.
The Partners Council will manage the company. The Council elects a general partner to act
as the chairman of the partners council and the chairman becomes director or general direct,
unless it is otherwise provided for in the charter of the partnership18.
In term of location, there are no limitations on the number of business locations a partnership
may have. The owners may also open branches and representative office as long as they are
appropriately registered. (Study Government Decree 88/2006/ND-CP, dated August 29th
2006 on business registration to learn more about how to register branches, representative
offices and additional business locations.)
An entrepreneur needs to apply to the Provincial Business Registration Office under the
Department of Planning and Investment in the province where he plans to locate the head
office after completing all the documents for business registration.
16The Vietnamese Enterprise Law 2005, Chapter V art 13317
The Vietnamese Enterprise Law 2005, Chapter V art 140(2a, 1d, 2b)18The Vietnamese Enterprise Law 2005, Chapter V art 137
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3. Advantages and disadvantages of Partnership Companya. Advantages
We have just pointed out some main characteristics of a partnership. As an entrepreneur, a
person needs to analyze the benefit he would take from this form of enterprise.
Different from other kinds like Shareholding and Limited liability Companies, Partnershipsare relatively easy to establish. The owners just file business license in the local Business
Registration Office. It is considered to be less time and paperwork. What we need are that:
1) Application form for registering a Partnership.2) Draft of the partnership charter.3) List of partners, copies of identification cards, passports or other relevant personal
certifications partners.
4) Certification of legal capital issued by the competent organization for enterprisethat is going to operate in a business line where legal capital is required.
5) Valid copy of the practice certificate of the general partners or other individual(s)in a business in such a certificate is required.
19
In fact, it takes about 10 days from filing date and around 200 thousand VND for owners to
receive legal status of Partnership Company20.
However, partnership is required to file an agreement 21. The partnership agreements must
state the purpose of the business and the rights as well as the responsibilities of each partner.
This process involves in a lot of time.
19Registering a Partnership in Vietnam, GBS20Thanh lap cong ty hop danh,
http://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnershiphttp://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnershiphttp://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnershiphttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnership -
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One of the most advantages of partnership toward general partners is tax benefit. According
to Article 4(6) Income Tax Law (enacted on 3rd
June, 2008), the profits that general partners
receive in proportion to his capital contribution in partnership is exempted from income tax
provided that Partnership company paid tax in accordance with the law. It is an incentive for
general partners or owners of this kind of enterprise.
Moreover, with more than one member, the enterprise can raise fund more easily opposed to
private or sole member limited liability companies. The reason are that when need to increase
capital, the partners can be able to contribute more funds. And even their borrowing capacity
may be greater.
Another advantage is that a partnership would benefit from the combination of
complementary skills of two or more people. There is a wider pool of knowledge, skills and
contacts among these owners. In other way of expression, each general partner specializes in
certain aspects to run the business effectively
In term of attracting employee, prospective employees may be appeal to the business if given
the incentive to become a partner. Therefore, partnerships provide moral support and will
allow more creative brainstorming.
b. DisadvantagesDespite the fact that there are many excellent benefits we can get from partnerships, there are
some drawbacks existing.
21 The Pros andCons of a General partnership, on 30th
June, 2011
http://www.allbusiness.com/business-planning-structures/business/2513-1.htmlhttp://www.allbusiness.com/business-planning-structures/business/2513-1.htmlhttp://www.allbusiness.com/business-planning-structures/business/2513-1.html -
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A major disadvantage of a partnership is unlimited liability. It means that general partners are
liable without limit for all debts contracted and errors made by the partnership22
. For
example, if you own only 1 percent of the partnership and the business fails, you will be
called upon to pay 1 percent of the bills and the other partners will be assessed their 99
percent. However, if your partners cannot pay, you may be called to pay all the debts even if
you must sell off all your possessions to do so. This makes partnerships too risky for most
situations.
Joint management also gets owners of partnership difficult. Actually, all general partners are
entitled to act as legal representative in carrying out business activities as well as conducting
day-to-day decisions. Thus, unless having agreement and negotiation among general partners,
it is possible to make conflicts. Moreover, partnership business may be lacking in
determination on long-term growth because more than two persons have their own intentions
of how the enterprise will be developed so that there can be an inconsistency of ideas.
Unlike Shareholding Company, the partnership company tends to have limited life. Why is
that? It is reasonable to say that when general partners terminate their status together. For
example, they can voluntarily withdraw the capital contribution or they are dead
IV. COMPARISIONIn previous sections, we examined separately features as well as advantages and disadvantage
of private and partnership enterprise. For the purpose of helping entrepreneurs in choosing
form of business to establish, the following table will provide a comparison between these
two types of enterprise in terms of pros and cons.
22The Vietnamese Enterprise Law 2005, Chapter V art 134(2e)
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Private enterprises Partnership
Similar Advantage- Easy to establish: simple and short time procedure- Little fee of registration
Disadvantage
- Not permitted to issue any kinds of securities- Unlimited liabilities.- May have limited life
Difference Advantage- Sole proprietor
does not have topay personal
income taxes after
the enterprise paid
the corporate
income taxes.
- Sole proprietor hascomplete controland decision-
making power over
the business.
- Little governmentcontrol on business
activities.
- Sole proprietors arepermitted to lease
or sell the private
enterprise.
- Tax benefit: do notpay tax; all tax willpass through to
individual partners.
- With more than onemember, the
enterprise can raise
fund more easily.
- Benefit from thecombination ofcomplementary skills
of two or more
owners.
- Prospectiveemployees may be
appeal to the business
if given the incentive
to become a partner.
Disadvantage - Lack of legalstatus.- Limited capital.- Limited size of
business
- Lack of managerialexpertise.
- General partners areliable without limit
for all debtscontracted and errors
made by thepartnership.
- Joint managementgets owners of
partnership difficult.
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V. CONCLUSION
In conclusion, we analyzed features, as well as good points and drawbacks of Private
company and Partnership enterprises in the Vietnamese condition. Although each company
has different advantages and disadvantage, both of them are easy to establish, less procedure
and time. Nowadays, everything changes day by day, thus flexibility in management is
essential. Every business man needs to have the ability to make decision to choose the most
suitable type of companies to perform. Besides, the State should help such companies work
more effectively by improving its legal framework, providing safe and healthy working
environment as long as reducing administrative formalities that prevents them operating well.
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VI. BIBLIOGRAPHY
1. Articles/books/reports:LLM. Ho Thuy Hang,Business Law reference book (2010)
Master Pham Thanh Binh, Doanh nghiep tu nhan khong co tu cach phap nhan
(2010) VN Express at 16 September 2010
2. Legislation:The Vietnamese Enterprise Law 2005
The Vietnamese Civil Code 2005, Chapter IV s 1 art 84
Decision 83/2008/QD/BTCdated on May 29th, 2000, Issuance of the license fees
for business registration certificate
Dispatch 11971/BTC-TCT on personal income taxes for owners of private
enterprises issued by the Ministry of Finance (2009)
3.Other sources:Thu vien phap luat online
Registering a Partnership in Vietnam,
GBS
Thanh lap cong ty hop danh,
The Pros and Cons of a General partnership,
on 30th
June, 2011
http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/http://thuvienphapluat.vn/http://thuvienphapluat.vn/http://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnershiphttp://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnershiphttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.allbusiness.com/business-planning-structures/business/2513-1.htmlhttp://www.allbusiness.com/business-planning-structures/business/2513-1.htmlhttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.mocongty.com/thanh-lap-cong-ty-hop-danh.htmlhttp://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnershiphttp://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnershiphttp://thuvienphapluat.vn/http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/