Question: How is the term “limited liability” understood under the Law on Enterprises?
Under Vietnamese law, there are currently two business liability regimes: “limited liability” and “unlimited liability.” Limited liability refers to the legal principle that protects members of a business entity from being personally responsible for debts and obligations beyond their contributed capital. This means that if the business goes bankrupt or faces litigation, the personal assets of the owners or members are not at risk of seizure or liquidation to pay creditors or plaintiffs.
Limited liability is one of the key advantages of forming a business entity. The concept is based on the idea that a business entity is separate from its members, and therefore, has its own rights and obligations. This encourages investors to participate in owning a business without fear of losing personal assets in the event of bankruptcy or lawsuits.
The Law on Enterprises (2020) provides for various types of limited liability businesses, including:
- Single-member Limited Liability Company:
This model is regulated under Section 2, Chapter III, of the Law on Enterprises (2020). A single-member limited liability company is a legal entity with one member, who is also the owner of the company. The member may be an individual or an organization, domestic or foreign. The member is only liable for the company’s debts and obligations within the scope of the contributed capital. The total value of assets contributed or mortgaged by the member within the period specified in the company’s charter is referred to as the charter capital.
- Multiple-member Limited Liability Company:
This type of company is regulated under Section 1, Chapter III, of the Law on Enterprises (2020). A multiple-member limited liability company is a legal entity with between 2 to 50 members. Members may be individuals or organizations, domestic or foreign. Each member is liable for the company’s debts and obligations within the scope of their contributed capital. The total value of assets contributed or mortgaged by the members within the period specified in the company’s charter is referred to as the charter capital.
- Joint-stock Company:
Joint-stock companies are regulated under Chapter V of the Law on Enterprises. A joint-stock company is a legal entity with its charter capital divided into equal shares. Shareholders can be organizations or individuals. The minimum number of shareholders is three, with no maximum limit. Shareholders are only liable for the company’s debts and other liabilities up to the amount of capital they have contributed.
- Partnership Company (applying “limited liability” to capital-contributing members):
Partnerships are regulated under Chapter VI of the Law on Enterprises. Capital-contributing members in a partnership are individuals or organizations that are only liable for the company’s debts up to the amount of capital they have committed to contribute.
