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Official Gazette

Friday, August 7, 2020

Enterprise Law - A uniform, transparent and equal legal framework for all enterprises

Updated: 15:30’ - 11/05/2006

By Cao Mai Phuong

VLLF

In the “doi moi” (renewal) period in Vietnam, laws on enterprises have been made and step by step perfected. The Enterprise Law, the State Enterprise Law, the Law on Foreign Investment in Vietnam, the Law on Domestic Investment Promotion, the Commercial Law, the Competition Law, the Bankruptcy Law, and other laws were promulgated, creating legal grounds for the operation of enterprises of all types and all economic sectors, contributing to improving the business environment, liberating productive forces and mobilizing all resources for socio-economic development. Nevertheless, such legal instruments still fail to meet the requirements of economic development and international economic integration. Not a few provisions of such laws spell out discrimination between enterprises of different types, between different economic sectors or between domestic enterprises and foreign-invested enterprises, as evidenced in the procedures and conditions for accession to and withdrawal from market; structure, competence and mode of internal management organization; business scope, business rights and autonomy in the exercise of these rights; extent and modes of business reorganization; regimes and modes of state management of enterprises. Each law also has its own limitations, affecting the competitiveness of enterprises, failing to meet the requirements of national economic development and international economic integration. This explains why the promulgation of a unified law on enterprises is necessary to contribute to realizing a consistent policy on a multi-sector economy, to fully tap all domestic and foreign resources for economic development, arouse dynamism and self-confidence of enterprises and business people, raise the competitiveness of enterprises, create a more equal legal framework for enterprises of all types and create favorable conditions for international economic integration.

Guiding viewpoints on elaboration of the Enterprise Law

The Enterprises Law was adopted in light of the following guiding viewpoints:

First, to institutionalize the policy on development of a multi-sector economy, considering all economic sectors equally important constituents of the socialist-oriented market economy, to promote to the utmost internal strengths and take initiative in international economic integration.

Second, to step up the uniform implementation of the policy on equitization and reorganization of state enterprises; to substantially renew the functions, tasks and modes of management of state enterprises, creating conditions and motive forces for them to mobilize more external investment capital, receive and renew technologies and modern administration skills, whereby raising the effectiveness and competitiveness of state enterprises in particular and of the state-run economic sector in general.

Third, to perpetuate the positive regulations of the 1999 Enterprise Law and the 2003 Law on State Enterprises, and overcome weaknesses and limitations like inconsistency, discrimination and inequality for enterprises in various forms of ownership.

Fourth, to ensure all subjects’ rights to business freedom, to formulate regulations on supporting enterprises in effectively and lawfully building and operating their administration system. Enterprises of all economic sectors may open business lines not banned by law and have autonomy and self-responsibility in their business activities. They may select and change internal management organization and investment-business forms and will be protected by the State. The State respects their lawful autonomy in business and applies a uniform regime of registration (instead of licensing) and abolishes the irrational mechanism of “ask-and-give” or “approval” which troubles enterprises.

Fifth, to substantially renew the functions, tasks and modes of state management of enterprises. The State will not directly intervene in enterprises’ activities through administrative measures but provide supports and create favorable conditions through state management-based mechanisms and policies for enterprises to healthily develop. It functions mainly to encourage, guide and support investors and enterprises and consider them recipients of services rendered by state administrative agencies. Previous regulations which are beneficial to enterprises will continue to apply for the committed duration. The State respects enterprises’ right to internal management organization and autonomy in reaching agreement and making decision on internal relations in accordance with Vietnamese law and international commitments and, at the same time, assures that state management agencies exercise the right to inspect enterprises in the observance of law.

Sixth, to ensure suitability to the characteristics and development level of the Vietnamese economy in transition and the satisfaction of regional and international economic integration requirements. The Law’s provisions should be compatible with treaties to which Vietnam has committed in multilateral and bilateral agreements, especially with the “national treatment” and “most favored nation” treatment principles. At the same time, to anticipate and follow the integration trend, contributing to building and perfecting an equal, transparent, stable, smooth, attractive and competitive business environment.

Governing scope of the Law

The Law governs the establishment, organization, management and operation of limited liability companies, joint-stock companies, partnerships and private enterprises.

For state enterprises

Enterprises which are operating under the 2003 Law on State Enterprises must be transformed into limited liability companies or joint-stock companies within four years from the effective date of this Law and operate under this Law. This transformation is, in essence, the change of legal forms of enterprise administration, not the change of form and nature of ownership of enterprises. State enterprises still exist and develop in new forms of organization. The transformation aims to renew mechanisms of managing and modes of organizing and administering enterprises, contributing to increasing enterprises’ autonomy, self-determination and self-responsibility, abolishing their reliance and the prolonged irrational subsidy-based administrative mechanism. These are conditions for raising enterprise effectiveness as well as the State’s macro-economic management efficiency, contributing to raising the quality and efficiency of state capital invested in enterprises.

For foreign-invested enterprises

Those which have been established before this Law takes effect may:

- Re-register and organize management and operation according to the provisions of this Law and other relevant laws. The re-registration shall be carried out within 2 years after the effective date of this Law; or,

- Not make re-registration. In this case, enterprises may conduct business activities within the lines and duration stated in their investment licenses and continue enjoying investment preferences according to the Government’s regulations.

Enterprise models

According to the Law, there are four types of enterprise:

- Limited liability companies, including limited liability companies with two or more members and one-member limited liability companies.

One-member limited liability companies are classified into one-member limited liability companies owned by organizations and one-member limited liability companies owned by individuals.

- Joint-stock companies.

- Partnerships: The law recognizes the legal person status of partnerships in order to create favorable conditions for enterprises to participate in transactions, while the 1999 Enterprise Law failed to do so.

- Private enterprises.

In addition, the law also provides for groups of companies. A group of companies is a combination of companies which are bound together in relations in terms of economic benefits, technology, market and other business services. Groups of companies include parent-subsidiary companies and economic conglomerates, and other forms.

Rights and obligations of enterprises

The Law’s provisions demonstrate the principles of respecting and assuring the rights to business freedom and self-determination in enterprise management. The State recognizes all organizations and individuals’ rights to business freedom and establishment of enterprises through the application of the mechanism on registration for establishment of enterprises; affirms their rights to freedom in selecting business lines and to autonomy in internal management organization.

The Law’s provisions also reflect equal rights and obligations of investors and enterprises. The provisions on enterprises’ rights and obligations apply to both domestic and foreign investors, who may select by themselves forms of enterprises to do business. The restriction on ownership by foreign investors (30% at most) has been abolished. Foreign-invested enterprises are autonomous in doing business, and in restructuring, expanding and diversifying their business lines; multi-project enterprises shall replace existing mono-project ones. Rights of enterprises are specified in Article 8 of the law.

The Law further defines the obligations of enterprises, aiming to meet the state management requirements and to ensure disciplines and healthiness in business activities.

Organizational structure of enterprises

The provisions on organizational structure of enterprises apply uniformly to domestic and foreign-invested enterprises. In order to raise the effectiveness of internal management of enterprises as well as state management of business activities, the law specifies enterprises’ internal organizational structure in the direction of:

- Increasing and consolidating the rights of members and shareholders; enhancing the protection of the rights and interests of members and minority shareholders.

- Adding regulations on capital management and restriction of the danger of abusing limited liability principles.

- Adding regulations on publicity and transparency, especially for managers.

- Establishing the remuneration and wage regimes based on enterprises’ business results and efficiency.

- Defining more clearly the obligations of managers, especially of members of managing boards and directors.

- Raising and defining more specifically the roles, positions and responsibilities of control boards.

- Defining more clearly and specifically mechanisms on, and responsibilities of state agencies and administrations of all levels in, state management of enterprises.

In order to enforce the law, the Government is drafting several decrees providing specific guidance on:

- Conditional business lines and banned business lines;

- Business registration fees;

- Order and procedures for establishment of branches or representative offices;

- Economic conglomerates;

- Organizational structure of business registration offices;

- Order and procedures for transformation of state enterprises into limited liability companies or joint-stock companies;

- Organization and management of state enterprises directly in service of defense, security or those conducting economic activities in combination with defense and security;

- Functions, tasks and powers of representatives of state owners; mechanisms for exercising the right of owners of state capital; modes of and criteria for assessing the efficiency and actual situation of preservation and development of state capital; mechanisms for coordinating, inspecting and assessing representatives of state owners;

- Transformation of a number of foreign-invested enterprises.

In short, the enforcement of the Enterprise Law will contribute to promoting the strengths of all economic sectors, implementing the open-door and economic cooperation policies, arousing the potential and competitiveness of enterprises and raising the efficiency of state management by law.-

 

The Enterprise Law
(comprising 172 articles arranged in 10 chapters)

Chapter I (Articles 1 thru 12): General provisions

Chapter II (Articles 13 thru 37): Establishment of enterprises and business registration

Chapter III (Articles 38 thru 76): Limited liability companies

Chapter IV (Articles 77 thru 129): Joint-stock companies

Chapter V (Articles 130 thru 140): Partnerships

Chapter VI (Articles 141 thru 145): Private enterprises

Chapter VII (Articles 146 thru 149): Group of companies

Chapter VIII (Articles 150 thru 160): Reorganization, dissolution and bankruptcy of enterprises

Chapter IX (Articles 161 thru 165): State management of enterprises

Chapter X (Articles 166 thru 172): Implementation provisions.-

VNL_KH1 

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