TABLE OF CONTENTS

ACNKOWLEGEMENT ABSTRACT I. INTRODUCTION II. PRIVATE COMPANY 1. 2. Definition Features of Private Enterprise: a. Legal status b. Capital 2 3 4 5 5 5 5 6 7 7 7 8 9 9 10 12 12 13 14 16 17

c. Management of sole proprietorship: 3. Advantages and disadvantages of private enterprise a. Advantages b. Disadvantages

III.PARTNERSHIP COMPANY 1. 2. 3. Definition Features of Partnership Company Advantages and disadvantages of Partnership Company a. Advantages b. Disadvantages

IV.COMPARISION V.CONCLUSION VI.BIBLIOGRAPHY

Business Law Assignment 2011

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 and material to take part in the business law course. Furthermore, we owe our deep gratitude to our supervisors, Ms. Ho Thuy Hang Business 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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Business Law Assignment 2011

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 the pros and cons of Private enterprises and Partnership Company, some conclusions were drawn.

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I. INTRODUCTION
Enterprise 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 still have 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.

The Vietnamese Enterprise Law 2005, Chapter I art 4

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II. PRIVATE COMPANY

1. Definition
A 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.

2 3

The Vietnamese Enterprise Law 2005, Chapter VI art 141(1) Master Pham Thanh Binh, Doanh nghiep tu nhan khong co tu cach phap nhan (2010) VN Express <http://vnexpress.net/gl/phap-luat/tuvan/2010/09/3ba206e7/ > at 16 September 2010 4 The Vietnamese Civil Code 2005, Chapter IV s 1 art 84

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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. Capital
Capital 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 proprietor 6. And, during the course of business, the sole proprietor is entitled to increase or reduce investment capital 7. However, a private enterprise cannot raise capital by issuing securities 8. 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 lease 10 or sell11 his enterprise to another. However, he is still liable for all of his companys debts.

5 6

The Vietnamese Enterprise Law 2005, Chapter VI art 141(1) The Vietnamese Enterprise Law 2005, Chapter VI art 142 (1) 7 The Vietnamese Enterprise Law 2005, Chapter VI art 142 (3) 8 The Vietnamese Enterprise Law 2005, Chapter VI art 141(2) 9 The 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. 10 The 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. 11 The 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 arbitration 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. Advantages
Sole 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.

12

The 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 VND 13. 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. Disadvantages
One 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

13 14

Decision 83/2008/QD/BTC dated 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)

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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 COMPANY

1. Definition
Before coming into the benefits as well as the drawback that entrepreneurs will face when they 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 and carry 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 the partnership with his entire property; c) Limiter partners will be liable to debts of the partnership only to the extent of their capital 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 Company

Now, lets go into detail about partnership enterprise in several main points. At the start, a partnership is not allowed to issue any type of securities 15. 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 activities as that of the partnership for his benefit or

15

The 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 partnership 18. 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.

16 17

The Vietnamese Enterprise Law 2005, Chapter V art 133 The Vietnamese Enterprise Law 2005, Chapter V art 140(2a, 1d, 2b) 18 The Vietnamese Enterprise Law 2005, Chapter V art 137

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3. Advantages and disadvantages of Partnership Company

a. 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, Partnerships are 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 enterprise that 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.

19 20

Registering a Partnership in Vietnam, GBS<http://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162-partnership> Thanh lap cong ty hop danh, < http://www.mocongty.com/thanh-lap-cong-ty-hop-danh.html>

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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. Disadvantages
Despite the fact that there are many excellent benefits we can get from partnerships, there are some drawbacks existing.

21

The Pros and Cons of a General partnership, < http://www.allbusiness.com/business-planning-structures/business/2513-1.html> on 30th

June, 2011

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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 partnership 22. 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. COMPARISION
In 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.

22

The 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

Difference

Advantage

Disadvantage

- Not permitted to issue any kinds of securities - Unlimited liabilities. - May have limited life - Sole proprietor - Tax benefit: do not does not have to pay tax; all tax will pay personal pass through to income taxes after individual partners. the enterprise paid - With more than one the corporate member, the income taxes. enterprise can raise - Sole proprietor has fund more easily. complete control - Benefit from the and decisioncombination of making power over complementary skills the business. of two or more - Little government owners. control on business - Prospective activities. employees may be - Sole proprietors are appeal to the business permitted to lease if given the incentive or sell the private to become a partner. enterprise. - Lack of legal - General partners are status. liable without limit for all debts - Limited capital. contracted and errors - Limited size of made by the business partnership. - Lack of managerial - Joint management expertise. gets 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 <http://vnexpress.net/gl/phap-luat/tu-van/2010/09/3ba206e7/ > 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/BTC dated 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 <http://thuvienphapluat.vn > Registering a Partnership in Vietnam, GBS<http://www.gbs.com.vn/index.php/vi/hoidap/dangkykinhdoanh/162partnership> Thanh lap cong ty hop danh, < http://www.mocongty.com/thanh-lap-cong-tyhop-danh.html> The Pros and Cons of a General partnership, <http://www.allbusiness.com/business-planning-structures/business/2513-1.html> on 30th June, 2011

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