Business Law in Vietnam is a legal document issued by the Vietnam National Assembly that regulates the establishment, organization, management, restructuring, dissolution, and related activities of enterprises. This includes limited liability companies, joint-stock companies, partnerships, and sole proprietorships, as well as provisions regarding corporate groups.
In the dynamic landscape of Vietnam's economic growth, staying abreast of legal reforms is crucial for businesses seeking success and compliance. One cornerstone of this legal framework is the ever-evolving Business Law in Vietnam. This article navigates through the key amendments introduced in the 2020 Business Law.
Which is the latest Business Law in Vietnam?
Law No. 59/2020/QH14 is the latest Business Law currently in effect, replacing the previous Law No. 68/2014/QH13.
The 2020 Business Law consists of 10 chapters, 218 articles, and has perfected the legal framework for corporate governance to meet the standards of best practices both regionally and internationally. It promotes the development of enterprises, attracting capital and resources into production and business, contributing to improving the quality of the business environment in line with the government's goal of being among the top 4 ASEAN countries.
- It facilitates the most favorable conditions for the establishment and registration of enterprises, reduces costs and time in starting business operations, and contributes to improving the business startup index by at least 25 places (according to the World Bank rankings).
- Enhancing the effectiveness of protecting the legal rights and interests of investors, shareholders, and members of enterprises, promoting corporate governance standards in line with regional and international practices, and raising the investor protection index by at least 20 places (according to the World Bank rankings).
- Improving the efficiency of management, transparency, and accountability for enterprises in which the state has a dominant capital contribution.
- Creating more favorable conditions and reducing costs for corporate restructuring: mergers, consolidations, divisions, separations, and conversion of business types.
Analysis of the 2020 Business Law in Vietnam
The Business Law No. 59/2020/QH14 was passed during the 9th session of the XIV National Assembly on June 17, 2020. The 2020 Business Law aims to continue creating a favorable business environment for the establishment and operation of enterprises, with five significant reforms:
1. Streamlining Administrative Procedures and Facilitating Business Registration:
- The law eliminates procedures such as notifying the seal template. Companies can use a digital "number" seal instead of the traditional one.
- Establishes the mechanism for online business registration through electronic information with electronic files, eliminating the need for additional seal documents.
2. Enhancing the Legal Framework for Corporate Governance and Investor Protection:
- Expands the scope and level of shareholder rights to access information about the company's operations, creating conditions for shareholders to protect their legal rights and interests.
- Restricts the abuse of positions and powers by managers or large shareholders that may harm the company and small shareholders.
- Supplements regulations on corporate governance in line with international standards for the governance of joint-stock companies.
3. Improving the Effectiveness of Management and the Efficiency of State-Owned Enterprises (SOEs):
- Modifies the definition of State-Owned Enterprises (SOEs) to clearly identify the types of enterprises with 100% capital owned by the state and those with more than 50% (up to less than 100%) state-owned capital.
- Adds provisions for controlling the concentration of power, preventing conflicts of interest, and ensuring transparency and disclosure of information for state-owned enterprises.
4. Promoting the Development of the Capital Market:
- Supplements regulations on non-voting depository receipts to diversify trading products on the stock market.
- Helps enterprises, especially those in restricted industries for foreign investors, attract more capital from foreign investors.
5. Facilitating Business Restructuring and Transactions:
- Aligns with the 2018 Competition Law by supplementing regulations on converting private enterprises into joint-stock companies (instead of just being allowed to convert into limited liability companies, as currently regulated).
Key Changes in the 2020 Business Law in Vietnam
1. Addition of Prohibited Entities for Business Establishment:
- Identifies seven groups of entities prohibited from establishing businesses, including state agencies, armed forces units using state assets for personal gain, officials, military personnel, leaders and managers of state-owned enterprises, minors, individuals with restricted civil capacity, and those undergoing criminal proceedings.
2. Business Location Name Requirement:
- Starting from 2021, the name of the business location must include the name of the enterprise. This requirement applies to branches and representative offices.
3. Elimination of Seal Template Notification Requirement:
- The 2020 Business Law no longer mandates the submission of a seal template to the business registration authority. Businesses can use seals made at engraving facilities or digital signatures according to electronic transaction and digital signature laws. Businesses have the flexibility to determine the type, quantity, form, and content of their seals.
4. Changes in the Ownership Ratio of State-Owned Enterprises (SOEs):
- SOEs now include those where the state holds over 50% of the charter capital instead of the previous 100%. It categorizes SOEs based on the level of state ownership.
- Classifies SOEs into entities where the state holds 100% of the charter capital and those where the state holds over 50%, excluding those with 100%.
5. Removal of Common Share Ownership Period Requirement:
- The 2020 Business Law removes the requirement for shareholders or shareholder groups to continuously own common shares for at least six months to safeguard shareholder rights. Shareholders or groups owning 5% (instead of 10%) or more of common shares have certain rights, including reviewing board resolutions, financial reports, and requesting meetings.
6. Temporary Business Suspension with 3-Day Notice:
- Businesses are required to provide written notice to the business registration authority at least three working days in advance when temporarily suspending or resuming operations before the declared date. This offers more flexibility in managing business operations.
These changes introduced by the 2020 Business Law aim to enhance transparency, governance, and efficiency in business operations while adapting to the evolving business landscape.
In conclusion, the amendments to Vietnam's Business Law in 2020 signify a commitment to fostering a business-friendly environment while ensuring legal compliance. These changes aim to empower businesses, stimulate economic growth, and contribute to the country's standing in the global business arena. As Vietnam continues to evolve as a key player in the international market, understanding and navigating the intricacies of the Business Law in Vietnam is imperative for businesses seeking sustained success. Follow Inventive Legal for more insights into the legal landscape shaping Vietnam's business ecosystem.
