Issue of February 2023 – Management structure of a single shareholder limited liability company

Dear Valued Clients,

Single shareholder limited liability company is one of the most common enterprises form in Vietnamese. Nevertheless, not everyone thoroughly comprehends how this form of enterprise is organized.

Therefore, in this Legal Update, we would like to summarize and clarify the main information and key features related to the management structure of the single shareholder limited liability company specified in the Law On Enterprise No. 59/2020/QH14 dated June 17, 2020 of the National Assembly (“LOE 2020”).

1.     What is a single shareholder limited liability company?

A single shareholder limited liablity company is an enterprise owned by an organization or individual (hereinafter referred to as the Company Owner). The Company Owner is responsible for the company’s debts and other property obligations to the extent of the Company’s Charter capital[1].

A single-member limited liability company has legal status from the date of issuance of the Enterprise Registration Certificate and is restricted from issuing shares, unless the business converses into a joint stock company[2]. In addition, this form of enterprise is allowed to issue bonds in accordance with the provisions of the LOE and other relevant laws; the private placement of bonds as prescribed in Articles 128 and 129 of the LOE 2020.

According to the provisions of Article 79.3 of the LOE 2020, a single shareholder limited liability company must have at least one legal representative who holds one of these following titles: Chairman of the Members’ Council, President of the Company or Director or General Director of the Company. Unless otherwise provided in the Charter of the Company, the Chairman of the Members’ Council or the President of the Company shall be the legal representative of the company.

2.     Management organization structure of a single shareholder limited liability company

According to current LOE regulations, the owner of a single-member limited liability company can be either an organization or an individual. Therefore, depending on whether the owner of a single-member limited liability company is an organization or an individual, there are different methods of organization and operation as follows:

Management organization structure of a single shareholder limited liability company that owned by an organization

According to the provisions of Article 79 of the LOE 2020, single-member limited liability companies owned by an organization shall be managed and operated according to one of the following two models:

(i)     Company President, Director or General Director;

(ii)     Members’ Council, Director or General Director.

For companies whose owners are state-owned enterprises as prescribed in Article 88.1 of the LOE 2020, a Supervision Board must be established; other cases of ownership shall be decided by the company itself. Accordingly, the organizational structure, working regime, standards, conditions, dismissal, relieved of duty, rights, obligations and responsibilities of the Supervision Board, and Supervisors shall comply with the provisions of Article 65 of the LOE 2020.

Regarding the companies following the model of the Members’ Council

According to the provisions of Article 80 of the LOE 2020, the Members’ Council must have from 03 to 07 members. Members of the Members’ Council are appointed or dismissed by the Company Owner for a term of no more than 05 years. The Members’ Council shall, on behalf of the Company Owner, exercise the rights and obligations of the Company Owner; on behalf of the company to perform the rights and obligations of the company, except for the rights and obligations of the Director or General Director; take responsibility before the law and the Company Owner for the performance of assigned rights and obligations in accordance with the Company’s Charter, the LOE and other relevant laws.

The Chairman of the Members’ Council shall be appointed by the Company Owner or elected by the members of the Members’ Council on the principle of majority according to the order and procedures specified in the Company’s Charter. Unless otherwise provided in the Company’s Charter, the term, rights and obligations of the Chairman of the Members’ Council shall comply with the provisions of Article 56 of the LOE 2020 and other relevant regulations.

Regarding the companies following the model of the Company President

The Company President is appointed by the Company Owner. The Company President shall, on behalf of the Company Owner, exercise the rights and perform the obligations of the Company Owner; on behalf of the ompany to perform the rights and obligations of the company, except for the rights and obligations of the Director or General Director; take responsibility before the law and the Company Owner for the performance of their assigned rights and obligations in accordance with the Company’s Charter, the LOE and other relevant laws.

Regarding the Director, General Director

Besides the Members’ Council or the Company President, the management structure in a single-shareholder limited liability company owned by an organization also has a Director or General Director. According to Article 82.1 of the LOE 2020: “The Members’ Council or the President of the Company appoints or hires the Director or General Director with a term of no more than 05 years to run the day-to-day business operations of the company. The Director or General Director is responsible before law and the Members’ Council or the Company President for the performance of their rights and obligations. The Chairman of the Members’ Council, another member of the Members’ Council or the Company President may concurrently be the Director or General Director, unless otherwise provided by law or the Company’s Charter”.

The Director or General Director of the company must not fall within the subjects specified in Article 17.2 of the LOE 2020 and have professional qualifications and experience in business management and administration. The Director or General Director has the following rights and obligations [3]:

(i)      Organize the implementation of resolutions and decisions of the Members’ Council or the Company President;

(ii)     Decide on issues related to the company’s day-to-day business operations;

(iii)     Organize the implementation of the company’s business plan and investment plan;

(iv)     Promulgating internal management regulations of the company;

(v)      Appointment, dismissal or dismissal of managers of the company, except for positions within the competence of the Members’ Council or the Company President;

(vi)     To sign contracts on behalf of the company, except for cases under the authority of the Chairman of the Members’ Council or the Company President;

(vii)     Proposing the company’s organizational structure plan;

(viii)    Submit annual financial statements to the Members’ Council or the Company President;

(ix)     Proposing a plan to use profits or deal with losses in business;

(x)      Labor recruitment;

(xi)     Other rights and obligations specified in the Company’s Charter and labor contract.

2.2.     Management organization structure of a single shareholder limited liability company that owned by an individual

According to the provisions of Article 85.1 of the LOE 2020, a single-member limited liability company owned by an individual has a Company President, Director or General Director.

In this case, the owner of the company is the President of the Company, and at the same time may concurrently holds the title of the Director/General Director or hire another person to act as the Director or General Director of the company. In case of hiring another person to be the Director or General Director of the company, the rights and obligations of the Director or General Director are specified in the labor contract and the Company’s Charter.

For a single-member limited liability company owned by an individual, the organizational structure is somewhat simpler and easier to manage than a single shareholder limited liability company owned by an organization.

We hope you find this Legal Update useful and look forward to working with you in the future. 

Kind regards,

ENT Law LLC

The full version of this Legal Update can be found here.

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[1] Article 74.1 of the LOE 2020.

[2] Article 74.2, Article 74.3 of the LOE 2020.

[3] Article 82.2 of the LOE 2020.