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What Kind Of Business Structure Should I Use When Starting a Business?

GBS - Choosing the perfect business structure for your new business can seem a little daunting. The incorporation process is riddled with cumbersome legal jargon, and it’s enough to confuse even the sharpest of entrepreneurs.
Like it or not, it’s crucial you do your homework. Although some business structures do share similarities, each one comes hand-in-hand with its own unique set of advantages — and the company type you choose will inevitably pose major legal implications for your business and the way in which it’s taxed. To help point you in the right direction, here are five of the most common business structures, what sets them apart and how they’re taxed:

Limited liability company (LLC)

Structure of Limited Liability Companies
An LLC is established by members' capital contribution to the company. As a LLC is a legal entity separate from the owners, the owner(s)'s liability for the firm's debts and obligations is limited to his capital contribution.

LLCs exist in two forms - one-member LLC, or multi-member LLC. The former is owned by an organisation/individual, while the latter allows for two to fifty members.

The management structure consists of a Members' Council (MC), Chairperson of the MC and Director. Where there are more than 11 members in LLC, an Inspection Committee (IC) must also be established.

Shareholding Company (SC)

Structure of a Shareholding Company
An SC is an entity with at least three shareholders, where ownership of the firm depends on the number of shares they hold. It is the only form of enterprise that can issue securities to raise capital.

Shareholders' liability is limited to their capital contribution; however, shareholders can be personally liable where the company is substantially undercapitalised on formation.

The management structure consists of a shareholders' meeting (SM), a board of management (BOM), a director and an IC.

A partnership comprises at least two co-owners jointly conducting business under one common name, with at least one co-owner being an individual. In a partnership, there can be both limited[18] and unlimited liability partners.

The Partners' Council, consisting of all partners, is the highest body in the partnership with the right to resolve all business affairs, such as the admission of new partners.

Private enterprises
A private enterprise is a firm owned by an individual, who is its legal representative. The owner has total discretion in making business decisions, and is liable for its operations to the extent of all his assets. Each individual can only establish one private enterprise.

Rules concerning ownership of businesses
The government has rules to restrict certain lines of businesses, and will periodically review business conditions and proceed with any changes accordingly.

The rights and obligations of business enterprises are provided for in Articles 8–10; but might differ slightly should the enterprise offer public services or products.

Ownership Differences

Limited liability company (LLC)
Owners in LLCs have to contribute capital in full and on time. In one-member LLCs, the owner will be responsible for debts and other property obligations if he fails to do so. Meanwhile, in multi-member LLCs, members are to contribute capital in the type of asset, and any change is subject to the consent of other members.

Owners in LLCs can assign a share of their capital contribution except where prohibited. In one-member LLCs, this is the only way for the owner to withdraw capital.

Shareholding Company (SC)
The government provides specific provisions on the forms of offering securities to the public. In offering securities, SCs are subject to conditions laid out in the Securities Law, such as the requirement for a paid-up charter capital at the time of offering of at least VND 10 billion in book value.

Founding shareholders can assign their registered ordinary shares to each other if they hold 20% of ordinary shares for 3 years from the date of the Business Registration Certificate. Approval at the SM will allow a non-founding shareholder to purchase registered ordinary shares from a founding shareholder.

If an unlimited-liability partner fails to contribute capital accordingly, other partners may be held liable to compensate the partnership for the damage. However, where the limited liability partner fails to contribute capital accordingly, the unpaid amount will become a debt owed by that partner to the partnership.

An unlimited liability partner can transfer his share of capital in the partnership to another person only with the consent of the other unlimited liability partners.

Private enterprises
The owner must register his investment capital in the firm, and record changes in the investment capital in the accounts.

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