Compare the advantages and disadvantages of private enterprises and single-member limited liability companies

Accountability Mechanism

The owner is liable for all his assets.

That is, if the company's assets are not enough to pay debts and other financial obligations, the owner will have to use his own assets to settle these debts.

(Article 188)

Owners are liable only to the extent of the company's charter capital.

(Clause 1, Article 74)

Change in charter capital

- During operation, private business owners have the right to increase or decrease their investment capital in the business activities of the enterprise (must be fully recorded in the accounting books).

- In case the investment capital is reduced to less than the registered investment capital, the private enterprise owner may only reduce the capital after registering with the Business Registration Authority.

(Clause 3, Article 189)

- Charter capital can be increased in the following ways:

+ Mobilize additional capital contributions from owners;

+ Mobilize additional investment capital from individuals and other organizations.

Note: In case of mobilizing additional investment capital from other individuals or organizations, the LLC must convert its business type to a LLC with 2 or more members or a joint stock company.

- Charter capital can be reduced in the following ways:

+ Return part of the capital contribution to the company owner;

+ Charter capital is not paid in full and on time by the owner.

(Article 87)

Bond issuance rights

No securities of any kind may be issued.

(Clause 2, Article 188)

Can issue bonds. LLCs are limited in their right to issue shares.

(Article 87)

Legal status

No legal status

Has legal status from the date of being granted the Certificate of Business Registration.

(Clause 2, Article 74)

Organizational structure

- Owner self-manages or hires a manager;

- The owner is the legal representative.

(Article 190)

- A limited liability company owned by an individual has a Chairman, Director or General Director.

- A limited liability company owned by an organization is organized and managed according to one of the following two models:

+ Company Chairman, Director or General Director;

+ Board of members (in which one person is elected as Chairman of the Board of members), Director or General Director.

(Article 79)

Right to transfer capital contribution

The owner does not have the right to transfer all or part of the investment capital, but only has the right to sell or lease the private enterprise to other individuals or organizations.

(Article 191 and Article 192).

(Clause 4, Article 188)

The company owner has the full right to transfer all or part of the company's charter capital.

(Article 76)

Advantage

- The owner has full authority to decide all business activities in the enterprise.

- Because the liability of private enterprises is unlimited, it is easier to gain trust from customers and partners (customers minimize risks when cooperating).

- Private enterprises are less tightly bound by law and can control risks because there is only one person acting as the legal representative of the enterprise.

- Owned by an organization or an individual, the owner will have full authority to decide all matters related to the company's operations and will not need to ask for opinions or suggestions from other entities, and company management will also be simpler.

- Having legal status, the investor is responsible for limited liability within the scope of charter capital, thus limiting the owner's risks when conducting production and business activities.

Disadvantages

- Because a private enterprise has only one individual, there is no capital contribution; it is difficult to immediately meet the need for large capital for business. Because there is only one person, it is easy for one-sided decisions to occur; lack of objectivity.

- Private enterprises do not have legal status and are therefore not allowed to make certain agreements as prescribed by law.

- The business owner must be legally responsible for all business activities of the private enterprise.

- The business owner has unlimited liability for paying debts arising from the company's operations even if bankruptcy is declared.

- The legal system regulating LLCs is stricter than that of private enterprises.

- Limited in raising capital because LLCs are not allowed to issue shares.

- If there is a need to mobilize additional capital contributions from other individuals or organizations, it will be necessary to carry out procedures to convert the business type to a limited liability company with two or more members or a joint stock company.