Consultation on business type conversion in 2024

In the context of an increasingly developing economy, the conversion of business types is becoming a crucial strategy to optimise benefits and enhance competitiveness. Governed by the Enterprise Law 2020, this procedure not only helps companies restructure but also opens up new opportunities suitable for scale and development orientation. With this trend, understanding legal regulations and important considerations when changing business types is essential. The following article will provide consultation on the latest business type conversion procedures for 2024, helping companies stay updated and prepare well when the need for change arises.

1. What is business type conversion?

Business type conversion (or also known as changing business type) is a form of restructuring, transitioning from one type of business to another for better aligning with the scale and development direction of the company.

2. Common forms of business type conversion

When seeking to convert the type of business, a company must base its decision on the current type of the business type and choose a conversion form that complies with legal regulations. According to the provisions of Articles 202 – 205 of the Enterprise Law 2020 and Articles 26 – 27 of Decree No. 01/2021, the forms of business type conversion include:

• A single-member limited liability company conversion into a two-member limited liability company/ a joint-stock company;
• A two-member limited liability company conversion into a single-member limited liability company/ a joint stock company;
• A joint-stock company conversion into a single-member limited liability company/ a two-member limited liability company;
• A private enterprise conversion into a single-member limited liability company/ a two-member limited liability company/ a joint-stock company/ a partnership company.

3. Required documents for business type conversion

According to Article 26 of Decree 01/2021/ND-CP, in general, issued by the Government on January 4, 2021, regarding enterprise registration, the application dossier for business type conversion includes the following documents:

• Business registration application form;
• Company charter;
• Copies of documents such as: Legal documents of individuals for company members who are individuals; Legal documents of organisations for company members who are organisations, etc.;
• Document from the Investment Registration Authority approving the capital contribution, share purchase, or purchase of capital contribution portions by foreign investors, economic organisations with foreign investment capital in cases where procedures for capital contribution, share purchase, or purchase of capital contribution portions must be carried out.
• Transfer contract or documentation verifying the completion of transfer in cases of capital/capital contribution/share transfer; Donation contract in cases of capital/capital contribution/share donation; Certified copy of documents confirming the legal inheritance rights of the inheritor in cases of inheritance as stipulated by law.

Depending on the specific type of business conversion, in addition to the mandatory documents listed above, the company must also prepare additional relevant documents as follows:

a) If a private enterprise converts into a partnership company/ limited liability company/ joint-stock company:

• List of partners for the partnership company/ List of members for two-member limited liability company/ List of founding shareholders and List of shareholders who are foreign investors for the joint-stock company;
• Written commitment from the private enterprise owner to personally assume full responsibility for all outstanding debts with their entire assets and commit to fully settle these debts when they fall due;
• Written agreement between the private enterprise owner and the parties of the outstanding contracts regarding the company’s assumption of these contracts and continued execution thereof;
• Written commitment or agreement between the private enterprise owner and other contributing members regarding the acceptance and utilisation of the existing workforce of the private enterprise.

b) If a single-member limited liability company converts into a two-member limited liability company:

• List of members for the two-member limited liability company/ List of founding shareholders and List of shareholders who are foreign investors for the joint-stock company;
• Resolution, decision of the company owner regarding the mobilisation of additional capital contribution from individuals, other organisations, and documents confirming the capital contribution of new members in cases of capital mobilisation from new members.

c) If a two-member limited liability company converts into a single-member limited liability company:

• Merger agreement, consolidation agreement in the case of merging, consolidating companies;
• Resolutions, decisions, and certified copies of the meeting minutes of the Board of Members of the two-member limited liability company regarding the conversion of operations into a single-member limited liability company.

d) If a limited liability company converts into a joint-stock company and vice versa, the dossier will include the documents listed in the general section attached herewith:

• List of members for the two-member limited liability company /List of founding shareholders and List of shareholders who are foreign investors for the joint-stock company;
• Resolution, decision of the company owner for the single-member limited liability company or resolution, decision, and certified copy of the meeting minutes of the Board of Members for the two-member limited liability company, or resolution and certified copy of the meeting minutes of the General Meeting of Shareholders for the joint-stock company regarding the company conversion.
• Documentation confirming the capital contribution of new members, shareholders.

A business can register for a type conversion while simultaneously registering to change the contents of its business registration or notifying changes to the contents of its business registration.

Please note that if a company registers for a type conversion while simultaneously registering a change in the legal representative the person signing the application should be the Chairman of the Board of Members for the two-member limited liability company, partnership company; Chairman of the company or Chairman of the Board of Members for the single-member limited liability company; Chairman of the Board of Directors for the joint-stock company post-conversion.

4. Procedure execution process

The company must prepare all necessary documents/ materials, then submits the dossier online via the National Business Registration Portal.

5. Lead time

Within a period of 03 working days from the date of receiving the conversion dossier, the Business Registration Office shall issue the Certificate of Business Registration and update the legal status of the company in the national database on business registration.[1]

The above is an overview of our legal perspective on Consultation on business type conversion in 2024 that Phuoc & Partners share with readers. If you have difficulties in finding a Law Firm to advise and support in the relevant legal field, please contact us. Phuoc & Partners is a professional consulting firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Danang. Phuoc & Partners is also rated as one of the leading consulting firms specialising in business law in Vietnam that has leading practice areas in the legal market such as Labour and Employment, Taxation, Merger and acquisition, Litigation. We are confident in providing Clients with optimal and effective service.

[1] Article 202.3, Article 203.3, Article 204.2, Article 205.2 of the Enterprise Law 2020