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BUSINESS LAW

HANOI UNIVERSITY FACULTY OF MANAGEMENT AND TOURSIM -----------------------o0o----------------------

BUSINESS LAW ASSIGNMENT

PARTNERSHIP ENTERPRISE & PRIVATE ENTERPRISE

Tutor Class

Ms. H Thy Hng Tut 4 AC 10 0904010007 Bch Th Thy Nguyn Th Thuyt Nguyn Th Thun Trnh Ngc Nht 0907010170

Group member Trn Th Ngc nh

Date

December 3rd2012

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TABLE OF CONTENT
I.Introduction ............................................................................................... 5 II. Features of partnership company and private company ........................ 6 1.Features of partnership company ......................................................... 8 2.Features of private company ................................................................ 8 III.Advantages and disadvantages of partnership company and private company....................................................................................................... 11 1.Advantages and disadvantages of partnership company ..................... 11 2.Advantages and disadvantages of private company ............................ 12 IV. Conclusion ............................................................................................ 13 References ................................................................................................... 16

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I. Introduction The notion that deciding the appropriate business formation for a newly established plays a very important role in sustaining the long-term development is widely recognized among businesses. Business owners always have to find out how important it is to choose most adequate form of organization whether they make a decision of purchasing an existing business or become an initial start-up,. Among existing choices, partnership and privately owned business are apparently two most common business formations. Although both types allow individuals to work together with shared liability, some important differences still remain in terms of organization, liability, management as well as stability. Correspondingly, this research was carried out with an aim of comparing and figuring out some of advantages and disadvantages between private company and partnership in the legal field. Besides, some recommendations and suggestions are also provided for better understanding for enterprises especially the initial start-up ones regarding to the decision of choosing the appropriate business formation. II. Features of Partnership Company and Private Company 1. Features of Partnership Company A partnership is an enterprise in which there are no less than two partners who are joint owners of the company and carry out business under one common name; in addition to general partner, there may also be limited partners. Legal status: A partnership will be given legal status from the issuing date of the certificate of business registration. Limited liability: General partner must be individual and will be liable to all obligations of the partnership with his entire property. Limited partners will be liable to debts of the partnership only to the extent of their capital contributed to the partnership. Rights to issue securities: Partnerships is not permitted to issue any type of securities. Capital contribution: 1. General partner and limited partner are required to make capital contribution fully and promptly as committed. 2. General partner who does not make capital contribution so fully and promptly that cause losses to the company must compensate for those losses. 3. When a limited partner does not make capital contribution fully and promptly as committed, deficiency in the capital contribution will be considered as his debt to TUT 4 AC 10 Page 3

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the company; in this circumstance, such a limited partner may be expelled from the partnership by a decision of the partners council. 4. Upon a full capital contribution, partners will be granted a certificate of capital contribution. Property of the partnership 1. Assets which have been contributed by partners and conveyed to the company. 2. Assets generated by the company 3. Assets generated from business operations that carried out by partners on behaft of the partnership or from any business related to registered business activities of the partnership that carried out by partners on behalf of themselves. 4. Other assets as stipulates in the law. Structure of organizational management - All partners who make up the partners council. The partners council will elect one among them to be the chairman of the partners council; the chairman will be director or general director of the partnership, unless otherwise provided in the company charter. - All general partners are entitled to ask for convocation of the meeting of partners in order to discuss and decide on matters in relation to business activities of the partnership. - The partners council is entitled to decide on business operations of the partnership. Unless otherwise stipulated in the company charter, following issues will be decided by of total general partners. - Unless otherwise stipulated in the company charter, other decisions rather than those stipulated in article 135 will adopted by 2/3 of total general partner. - Voting right of limited partners will be complying with the company charter. - Chairman of the partners council can convene a Meeting of the partners council when necessary or upon request of general partners. When the chairman fails to convene the meeting upon request of general partner, such general partner is entitled to convene the meeting. Examples of Partnerships in Vietnam Vietnam Auditing Partnership Company: was established as the first partnership in the accounting and auditing services in Vietnam in accordance with the Government Decree 105 dated 30 March 2004. It is a new institution of well selected professionals with sound knowledge and working experience in the auditing, accounting and consulting areas. Waterway inland transportation service Partnership Company: was established in August 3rd 2009. Areas of business: Transport of goods by specialized automotive by waterway. Auditing- Financial Consultancy Partnership Company: was joined on October 27th 2009. Areas of business: all kinds of auditing, service and consultancy accounting TUT 4 AC 10 Page 4

BUSINESS LAW

2. Features of Private Company A Private Enterprise is owned by one individual liable for all activities with all the assets.To understand the private secter better let us have a glance at some of its characteristic features. Significant features of Private Enterprise are analyzed as follows: Legal status: A Private Company has a separate legal entity. It has a common seal and can enter into contracts by affixing its seal. Members of the company can also enter into contract with the company. Liability: The liability of shareholders is limited to the value of shares held by them. The members are not personality liable for the obligations of the business. Rights to issue securities: A Private Enterprise is not permitted to issue securities. Investment capital of the proprietor: 1. Investment capital of the sole proprietorship will be declared and registered by the

sole proprietor. The sole proprietor is obliged to register exactly the total amount of investment capital, in which capital made in form of Vietnamese currency, freely convertible foreign currency, gold, and other assets must be clearly defined; with regard to other assets, types, quantity and remained value of them are also required to define clearly. 2. All investment and assets, including loan and leasing property that used for business

operation of the sole proprietorship must be fully and clearly reflected in accounting books and the financial statement of the sole proprietorship 3. Suring the course of business, the sole proprietor is entitled to increase or reduce

investment capital. Any increase or reduction in the investment capital must be reflected in the accounting books. In case reduction in the investment capital is leaded to making the investment capital lower than that is already registered, the sole proprietor is permitted to do so after notifying the business registrar. Transference of capital share:

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Purchasing of shares, its exchange or exchange by an individual leads to transferability of a share. It is strictly prohibited in the case of a private sector company to transfer its shares. This is a major part of the articles of association of the private company. Management of Private Enterprise: 1. The Private Enterprise is entitled to decide on any business operation of the private

enterprise and distribution of profits after paying off taxes and other financial obligations as stipulated by the laws. 2. The sole proprietor himself manages and run business operation of the enterprise or

may employ a person to do so. Employment of a direction or general director must be notified the business registrar and the sole proprietor remain fully liable to all business operations of the sole proprietorship. 3. The sole proprietor will act as plaintiff, defendant or related person before arbitration

or court in all disputes relation to the sole proprietorship. 4. The sole proprietor will act as the legal representative of the sole proprietorship.

Leasing of sole proprietorship: The sole proprietor is entitled to lease his business, provided that the sole proprietor will inform in writing the business registrar and the tax agency about such business leasing which enclosed with a notarized leasing contract. During the time of beasing business, liability of the sole proprietor remains the same. Rights and obligations of thesole proprietor and the lessee will be stipulated in the leasing cotract. Sale of sole proprietorship: 1. The sole proprietor is entitled to sell his entorprise to another. No less than 15 days

before the transferring date of the enterprise, the sole proprietor will notify in writing the Business Registrar of such fact. The notification must include name, head office of the sole proprietorship; name, address, amount of debts and deadline of payment of each creditor, labor contract and other contracts that are already concluded but not yet completed and methods of seltlement of such contracts. 2. The proprietor is still liable to outstanding debts and other liabilities of the sole

proprietorship after selling the sole proprietorship, unless otherwise agreed by the buyer, seller and the creditors. 3. 4. The seller and the buyer are required to comply with the laws on labor The buyer of the sole proprietorship must re-register in pursuant to this law.

III. Advantages and disadvantages of Partnership Company and Private Company TUT 4 AC 10 Page 6

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1. Advantages and disadvantages of Partnership Company From features listed above, this part continues to analyze advantages and disadvantages of the two types of companies in the context of Viet Nam. As for Partnership Enterprise, there are number of advantages as follows: a. Capital Due to the nature of the business, the partners will fund the business with startup capital. This means that the more partners there are, including general partners and limited partners, the more money they can put into the business, which will allow better flexibility and more potential for growth. It also means more potential profit, which will be equally shared between the partners. b. Flexibility A partnership enterprise is generally easier to form, manage and run. They are less strictly regulated than companies, in terms of the laws governing the formation and because the partners have the only say in the way the business is run (without interference by shareholders) they are far more flexible in terms of management, as long as all the partners can agree. c. Responsibility Partners can share the responsibility of the running of the business. This will allow them to make the most of their abilities. Rather than splitting the management and taking an equal share of each business task, they might well split the work according to their skills. So if one partner is good with figures, they might deal with the book keeping and accounts, while the other partner might have a flare for sales and therefore be the main sales person for the business. Moreover, the members of the partnership have unlimited liability that should be able to create trust for partners and customers because they feel more secure when entering into partnerships. d.Ease to make decision As stipulated by the Enterprise Law 2005, all partners make up the partners council and it is entitled to decide on business operations of the partnership. So, partners share the decision making and can help each other out when they need to. More partners mean more brains that can be picked for business ideas and for the solving of problems that the business encounters.

Besides these significant advantages, Partnership Enterprise recognizes several drawbacks: TUT 4 AC 10 Page 7

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a. Disagreements According to Vietnameses Enterprise Law 2005, if all the decisions are not unanimous or otherwise did not stipulate in the company charter, some issues will be decided by two-thirds or three-fourths of total general partners. One of the most obvious disadvantages of partnership is the danger of disagreements between the partners. Obviously people are likely to have different ideas on how the business should be run, who should be doing what and what the best interests of the business are. This can lead to disagreements and disputes which might not only harm the business, but also the relationship of those involved. This is why it is always advisable to draft a deed of partnership during the formation period to ensure that everyone is aware of what procedures will be in place in case of disagreement and what will happen if the partnership is dissolved. b. Agreement Because the partnership is jointly run, it is necessary that all the partners agree with things that are being done. This means that in some circumstances there are less freedoms with regards to the management of the business, especially compared to some traders. However, there is still more flexibility than with limited companies where the directors must bow to the will of the members (shareholders). c. Liability Ordinary Partnerships are subject to unlimited liability, which means that each of the partners shares the liability and financial risks of the business. Obviously, following the Enterprise Law 2005 stipulated for Partnership, general partner will be liable to all obligations of the partnership with his entity property and limited partner will be liable to debts of the partnership only to the extent of their capital contributed to the partnership. d. Profit Sharing Partners receive the profits in proportion to their capital contribution. This can lead to inconsistency where one or more partners arent putting a fair share of effort into the running or management of the business, but still reaping the rewards. Summary:Because thepartnershipisanew typeappearedintheVietnameseeconomyin recent yearsandonlybegantobeprescribedin the Enterprise lawsince2000. So, infact,thistype of businesshasnotbeenpopular.

2. Advantages and disadvantages of Private Company With regard to advantages, Private Companies have the following strong points: a. Ease in management of the business TUT 4 AC 10 Page 8

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Private business owner is the legal representative of the enterprise. Private business owner has the right to decide for all business activities of the enterprise; reserves the right to decide on the use of profits after payment of taxes and fulfill other financial obligations in accordance with the law. Private business owners can directly or hire someone else to manage business operations. Case of hiring someone else to do business managing director, private business owners is still responsible for all business activities of the enterprise. As the only owner of private business enterprises should fully active in deciding issues related to the business activities of the enterprise. Unlimited liability regime of private business owner to trust partners, customers and help businesses less tightly bound by the law as other types of businesses. b. Ease to sell or leasing business: Private business owner has the right to lease its entire business, but must be reported in writing accompanied by a notarized copy of the lease contract to the agency business registration, tax agencies. During the term of the lease, private business owners still have to be responsible before the law as a business owner. Rights and responsibilities of owners and tenants for the business activities of the enterprise are specified in the lease. Private business owner has the right to sell your business to others. At least fifteen days before the date of transfer of the business buyers, business owners must be notified in writing to the registry business. The notice must state the name and office of the enterprise; name and address of the buyer; total liabilities of the business; your name, address, and payment term debt to each creditor; contract labor and other contracts have been signed but not yet completed, and how to deal with such contracts. c. Simpler procedure of establishment In order to set-up a Private Company, there are a few criteria that first have to be satisfied. According to Vietnameses Enterprise Law 2005, there is no requirement on the minimum capital registered; owner of private business are only obliged to make capital contribution fully and promptly with the assets as committed. Despite of these above benefits, investors should be aware of some shortcomings of private companies: a. Difficulty in raising capital

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Private Company has no right to issue shares to raise capital. As stipulated by the Enterprise Law 2005, the charter capital can be raised only contributing further by the owner of private business, which is not flexible enough to raise a large amount of capital when needed b. High risk: Private Company has no the legal status to the level of risk of the private owners, private business owners are responsible by all assets of the business and the business owner, but not limited capital that business owners have invested in the business. Summary:Looking deeply into the present situation of Vietnam economy, there are now more than 5,000,000 enterprises in which Small and Medium scale Enterprises (SMEs) accounts for nearly 98%. Accordingly, private companies seem to be the top choice for the Vietnam economists who want complete control of the decision of the company's operations that do not depend on anyone, have unlimited liability. IV. Conclusion In summary, the research emphasizes the importance of business formation before officially starting due to its effects on the existence and long term development of the enterprises. Each type of business certainly has its own advantages and disadvantages which should be considered carefully. Through the analysis, the ultimate expectation for all the business leaders is making a smart choice for their own company. It is recommended that the decision of choosing business formation should be based on the timeline, level of commitment, resources and the sustainable goals achievement of the business as well. People can change the form of the business in time if the circumstances of the business seem to experience some changes.

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REFERENCES
1. Chapter V and VI, Vietnamese Enterprise Law 2005 2. Advantages and Disadvantages of Partnership [online]. Available at URL: http://blog.thecompanywarehouse.co.uk/2010/03/01/advantages-and-disadvantages-ofpartnership/ 3. So snh doanh nghip t nhn v cng ty hp danh [online]. Available at URL: http://www.google.com.vn/giaidap/thread?tid=3aa061df0a61bc93 4.

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