Before establishing a business in Vietnam, business owners need to know whether they are granted to establish and manage an enterprise? The 2020 Enterprise Law clearly states who may not establish and manage a business.
Subjects prohibited from establishing enterprises
Pursuant to Clause 2, Article 17 of the 2020 Enterprise Law, the following 7 subjects may not establish an enterprise:
- State agencies, and people’s armed forces’ units using state assets for establishment of enterprises to make profits for their own agencies or units;
- Cadres, civil servants and public employees;
- Officers, non-commissioned officers, career army men, and national defense workers and public employees in agencies and units of the Vietnam People’s Army; and officers, career non-commissioned officers and public security workers in agencies and units of the Vietnam People’s Public Security Forces, except persons who are appointed as authorized representatives to manage the State’s contributed capital amounts in enterprises or to act as managers in state enterprises;
- Leaders and professional managers in state enterprises as defined at Point a, Clause 1, Article 88 of this Law, except persons appointed as authorized representatives to manage the State’s contributed capital amounts in other enterprises;
- Minors; persons who have their civil act capacity restricted or lost their civil act capacity or have difficulty in perceiving or controlling their acts; and organizations without legal person status;
- Persons being examined for penal liability, put in temporary detention, serving imprisonment sentences or executing administrative sanctions at compulsory drug rehabilitation establishments or compulsory education institutions, or being banned by the court from holding certain positions, practicing certain professions or performing certain jobs; and other cases specified by the Law on Bankruptcy and the Anti-Corruption Law. When requested by the business registration agency, the person registering for establishment of an enterprise shall submit his/her criminal record certificate to the former;
- Organizations being commercial legal persons that are banned from conducting business or operating in certain fields as specified by the Penal Code.
Thus, according to these provisions, the subjects that may not establish enterprises will be cadres, civil servants, public employees, officers, people’s police, leaders of state-owned enterprises, minors, people who have lost or have limited civil act capacity, people who are prohibited by the court from holding positions, and people who are subject to criminal liability.
Why does the law stipulate that the above subjects are not allowed to establish enterprises in Vietnam?
As mentioned, the subjects listed above are legally not granted the right to manage and establish enterprises in Vietnam. The reasons for these provisions are as follows:
2.1. Why may state agencies not establish businesses?
The nature of state agencies is to carry state power and almost all operations are funded by state funds. Therefore, these agencies are not allowed to establish enterprises in order to prevent and guard against embezzlement of budget and people’s tax money.
In case the state budget for those units is used to establish enterprises for the purpose of making profit, it will lead to budget loss, and then the state capital will be used ineffectively.
2.2. Why may civil servants not establish businesses?
Civil servants are people who work in state agencies. In many cases, civil servants play a role in state management in certain industries, professions, and fields. With that position and advantage, not allowing civil servants to establish businesses is to prevent negative situations, avoid embezzlement, and corruption.
2.3. Why may minors, people with limited civil capacity or losing civil capacity, and organizations without legal status not establish enterprises?
If the subject of establishing an enterprise is an individual, that individual must have full civil act capacity to be responsible for his or her own enterprise.
If the subject of establishing an enterprise is an organization, that organization must have legal status. That means, it has independent assets and the ability to be responsible for those assets.
Therefore, the subjects include: people who are minors (under 18 years old) according to the provisions of the law; people with limited or lost civil act capacity; people who have lost civil act capacity; organizations without legal status do not have full legal capacity to establish and operate an enterprise. Therefore, they are completely ineligible to establish an enterprise according to the provisions of the law.
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