A partnership company in Vietnam is a business entity where at least two individuals contribute capital and share joint, unlimited liability for the company’s obligations. This structure, governed by the 2020 Enterprise Law, involves two types of partners: general partners, who bear unlimited liability and manage the company, and capital contributors, who have limited liability but no managerial rights. This article explores the key legal characteristics, roles, and responsibilities of both types of partners in a partnership company.
1. What is a partnership?
A partnership company is a business entity where at least two people contribute capital and operate under a common name, sharing joint and unlimited liability for debts and obligations arising from business activities.
In practice, this type of company is often established by family members. Due to the joint and unlimited liability, it is essential that the members trust and truly understand each other. The establishment of a partnership is typically based on a contract between the members, although agreements can be made orally. In some cases, even without a formal declaration, simply engaging in joint commercial activities is considered the establishment of a partnership business.
Pursuant to Article 177 of the 2020 Enterprise Law, a partnership is an enterprise in which:
– There are least 02 partners that are joint owners of the company and do business under the same name ((hereinafter referred to as “general partner”). There can be limited partners in addition to general partners;
– A general partner shall be an individual whose liability for the company’s obligations is equal to all of his/her assets;
– A limited partner can be an organization or an individual whose liability for the company’s debts is equal to the promised capital contribution.
2. Legal Characteristics
Firstly, the members of a partnership company. A partnership company is formed when at least two individuals agree to work together and are jointly and severally liable with their personal assets for the company’s obligations.
Secondly, the liability regime for different types of members. As discussed earlier, a partnership must have at least two members who are jointly and severally liable, meaning they are responsible with all their assets for the business activities of the company. This liability is not limited for any member, and if there is any agreement to limit it, the company loses its nature as a partnership.
Thirdly, the rights of management and representation for a partnership company. In the course of the company’s activities, the members have the right to legally represent the company and organize the daily business operations. Any restrictions on the general partner’s authority in daily business operations only take effect against third parties if they are aware of such restrictions.
Fourthly, the status of a merchant. Under Vietnamese law, a partnership company is recognized as a merchant, with the members acting as co-owners of the company and having rights and obligations corresponding to their membership and capital contributions. However, in many countries, partnership members are automatically considered legal entities, meaning that once they become members of the partnership, they acquire merchant status without any registration procedures.
Fifthly, securities issuance: A partnership company is not allowed to issue any type of securities, and its ability to raise capital is therefore very limited.
Sixthly, legal status. A partnership company has legal status. Previously, the 1999 Enterprise Law did not recognize a partnership company as having legal status, but since the 2005 Enterprise Law, partnership companies have been granted legal status. We can see that a partnership company is jointly and severally liable for the rights and obligations within the company, but there is still a clear separation between the company’s assets and the personal assets of its members. The members must transfer ownership of their contributed assets to the company, and any assets generated during the company’s operations are considered the company’s property.
3. Members of a Partnership Company
3.1. General Partners
According to Clause 2, Article 17 of the 2020 Enterprise Law, a partnership company must have at least two general partners, who must be individuals and are responsible with their entire assets for the company’s obligations. General partners must not fall under any prohibited categories for establishing and managing a business.
As seen, general partners are a crucial element in the formation and operation of a partnership company according to the law. Under previous versions of the Enterprise Law, general partners were required to be individuals with “professional expertise and professional reputation.” This is because partnership companies are typically established based on the specialized knowledge and reputation of their general partners.
Moreover, general partners bear unlimited and joint liability for the company’s obligations, meaning creditors have the right to require any general partner to pay the company’s debts. Each general partner is personally liable for the company’s obligations with all their assets. In addition, general partners have the right to contribute their opinions on company matters, which is crucial to the development and management of the company. The law also recognizes that general partners can represent the company in its activities, highlighting their important role in the business.
A general partner’s status as a partner ends when they: voluntarily withdraw their capital from the company; pass away, are declared missing by a court, or have their civil capacity limited or revoked; are expelled from the company; or in other cases as specified in the company’s charter under Clause 1, Article 185 of the 2020 Enterprise Law.
General partners are prohibited from owning a sole proprietorship or being a general partner in another partnership, unless they have the consent of the other general partners.
- General partners are not allowed to conduct business in the same industry or trade as the partnership company, either personally or on behalf of others, for personal gain or to serve the interests of other organizations or individuals.
- General partners are not allowed to transfer part or all of their capital contribution to another person without the consent of the other general partners.
b. Capital Contributors
According to Clause 3, Article 17 of the 2020 Enterprise Law, capital contributors can be either organizations or individuals. Any organization or individual may become a capital contributor in a partnership company, except for those prohibited from contributing capital to businesses.
Capital contributors only have rights directly related to their legal rights and interests. Although they do not have the authority to manage or operate the partnership, they have the right to attend meetings, discuss, and vote at the members’ council on matters such as amendments to the company’s charter, changes to the rights and obligations of capital contributors, company restructuring, dissolution, and other issues related directly to the rights and obligations of capital contributors as specified in Clause 1, Article 187 of the 2020 Enterprise Law.
In principle, in cases where the company has both general partners and capital contributors, the capital contributors can participate in meetings, discussions, and voting at the members’ council. The members’ council must include all members, both general partners and capital contributors. Each member has one vote, and decisions are made when at least 3/4 of the general partners agree.
Although capital contributors have the right to participate in the members’ council, the 2020 Enterprise Law does not grant them the right to request the convocation of a members’ council meeting. Only general partners have the right to request the convening of a meeting, as outlined in Clause 2, Article 182 of the 2020 Enterprise Law. This restriction can create difficulties for capital contributors when they need to call a meeting to address important issues.
Additionally, capital contributors have the right to transfer their capital contribution to others. Compared to general partners, capital contributors can exercise this right more easily, with fewer legal restrictions or obligations. They also have the right to engage in business activities in the company’s industry or trade either personally or on behalf of others.
Legal Framework on Capital in a Partnership Company
4.1. Assets of a Partnership Company
The assets in a partnership company include:
- The capital contributions of the members that have been transferred to the company’s ownership;
- Assets acquired in the company’s name;
- Assets obtained from business activities carried out by the general partners in the company’s name or, when acting personally, in the registered business sectors of the company;
- Other assets as prescribed by law.
General partners and capital contributors must contribute their full capital to the company on time as agreed:
- Both general partners and capital contributors must contribute the full amount of capital as committed;
- If general partners fail to contribute the agreed capital on time and cause damage to the company, they must compensate for the losses;
- If capital contributors fail to contribute the agreed capital on time, the outstanding capital will be considered a debt owed by the contributor to the company. The related contributor may be expelled from the company by a decision of the members’ council.
Upon contributing the full agreed capital or transferring the ownership of assets (in the case of capital contribution through assets), the company will issue a capital contribution certificate to the contributors. In case the certificate is lost, damaged, or destroyed, the company will reissue the certificate.
4.2. Transfer of Capital Contributions in a Partnership Company
According to Clause 3, Article 180 of the 2020 Enterprise Law, “A general partner cannot transfer part or all of their capital contribution to another organization or individual without the approval of the remaining general partners.” This means that general partners cannot transfer their capital contributions to others unless the other general partners agree.
In the case of capital contributors, they are allowed to transfer their capital contributions to others. According to Point d, Clause 1, Article 187 of the 2020 Enterprise Law, capital contributors have more freedom and ease in transferring their contributions. As capital providers, they help the company expand its business operations. Changing capital contributors does not affect the company’s personnel structure, existence, or personal relationships. However, this freedom may be restricted if the company’s charter provides otherwise.
In conclusion, partnership companies in Vietnam are built on the trust and shared responsibilities of their partners, with clear distinctions between the roles and liabilities of general partners and capital contributors. While general partners manage the business and assume full liability, capital contributors provide funding with limited responsibility. Understanding these dynamics is crucial for anyone considering forming or joining a partnership in Vietnam.
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