PROCEDURE FOR CONVERSION OF ENTERPRISE TYPE 

Conversion of enterprise type is a general trend in the business market today. The conversion of enterprises is both a method to increase business efficiency, and increase ability. to attract capital or simply solve the problem of human resource structure to comply with the law. Currently, Enterprise law allows 04 cases in which enterprises. are allowed to converse types when meeting the conditions.

To help customers better understand the regulations on procedures of enterprise type, LawPlus would like to review some relevant current legal provisions in this article.

>>> MERGER AND ACQUISITION  ACCORDING TO CURRENT REGULATION

I. WHAT IS CONVERSION OF ENTERPRISE TYPE?

1.1. The concept of Conversion of enterprise type 

According to Clause 31, Article 4 of the Law on Enterprises 2020, conversion of .enterprise type is one of the forms of enterprise reorganization. Therefore, it can be understood that this is a way to restructure the business in a new direction, to match the future business orientation of the business. Accordingly, when making the conversion, it will simultaneously re-establish new legal .rights and obligations for each member of the business. After making the conversion, the business does not automatically .terminate its operation, but switches to another more suitable type of operation. At the same time, the converted Company naturally inherits all legal rights and interests and is .responsible for debts, including tax debts, labor contracts, and other obligations of the converted company.

1.2. Benefits from Conversion of enterprise type 

It brings many benefits to businesses to match market trends, financial situations, and the size of the company. In general, it revolves around two following benefits:

Firstly, Conversion of enterprise type helps businesses increase business efficiency.

Along with the trend of the market, businesses need to change. their type of business to increase competitiveness as well as expand the financial scale. Typically, when a two-member limited liability company wants to increase capital; relationships, .personnel, and ability to talk, should be converted to a Joint Stock Company. Accordingly, the Joint Stock Company has a diverse business field, and flexible capital structure to .create conditions for many people to invest and contribute capital to the Company. Thereby helping to increase business efficiency for businesses.

Secondly, conversion of enterprise type helps businesses solve difficulties in terms of company size.

Accordingly, the labor union helps enterprises not to be. dissolved if there is not enough minimum number of members prescribed by law. Specifically, when capital-contributing members of a Joint Stock Company withdraw from the company, the remaining members should switch to the type of one-member limited liability company. Then the transformation will be suitable for the company’s situation, and at the same time, ensure structural legal issues.

II. WHEN WILL THE ENTERPRISE BE CONVERTED TYPE 

According to the provisions of the Law on Enterprises 2020, the law only allows four (04) cases to be allowed to be employees. Namely:

2.1. Converting a limited liability company into a joint stock company

According to Clause 2, Article 202 of the Law on Enterprises 2020, the conversion from a limited liability company into a joint stock company is carried out through the following forms:

  • Converting into a joint stock company without mobilizing other organizations and individuals to contribute capital, not selling contributed capital to other organizations and individuals;
  • Mobilizing other organizations and individuals to contribute capital;
  • Selling all or part of the contributed capital to one or several other organizations and individuals;
  • Combine the above 03 methods and other methods.

2.2. Converting a Joint Stock company into a one-member limited liability company

According to Clause 1, Article 203 of the Law on Enterprises 2020, the conversion from a joint stock company into a one-member limited liability company is carried out in the following methods:

  • One shareholder receives the transfer of all corresponding shares of all remaining shareholders;
  • An organization or individual that is not a shareholder receives the transfer of all shares of all shareholders of the company;
  • The company only has 01 shareholders left.

2.3. Converting a private enterprise into a limited liability company, joint stock company, partnership

A private enterprise may be converted into a limited liability company, joint stock company, or partnership at the discretion of the owner of the private enterprise if it fully meets the following conditions:

  • The converted enterprise must fully meet the conditions specified in Clause 1, Article 27 of the Law on Enterprises
  • The owner of the private enterprise undertakes in writing to take personal responsibility with all his assets for all outstanding debts and commits to paying the full amount of the debt when it is due;
  • The private enterprise has a written agreement with the parties to the non-liquidated contract that the converted company receives and continues to perform such contracts;
  • The owner of the private enterprise undertakes in writing or has a written agreement with other capital contributors on the reception and use of existing labor of the private enterprise.

2.4. Convert a joint stock company into a limited liability company with two or more members

According to Clause 1, Article 204 of the Law on Enterprises 2020, a joint-stock company can be converted into a limited liability company with two or more members in the following methods:

  • Converting into a limited liability company with two or more members without mobilizing or transferring shares to other organizations and individuals;
  • Converting into a limited liability company with two or more members and mobilizing other organizations and individuals to contribute capital, and transferring all or part of shares to other organizations and individuals contributing capital;
  • The company only has 02 shareholders left;
  • Combine the above and other methods. 

III. PROCEDURES FOR CONVERSION OF ENTERPRISE TYPE

3.1. Documents need to prepare 

According to Decree 01/2021/ND-CP, depending on the type of conversion, the required documents will be different. However, the types of legal documents commonly used for this procedure include:

  • Application for business registration;
  • Company charter (for limited liability companies and joint stock companies);
  • List of members (for limited liability companies with two or more members);
  • List of founding shareholders and list of shareholders being foreign investors for joint stock companies;
  • Copies of documents (depending on the type of conversion);
  • Written decision and copy of meeting minutes on the change of:
+ Company owner (for one-member limited liability company);
+ Members’ Council of the company (for limited liability companies with two or more members);
+ General Meeting of Shareholders (for Joint Stock Company).
  • Legal documents of the individual for the legal representative of the enterprise;
  • Documents proving the legal status of the new investor
  • For investors who are legal entities, it is necessary to have: A valid copy of the establishment decision; Business registration certificate, or another equivalent document;
  • For foreign investors, personal documents need to be consular legalized

In addition, enterprises need to prepare some of the following documents:

In the case of conversion of a private enterprise into a partnership, a limited company, or a joint stock company.
  • The private business owner’s written commitment to take personal responsibility with all his assets for all outstanding debts and a commitment to pay the full amount of the debt when it is due;
  • Written agreement of the owner of the private enterprise with the parties to the unliquidated contract that the converted company receives and continues to perform such contracts;
  • Written commitment or written agreement of the owner of the private enterprise with other capital contributors on the reception and use of existing labor of the private enterprise;
  • Transfer contract or documents proving completion of the transfer in case of capital transfer of a private enterprise; Donation contract in case of donation to the capital of a private enterprise; A copy of the document confirming the legal inheritance rights of the heir in case of inheritance by the provisions of law;
In case of conversion from a one-member limited liability company to a limited liability company with two or more members
  • Transfer contract (accompanied by supporting documents) or documents confirming the donation, for part of the ownership of the company in case the owner transfers, or donates part of the ownership of the company to one or several other individuals.
  • The decision of the company owner to mobilize additional contributed capital if the owner raises additional contributed capital from one or several other individuals
In case of conversion from a limited liability company with two or more members to a one-member limited liability company
  • Contract for transfer of contributed capital and supporting documents
  • Resolutions, decisions, and copies of minutes of meetings of the Members’ Council of a limited liability company with two or more members on the transformation of operations under the model of a one-member limited liability company;
In case of conversion from a joint stock company to a limited company and vice versa
    • Contract for transfer of contributed capital and documents proving or agreement on investment capital contribution; 
    • Resolutions, decisions of the company owner for a one-member limited liability company or resolutions, decisions, and copies of meeting minutes of the Members’ Council for a limited liability company with two or more members or resolutions and copies of meeting minutes of the General Meeting of Shareholders for a Joint Stock Company on the transformation of the company;
  • Documents confirming the capital contribution of new members and shareholders; 

3.2. Procedure for conversion of enterprise type 

Step 1: Enterprises submit documents to the business registration agency.

Enterprises must register the conversion with the Business Registration Agency within 10 days from the date of completion of the conversion.

Within 03 working days from the date of receipt of the dossier, the Business Registration Agency shall review and reissue the Enterprise Registration Certificate if it meets the prescribed conditions and update the legal status of the enterprise on the National Database on Business Registration.

Step 2: The enterprise comes to receive the results at the place where the initial application for registration of labor unions is submitted.

Currently, in some cases, the law allows enterprises to transform the type of enterprise to improve business activities and comply with legal regulations. Accordingly, there are also cases where the law does not allow enterprises to change the type of company for some of the following cases:

  • A one-member company can not be convert into a Joint Stock Company;  
  • The company has only 2 members who are not transferred up Joint Stock Company; 
  • The conditional company to move to another type must prove that condition again

The above are some important information related to the conditions and procedures for conversion of enterprise type by current laws. With many years of experience in the field of consulting by a team of experienced lawyers, we have accompanied many domestic and foreign businesses. 

To better understand the regulations as well as how to implement the transformation, you can contact us via the hotline at +84 2862 779 399; +84 3939 30 522, or via email at info@lawplus.vn to be consulted by the LawPlus team directly to answer questions. 

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