In the ever-evolving business landscape, companies often find themselves adapting to changing circumstances to ensure their survival and growth. One such strategic move that has gained traction in recent years is the conversion of joint stock companies into one member limited liability companies. This transition offers several advantages and presents a fresh perspective on organizational structure and governance. For more detail, please contact Apolo Lawyers Law Firm via email contact@apolo.com.vn or hotline: (+84) 903.419.479

1.The Transition

Before delving into the benefits of converting joint stock companies (JSCs) into one member limited liability companies (LLCs), it is important to understand the key differences between these two types of entities.

1.1. A joint stock company

A joint stock company is a form of business organization where ownership is divided into shares that can be publicly traded. This allows for multiple shareholders to collectively own the company, and the company is capital is divided into shares which can be bought and sold in the stock market.

1.2. A member limited liability company

A member limited liability company is a more streamlined structure where the business is owned by a single individual or entity, and liability is limited to the assets of the company. This type of entity is more common in situations where an individual or entity wants to maintain control over the business and its decision-making.

Regulations On Converting Companies

2. Benefits and challenges of conversion

2.1. Benefits of conversion

• Simplified Decision Making: One member limited liability companies typically have a single owner who can make decisions swiftly and efficiently.

• Enhanced Control: Converting to a one member LLC allows the owner to have full control over the company operations, strategy, and direction.

• Privacy: One member LLCs often offer greater privacy since there is no requirement to disclose extensive financial and operational details to a larger group of shareholders as is the case in joint stock companies.

• Simplified Governance: With a single owner, governance becomes more straightforward. There are no annual general meetings or complex voting procedures that are common in joint stock companies.

• Liability Protection: While both structures offer liability protection, a one member LLC provides personal asset protection for the owner. This means that the owner personal assets are shielded from the liabilities of the business.

• Tax Flexibility: One member LLCs offer flexibility in terms of taxation. Owners can choose to be taxed as a sole proprietorship, partnership, or even as a corporation, depending on what aligns best with their financial goals.

2.2. Challenges of conversion

While the benefits of converting from a joint stock company to a one member LLC are compelling, there are considerations and challenges that need to be addressed:

• Shareholder Approval: Depending on the jurisdiction and the company bylaws, converting from a JSC to a one member LLC may require shareholder approval.

• Regulatory Requirements: There could be legal and regulatory hurdles to overcome when changing the business structure. It is crucial to ensure compliance with all relevant laws and regulations. Tax Implications: Converting the business structure might have tax implications, including capital gains taxes. It is advisable to consult with tax professionals to understand the potential impacts.

• Capital Restructuring: Converting from a JSC to a one member LLC may involve restructuring the company capital and ownership. This process needs to be carefully planned and executed.

3. How to convert a joint stock company into a limited liability company with one member?

According to Article 203 of the Enterprise Law 2020, the conversion of a joint stock company into a one-member limited liability company is as follows:

• A joint-stock company may be converted into a single-member limited liability company by the following methods:

• One shareholder receives the transfer of all the respective shares of all other shareholders;
• An organization or individual that is not a shareholder receives the transfer of all shares of all shareholders of the company;
• The company has only 1 shareholder left.

• The transfer or receipt of investment capital as prescribed in Clause 1 of this Article must be done at the market price, the price determined by the asset method, the discounted cash flow method or another method.
• Within 15 days from the date on which the company has only one shareholder left or completes the transfer of shares as prescribed at Points a and b, Clause 1 of this Article, the company shall send the conversion dossier to the Authority. the business registration office where the enterprise is registered. Within 03 working days from the date of receipt of the conversion dossier, the Business Registration Authority shall issue the Certificate of Business Registration and update the legal status of the company on the National Registration Database enterprise.
• The converted company automatically inherits all legal rights and interests, is responsible for all debts, including tax debts, labor contracts and other obligations of the converted company.

4. What is the business registration dossier for converting from a joint stock company to a one-member limited liability company?

Pursuant to Clause 4, Article 26 of Decree No. 01/2021/ND-CP stipulating the composition of the application file for conversion from a joint stock company to a limited company

The dossier includes:

• Application for business registration.
• Charter of the company.
• List of founding shareholders and list of shareholders being foreign investors for joint-stock companies.
• Copies of the following documents:
• Resolution or decision of the company owner for a single-member limited liability company or a resolution, decision and copy of the meeting minutes of the Members Council for a limited liability company two or more members or the resolution and copy of the minutes of the meeting of the General Meeting of Shareholders, for a joint-stock company, on the conversion of the company;
• The transfer contract or documents proving the completion of the transfer in case of transferring shares or contributed capital;

5. What is the order and procedures for converting a joint stock company into a one-member limited liability company?

• Step 1: Prepare documents.
• Step 2: Submit the application at the business registration office where the enterprise has registered.
• Step 3: The Business Registration Authority issues an Enterprise Registration Certificate and updates the company legal status on the National Business Registration Database.

Regulations On Converting Companies

From the above article, the transfer of all shares from the remaining shareholders must be done at the market price, the price is determined by the asset method, the discounted cash flow method or another method. You need to prepare a complete dossier and submit it to the business registration office, within 03 days from the date of receipt of the conversion dossier, the business registration agency will issue a business registration certificate to your company.

Converting joint stock companies into one member limited liability companies is a strategic move that can offer a range of benefits, from streamlined decision-making and enhanced control to liability protection and tax flexibility. However, it essential to approach this transition with careful planning, considering legal, regulatory, and financial implications. Each business unique circumstances will dictate whether such a conversion aligns with its goals and objectives. As the business landscape continues to evolve, making informed decisions about organizational structure becomes increasingly vital for long-term success. Please feel free to contact Apolo Lawyers Law Firm via email contact@apolo.com.vn or hotline - 0903.419.479 for legal advice and support.

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