Comparison of private enterprises and one member limited companies

Private enterprises and one-member limited liability companies are two types of enterprises whose owners only include a single member in accordance with the Law on Enterprises 2020. However, there are similarities and differences between these two types of businesses. To better understand this issue as well as to help investors choose the right type of business, Bi Law Firm sends you the following article “Comparison of private enterprises and one member limited companies”.

1. Similarities and differences between Private Enterprises and One Member Limited Liability Company

1.1. Similarities

Private Enterprises and One Member Limited Liability Company have the following similarities:

All types of enterprises are governed by the Enterprise Law 2020 and related guidelines;
All are types of businesses founded by one owner;
Shares are not issued;
When you want to transfer capital or add members, you must carry out procedures to change the type of enterprise.

1.2. Differences

The Enterprise Law 2020 specifies enterprises and one-member limited liability companies. For the convenience of readers to compare these two types of businesses, The Lux Law F.M. is divided into the following criteria:

Criteria	Private Enterprises	One Member Limited Liability Company
Legal basis	From Article 74 to Article 87 of the Law on Enterprises 2020	From Article 188 to Article 193 of the Law on Enterprises 2020
Notion	A private enterprise is an enterprise owned by an individual and is solely responsible with all his assets for all activities of the enterprise.	A one-member limited liability company is an enterprise owned by an organization or an individual (hereinafter referred to as a company owner). The company owner is responsible for the debts and other property obligations of the company to the extent of the company’s charter capital.
Owner	Individual This individual must also not be a business household owner or a member of a partnership.	Person or organization
Legal status	None	Have legal status from the date of issuance of the Certificate of Business Registration
About contributed capital	The investment capital of the owner of a private enterprise is registered by the business owner himself. Assets used in business activities of the owner of a private enterprise do not have to carry out procedures for transferring ownership to the enterprise.	The charter capital of a limited company is the total value of assets contributed by the owner within 90 days from the date of issuance of the Certificate of Business Registration. The company owner must transfer ownership of the assets contributed as capital to the company.
Mechanism of responsibility	Unlimited liability	Limited liability within the scope of contributed capital
Organizational structure	The owner manages himself or hires a manager.	A one-member limited liability company owned by an organization is managed and operates under one of the following two models: Firstly, including the company’s president, director or general director; Secondly, including the Members’ Council, Director or General Director.
Increase or decrease charter capital	In the course of operation, the owner of a private enterprise has the right to increase or decrease his investment capital in the business activities of the enterprise. – In case the investment capital is reduced to less than the registered investment capital, the owner of a private enterprise may only reduce the capital after registering with the Business Registration Agency.	– A 1-member limited liability company can increase its charter capital in the following ways: + Mobilize more contributed capital of the owner + Mobilize more investment capital of other individuals and organizations. Note: In case of mobilizing additional investment capital of other individuals or organizations, a 1-member limited liability company must convert the type of enterprise to a limited liability company with 2 or more members or a joint stock company. – 1-member limited liability company reduces capital in the following ways: + Withdraw capital by transferring part or all of the charter capital to another organization or individual and can only be transferred when all debts and other property obligations have been paid.
Right to transfer contributed capital	Private enterprises are not entitled to contribute capital to establish or buy shares or contributed capital in partnerships, limited liability companies or joint stock companies	The company owner has the full right to transfer and dispose of all or part of the charter capital of the company.

2. Advantages and disadvantages of private enterprises and one-member limited liability companies

2.1. Private enterprises

Advantages of private enterprises:
– Simple organizational structure;
– Enterprises owned by an individual should have full authority to decide all business activities of the enterprise;
– Build trust based on the company owner’s personal reputation.
Disadvantages of private enterprises:
– Since the owner of private enterprises is infinitely liable with all of his assets, the risk is high;
– Enterprises do not have legal status, so they cannot perform some of the contracts prescribed by law.

2.2. One Member Limited Liability Company

Advantages of One Member Limited Liability Company:
– A one-member limited liability company will be owned by an organization or an individual, which will have the full right to decide all issues related to the company’s activities and does not need to ask for opinions or suggestions from other entities and the management of the company is also simpler;
– Having legal status, the investor is limited liability within the amount of charter capital, thus limiting risks when conducting production and business activities.
Disadvantages of One Member Limited Liability Company:
– No shares can be issued, so capital raising will be limited;
– The legal system governing a 1-member limited liability company is also stricter than that of a private enterprise.
– If there is a need to mobilize more contributed capital of other individuals or organizations, procedures for converting the type of enterprise to a limited liability company with two or more members or a joint stock company will have to be carried out.

The above is our legal view on comparing the similarities and differences between a private enterprise and a one-member limited liability company. Feel free to contact us if you have any questions. BI LAW FIRM is committed to being a reliable legal advisor for you.