What legal matters should be considered before starting a business in Vietnam? This article is about sharing some necessary information for Startup founders to answer such question.

Business registration

Business registration is one of the basic, necessary and important steps if founders want to run a long-term business. The legitimate establishment would protect the startup’s legal interests, help to build the trust of customers and investors. After successful registration, the company will be issued an enterprise registration certificate (ERC). The ERC is the evidence proving the Startup’s lawful establishment.

The key issues the founders need to consider before carrying out the business registration are detailed below.

Choosing a business name

A business name is a sign that identifies and distinguishes one company from another. Besides naming to impress customers, founders must comply with a legal naming scheme. The registered business name consists of 03 versions that Vietnamese name, foreign language name, and abbreviated name.

The enterprise’s Vietnamese name shall contain two elements in order: Type of enterprise and proper name. Specifically:

• Types of enterprise can be one of the followings: limited liability company, joint stock company, partnership, private enterprise. Depending on the number of people participating in capital contribution and the open level allowing new participants, founders need to consider choosing the right type for their enterprise.

• Proper name shall consist letters in the Vietnamese alphabet, the letters F, J, Z, W, numbers and symbols.

The enterprise’s name in a foreign language is the name translated from the Vietnamese name into one of the Latin-based languages. The proper name in foreign name may be kept unchanged or translated into the foreign language.

The abbreviated name of an enterprise may be abbreviation of its Vietnamese name or foreign language name.

In addition, it is also necessary to avoid violating the following prohibitions:

– Use of any name that is identical or confusingly similar to another enterprise’s name that is registered;

– Use of the name of state authority, the People’s military unit, political organization, socio-political organization, socio-political-professional organization, social organization, the social-professional organization as part or all of an enterprise’s name, unless it is accepted by that authority, unit, or organization;

– Use of words or symbols that are against Vietnam’s history, culture, ethical values, and good traditions.

Choosing business lines

Besides naming your business, startups also need to define specific business lines.

Founders shall choose business lines from the list of business lines outlined in Decision 27/2018/QD-TTg. Startups can freely engage in any business line except for ones banned by law (e.g., drug trading, prostitution services, human trafficking, debt collection, etc.)

There are two types of business lines: conditional business lines and non-conditional business lines. The list of conditional business lines is limited by law and updated on National Enterprise Registration Portal. When it comes to conditional business lines, in addition to the business registration issued by a Business Registration Agency, Startup may have to obtain an additional important document, commonly known as a Sub-license, or a Business License, according to specific regulations for that conditional business line.

During the course of business, a startup may change its business line (such as adding a new business line or abandoning a current one) but it simultaneously must promptly report it to the business registration agency. A company will not be penalized for doing an unregistered business but will be fined not promptly notifying the changes of business lines to the business registration agency.

Determining the head office location

From a legal perspective, the enterprise’s headquarters shall be located within Vietnam’s territory, where will be the enterprise’s mailing address and the enterprise’s name will be displayed. Please note that headquarter location cannot be at apartments or tenement houses because the Law on Housing prohibits the use of apartments or group houses for business purposes.

From a practical perspective, when choosing a location for headquarters, a startup should note the following:

• Choosing a stable and long-term location.
• In case of leasing an office, the lessor must be the owner of the office building, or if the lessor is not the owner, the lessor must get the owner’s consent to sub-lease the office building.
• The company’s tax administration agency will be the agency where the enterprise’s head office is located. For example, if the head office of an enterprise is in District 3, Ho Chi Minh City, the tax administration agency of that company will be District 3 Tax Department.

Contribution of charter capital

Charter capital is the total value of assets contributed by the founders to the company when launching their company. Contributed assets can be money in VND, convertible foreign currencies, gold, land use right, intellectual property rights, technologies, technical secrets, other assets that can be converted into VND.

The founders shall make their contribution within 90 days from the issuance date of the Enterprise Registration Certificate. If the charter capital is not contributed in full and on time, after the expiration of the above-mentioned capital contribution period, the company shall re-register the charter capital actually contributed by the founders.

There will be no requirement of the minimum amount of charter capital, except for some industries that require minimum legal such as logistics, securities, banking, insurances, etc.

Identifying the legal representative

The legal representative of an enterprise is an individual representing that enterprise to communicate and transact with other objects outside the enterprise (such as negotiating, signing, performing contracts; attending court hearings solving disputes on behalf of the enterprise, sign on official dispatches/announcement of enterprises).

Positions that can be the legal representative of the company are the President of the Board of Directors (for joint stock companies), the Chairman (for limited liability companies), the Director or the General Director.

The company may have more than one legal representative, but the company’s charter will specify the number and specific positions being the legal representatives, and their respective rights and obligations. However, the enterprise must ensure that there is always at least one legal representative residing in Vietnam.

Founders can choose to be the legal representative themselves or hire someone else to hold the selected position as the legal representative. Practice shows that, for startups with limited financial resources, to save operation costs, founders often do not hire others but hold by themselves the position chosen as the legal representative, e.g., Director or President of the Board of Directors.

Drafting the company’s charter

The company charter is one of the documents required to be included in the application for registration of the following types of enterprises: Partnership, Limited Liability Company, Joint Stock Company. Particularly for private enterprises, this type of document is not required.

The charter stipulates basic issues such as company information, owners, charter capital, business lines, company structure, etc. among which, the most important content of the charter is the allocation of the right to make decisions on the company’s business activities. Therefore, the founders need to deal carefully to make the Charter lawful, suitable for the development goals of the business, balanced with the interests of the founders. This will help the founders to minimize disputes later on.

Opening a bank account and update bank account information with tax authorities

Legally, after being granted an Enterprise Registration Certificate, an enterprise must open a bank account to:

• Receive capital contribution from the founders
• Use a bank account to pay taxes to the state

In addition, in practice, this bank account will be used to receive sales revenues or service fees of the company and help the company easily control the business’s spending, well manage corporate finance.

Carrying out necessary procedures to protect Startup’s intellectual property rights

Many studies have shown that the value of intellectual properties may generate profits in the future and therefore gradually become more valuable along with the development of enterprises.

Although Vietnamese law does not require companies to register intellectual property rights, startups should still register for intellectual property protection because this brings many practical benefits as follows:

• If others infringe on the intellectual property rights of the Startup, the Startup will be protected by receiving compensation and being entitled to ask the offender to stop his violation.
• When the Startup is about to raise more capital, investors will feel more secure because the risks on intellectual property rights are minimized.

According to Vietnamese law, the subjects of intellectual property rights are diverse, such as:

• Literary, artistic and scientific works; performances, phonograms, video recordings, broadcasts, encrypted program-carrying satellite signals;
• Patents, industrial designs, layout designs of semiconductor integrated circuits, trade secrets, trademarks, trade names, geographical indications;
• Propagation materials, harvesting materials.

For technology startups, intellectual properties such as computer programs, inventions, industrial designs, trademarks, and trade names should be given the most attention.

In addition, if a company hires another party to create the intellectual property (brand designer, company staff, etc.), the enterprise needs to make a written agreement confirming the company is the owner of the intellectual property rights and providing the obligation to protect the confidentiality of information related to that intellectual properties.