What is a sole proprietorship?

What is a sole proprietorship? A sole proprietorship is one of the forms of business stipulated in Chapter VII of the Law on Enterprise 2020.

A sole proprietorship means an enterprise owned by an individual whose liability for its entire operation is equal to his/her total assets.

Before establishing a sole proprietorship to carry out business activities, it is essential for individuals to understand the following characteristics of a sole proprietorship:

1. A sole proprietorship shall not issue any kind of securities.
2. Each individual can only establish one sole proprietorship. The owner of a sole proprietorship shall neither concurrently own a household business nor hold the position of general partner of a partnership.
3. A sole proprietorship shall neither contribute capital upon establishment nor purchase shares or stakes of partnerships, limited liability companies or joint stock companies.
4. Regarding the investment capital of the sole proprietorship’s owner:

• The investment capital of the owner shall be registered by himself/herself. The sole proprietorship’s owner is obligated to register the accurate amount of the total investment capital in Vietnamese Dong, freely convertible currencies, gold and other assets; regarding capital in other assets, the type of asset, quantity and residual value of each type of asset are also required.
• All capital and assets, including loans and leased assets serving the sole proprietorship’s operation, shall be fully recorded in its accounting books and financial statements according to the provisions of law.
• During its operation, the sole proprietorship’s owner is entitled to increase or decrease its investment capital. The increases and decreases in capital of the sole proprietorship shall be fully recorded in the accounting books. In case the capital is decreased below the registered capital, such decrease in capital may only be made after it has been registered with the Business Registration Authority.

5. Regarding the management structure of sole proprietorships:

• The sole proprietorship’s owner has total authority to decide all of its business activities, usage of post-tax profit and fulfillment of other financial obligations as prescribed by law.
• The owner may directly or hire another person to hold the position of Director or General Director to manage and operate business activities. In such case, the owner is still responsible for every business activity of the sole proprietorship.
• The sole proprietorship’s owner is its legal representative who shall represent the sole proprietorship during civil proceedings, as the plaintiff, defendant or person with relevant interests and duties before the court and arbitral tribunals, to perform other rights and obligations prescribed by law.

6. Performance of rights of the sole proprietorship’s owner in special cases

• In case the sole proprietorship’s owner is detained, serving an imprisonment sentence, serving an administrative penalty at a correctional institution or rehabilitation center, he/she shall authorize another person to perform his/her rights and obligations.
• In case the owner dies, his/her heir or one of the heirs according to the will or provisions of the law shall become the owner of the sole proprietorship according to the agreement among the inheritors. In case such an agreement cannot be reached, the sole proprietorship shall be converted into a company or dissolved.
• In case of the owner dies without an heir or the heir refuses the inheritance or is disinherited, the owner’s assets shall be handled in accordance with the civil laws.
• In case the owner of the sole proprietorship is either incapacitated, has limited legal capacity or has difficulty in controlling his/her behaviors, his/her rights and obligations shall be performed through his/her representative.
• In case the sole proprietorship’s owner is banned by the Court to hold certain jobs in the enterprise’s business lines, the owner shall suspend or terminate business activities in the relevant business lines according to the decision of the Court or transfer the sole proprietorship to other individuals, or organizations.

For the steps to establish a sole proprietorship, please refer to our Article on: Procedures for the establishment of sole proprietorships in Vietnam.

Disclaimer: This article is solely for informational purposes. Its contents shall neither constitute legal advice nor be regarded as detailed written legal advice for individual cases. Should you have inquiries on such matter, please contact us for more information.