HOW TO TRANSFORM THE TYPE OF BUSINESS UNDER CURRENT LAW?

Conversion of an enterprise is a form of enterprise reorganization when the enterprise no longer has the minimum number of members as prescribed by law, if it does not want to be dissolved. So how does the current law regulate the enterprise transformation? Let's find out with OTIS LAWYERS in the article below! 

Legal grounds

Law No. 59/2020/QH14 dated June 17, 2022 on Enterprises

Decree No 01/2021/ND-CP on Business registration

What is the conversion of an enterprise?

Conversion of an enterprise is a form of corporate reorganization whereby a business transforms into another type of business while it is still operating. Business transformation can retain ownership or lead to a change in ownership of the enterprise.

Characteristics of conversion of an enterprise

In essence: Enterprise transformation is a legal procedure, because the business activities of the enterprise still take place normally before, during and after the transformation process.

The subject decides the conversion: business owners (private business owners, members of limited liability companies, shareholders of joint stock companies, ...)

Reason for conversion: The reason for the conversion may be mandatory to avoid the risk of dissolution, or it may be voluntary in order to deploy the company development orientation in accordance with the investor's new conditions.

Legal consequences: converting an enterprise will change the type of business, so, in terms of legal procedures, it will have to re-issue the Certificate of Business Registration to the enterprise after the transformation. Business transformation can lead to a change in business ownership if the company converts new members or shareholders.

Forms of business transformation

Converting a limited liability company into a joint stock company

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

Converting a limited liability company into a joint stock company without mobilizing additional capital from other organizations and individuals; and not selling the contributed capital to other organizations and individuals;

Converting into a joint stock company by mobilizing other organizations and individuals to contribute capital;

Converting into a joint stock company; by selling all or part of the contributed capital to one or several other organizations and individuals;

Combine the methods specified at Points a, b and c of this Clause and other methods.

 The company must register the company transformation with the business registration authority within 10 days from the date of completion of the conversion. Within 03 working days from the date of receipt of the conversion dossier, the business registration authority shall re-issue the Certificate of Enterprise Registration and update the company's legal status on the national enterprise registration database.

 The converted company automatically inherits all legal rights and interests, is responsible for debts, including tax debts, labour contracts and other obligations of the converted company.

 Converting a joint stock company into a one-member limited liability company

A joint-stock company may be converted into a one-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 must be done at the market price, the price is determined according to the asset method, the discounted cash flow method or other methods.

Within 15 days from the date on which the company has only one shareholder left or completes the transfer of shares, the company must register the company transformation with the business registration authority within 10 days from the date of completion of the conversion. Within 03 working days from the date of receipt of the conversion dossier, the business registration authority shall re-issue the Certificate of Enterprise Registration and update the company's legal status on the national enterprise registration database.

 The converted company automatically inherits all legal rights and interests, is responsible for debts, including tax debts, labour contracts and other obligations of the converted company.

Converting a joint stock company into a limited liability company with two or more members

A joint-stock company may be converted into a limited liability company with two or more members by the following methods:

Converting into a limited liability company with two or more members without raising more shares or transferring shares to other organizations or individuals;

Converting into a limited liability company with two or more members and at the same time mobilizing other organizations and individuals to contribute capital;

Converting into a limited liability company with two or more members and concurrently transferring all or part of shares to other organizations and individuals contributing capital;

Combine the above 3 methods and other methods.

The company has only 2 shareholders left

The company must register the company transformation with the business registration authority within 10 days from the date of completion of the conversion. Within 03 working days from the date of receipt of the conversion dossier, the business registration authority shall re-issue the Certificate of Enterprise Registration and update the company's legal status on the national enterprise registration database.

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; under the decision of the owner of the private business if it fully meets the following conditions:

The converted enterprise must fully meet the conditions specified in Clause 1, Article 27 of the Enterprise Law 2020;

The owner of the private business undertakes in writing to be personally responsible; with all his assets for all unpaid debts and commits; to paying the full amount of the debt when it is due;

The owner of the private enterprise has a written agreement with the parties; to the unliquidated contract on the receipt and continued performance of such contracts; by the converted company;

The owner of a private business commits in writing or has satisfied Agree in writing with other capital contributors; on the receipt and use of existing labour of the private enterprise.

Within 03 working days from the date of receipt of the conversion dossier, the business registration authority shall re-issue the Certificate of Enterprise Registration and update the company's legal status on the national enterprise registration database.

 The converted company automatically inherits the rights and obligations of the private enterprise; from the date of issuance of the Certificate of Business Registration. The owner of a sole proprietorship is personally liable for all his assets; for all debts incurred prior to the date of incorporation.

        Above is our advice on business transformation. We hope this article will be a useful reference and help you understand more about the business, helping you in your business journey.

Consulting service for the business reorganization of OTIS LAWYERS

OTIS LAWYERS are always proud to be a professional unit in the field of business consulting. A team of highly qualified lawyers with extensive experience and dedication to clients; we will provide clients with the best service, the most professional, reasonable cost and the fastest time to complete the procedure. We commit that all client information is absolutely confidential and client interests always come first.

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