What’s Sole proprietorship?
Sole proprietorships is one type of enterprise in Vietnam, and is an enterprise owned by a single individual whose liability for its entire operation is equal to his/her total assets.
Characteristics of sole proprietorships
A sole proprietorship owned by an individual
A sole proprietorship does not have capital contributions like other types of enterprises that have many owners. The capital of a sole proprietorship mainly originates from the assets of a single individual.
Regarding the capital ownership relationship in the Enterprise
The initial capital of a sole enterprise comes from the property of the owner of the enterprise. During the operation, the owner of a sole enterprise has the right to increase or decrease their capital in the business activities of the enterprise.
Therefore, there is no limit between the capital and assets put into the business of a sole proprietorship, and the remainder owned by the Enterprise. Therefore there is no separation of the owner’s assets from the assets of that sole enterprise.
Ownership determines the management relationship
A sole enterprise has only one owner, so the owner has full decision-making power in the organization as well as the business process of the sole enterprise and acts as the legal representative of the sole enterprise.
Profit distribution
Because a sole proprietorship has only one owner, all profits earned throughout the business operations belong to the business owner. However, it also means that, in the event of failure, the sole proprietorship’s owner will carry all of the risks associated with doing business.
A Sole Proprietorship has no juridical persons
As the property of a sole proprietorship is not separate from the property of the sole proprietorship’s owner, a sole proprietorship lacks asset independence. While a legal entity must have its own property, there must be a distinction between the property of the legal entity and that of its founder.
A sole proprietorship's owner has unlimited accountability for any liabilities incurred during the operation of the business
Due to the lack of property independence, the person in charge of the Enterprise’s risks will be liable indefinitely. A sole proprietorship is responsible for its business operations not just within its registered investment capital, but also with all of its assets if that capital is insufficient.
Advantages of establishing a sole proprietorship
A sole proprietorship is owned by a single person who has complete control over all aspects of the business.
The procedures and documentation for establishing a sole proprietorship are basic and straightforward.
The level of confidentiality and security in business activities is high and guaranteed.
As the owner has complete control over all business activities, the organizational structure of a sole proprietorship is significantly simpler and more efficient than that of other types of businesses.
The sole proprietorship's unrestricted liability can result in full trust among its partners and customers, as well as attract outside investment.
Disadvantages of establishing a sole proprietorship
It’s easy to grasp the following limits through rules on the features of private enterprises:
A sole proprietorship is owned by a single person who is exclusively responsible for the business's operations using personal property
Securities of any kind are not issued
An individual may only establish one sole proprietorship. The owner of a sole proprietorship must not concurrently own a household business or hold the position of a general partner of a partnership
A sole proprietorship must not mobilize its capital upon the establishment or purchase of shares or stakes of partnerships, limited liability companies, or joint-stock companies.
Having unlimited liability means that if the business makes a profit, the owner gets to keep it all, but if the business loses money, they are on their own
A private enterprise's difficulties are partly tied to the limited assets and capital that an individual, an owner can have. A lack of finance is a drawback that can stymie corporate growth
As a result, caution should be exercised in considering this form of business. This sort of sole proprietorship should only be used when conducting business in industries that need prestige while also being low-risk.
Please contact us at phone number +84-916-545-618 or email address hung.le@cnccounsel.com and thanh.tran@cnccounsel.com for assistance to establish a sole proprietorship or for any queries regarding this type of business.
