According to the Law on Enterprises (2020), there are currently four common types of enterprises, including: limited liability companies, joint stock companies, partnerships business, and private enterprises. Facts show that the partnership (or partnership company) type is still not preferred by investors to start a business.
Basic provisions of partnership company
According to the Enterprises Law (2020), a partnership is an enterprise in which:
- There must be at least 2 members who are common owners of the company, doing business together under a common name (hereinafter referred to as general partners). In addition to general partners, the company may have additional capital contributors;
- General partners must be individuals, responsible with all their assets for the obligations of the company. General partners have the right to manage the company and to conduct business activities on behalf of the company. General partners have equal rights when deciding on company management issues;
- Capital contributors are organizations or individuals and are only responsible for the company’s debts within the amount of capital they have committed to contribute to the company. Capital-contributing members have the right to share profits according to the ratio specified in the company’s charter.
Because of the above reasons, a partnership is considered as a reciprocity company. A reciprocity company is a type established and operated on the basis of a trusting relationship between its members, with the capital contribution playing only a minor role. An important feature of the reciprocity business model is the lack of a clear separation between the personal assets of the members and the assets of the business itself.
Partnerships have legal status from the date of issuance of the Certificate of Enterprise Registration.
Partnerships are not allowed to issue any kind of securities.
Advantages of a partnership
- Combine the personal prestige of many people. General partners have unlimited liability, so it is easy to gain the trust of business partners.
- The management of the company is not too complicated due to the small number of members who are reputable and trust each other. Compact organizational structure, easy to manage, suitable for small and medium enterprises.
- The unlimited and joint liability of the general partners makes it easier for the company to get a bank loan and postpone business debt.
Limitations of a partnership
Despite these advantages, there are still certain limitations on this type of enterprise, being the main reason why this type of partnership has not been popular in Vietnam. Here are some such limitations:
- Securities are not allowed to be issued, so capital mobilization is also more limited. If they want to raise capital, members must add their own assets or accept new members.
- Due to the unlimited liability regime, the level of risk of general partners is very high.
- A general partner who withdraws from the company shall still be responsible for the debts of the partnership arising before the date of termination of membership within a period of 2 years.
- The partnership does not have a clear distinction between company assets and personal assets, so despite its legal status, the partnership is not independent in being responsible for the company’s debts.
- General partners may not own private enterprises; may not be a general partner of another partnership unless otherwise agreed by the remaining general partners.
In general, a partnership is a flexible form of business organization that demonstrates cooperation and interaction among members with a common goal. Based on its own legal and regulatory structure, a partnership offers many benefits as well as certain limitations. Depending on social needs, the purpose of establishing a business, the amount of capital, as well as business partners and many other issues, organizations and individuals can consider choosing a partnership or other forms of business which will be more suitable to bring the highest business efficiency.