Notable features of the draft law Amending and Supplementing the Law on Enterprises

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The Ministry of Finance published the Draft Law amending and supplementing the 2020 Law on Enterprises (the “Draft Law”) and is soliciting public feedback, planning to submit it to the National Assembly for discussion and approval in May 2025. According to the Ministry, the Draft Law aims to institutionalize the Party and State’s policies on developing a socialist-oriented market economy and creating a favorable, secure business environment for enterprises. This article summarizes key highlights of the Draft Law.

A.    ADMINISTRATIVE PROCEDURES FOR ENTERPRISES REGISTRATION

The 2020 Law on Enterprises regulates administrative procedures, including documentation requirements for private enterprises (Article 19), partnerships (Article 20), limited liability companies (Articles 21), joint-stock companies (Article 22), business registration applications (Article 23), registration processes (Article 26), content of enterprise registration certificates (Article 28), amendments to registration certificates (Article 30), notifications of changes (Article 31), and registration of branches, representative offices, or business locations (Article 45).

The Draft Law removes these provisions and delegates their regulation to Decrees level. This change aligns with the Politburo’s Conclusion No. 119-KL/TW on reforming legislative processes, which states: “Laws shall only address matters within the National Assembly’s authority, avoiding the codification of administrative procedures, processes, or documentation. Such details shall be regulated by the Government or ministries without introducing new administrative hurdles or ‘sub-licenses.’

B.    NEW LEGAL TERMS 

The Draft Law introduces new legal concepts such as “inflated declaration of charter capital,” “legal status of an enterprise,” “beneficial owner of a legal entity,” “enterprise control,” and “indirect ownership.”

Clause 35, Article 4 of the Draft Law adds the definition of “Inflated declaration of charter capital” as the act of declaring a charter capital amount greater than the actual capital contributed at the time of completion of capital contribution as prescribed by law. The inflated declaration of charter capital, or the issue of “virtual capital,” is not uncommon in business operations, where the charter capital stated on the Certificate of Enterprise Registration is significantly high, while the actual contributed capital is much lower. The introduction of this definition aims to provide a legal basis for addressing such violations in practice.

Clause 36, Article 4 of the Draft Law supplements the definition of “legal status of an enterprise” by enumerating seven statuses: (1) business suspension; (2) not operating at the registered address; (3) license revoked due to tax enforcement measures; (4) undergoing dissolution procedures, having been divided, consolidated, or merged; (5) undergoing bankruptcy proceedings; (6) having been dissolved, declared bankrupt, or ceased to exist; (7) currently operating. Clearly defining the legal status of an enterprise will significantly aid enterprise registration management by business registration agencies, as well as assist partners and customers of the enterprise.

Clause 37, Article 4 of the Draft Law amends and supplements the definition of “beneficial owner of a legal entity” as an individual who meets one of the following criteria: (1) An individual who actually holds, directly or indirectly, 25% or more of the charter capital of the enterprise; (2) An individual who directly or indirectly receives more than 25% of the dividends or profits of the enterprise; (3) The ultimate individual who has the right to control the enterprise. The concept of the beneficial owner of an enterprise is the most prominent new feature in the Draft Law. In the context of Vietnam's participation in international treaties on anti-money laundering, combating the financing of terrorism, and countering the financing of the proliferation of weapons of mass destruction, the introduction of the concept of “beneficial owner of an enterprise” serves as an initial step towards a series of regulations related to these issues.

C.    “DOMESTICATION” OF INTERNATIONAL COMMITMENTS ON ANTI-MONEY LAUNDERING

In 2007, Vietnam became a member of the Asia/Pacific Group on Money Laundering (APG). However, according to the results of the Mutual Evaluation Report on Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) measures, Vietnam was placed under an enhanced follow-up process and a review process for countries with serious deficiencies by the Financial Action Task Force (FATF).

On June 30, 2023, the FATF officially placed Vietnam on its Enhanced Monitoring List (also known as the “Grey List”). When a country is placed on the Grey List, its economy typically suffers numerous negative impacts. According to research by the IMF, a country on the Grey List experiences a significant decline in foreign investment inflows (approximately 7.6% of the country's total GDP). Furthermore, overseas financial transactions by financial institutions (banks, insurance companies, securities firms, etc.) in such a country will incur higher fees from other countries, and transactions will be subject to enhanced scrutiny. These costs are estimated to potentially reach millions of US dollars, depending on the size of the economy.

If Vietnam fails to take corrective actions to fulfill its commitments, the FATF may subsequently move Vietnam to the “Black List.” In such an event, Vietnam could face severe repercussions, particularly for its enterprises.

For example: Vietnamese financial institutions may be prohibited from establishing branches or representative offices abroad; overseas branches and subsidiaries of Vietnamese financial institutions will be subject to intensified inspection and supervision; and foreign direct investment (FDI) inflows into Vietnam may decline.

One of the remedial measures for this situation is to supplement regulations regarding information on the beneficial owners of enterprises. Consequently, the Draft Law has introduced a series of provisions related to information on beneficial owners.

Firstly, enterprises are obligated to collect, update, store, and notify the business registration agency of information regarding their beneficial owners throughout their operational lifespan. Concurrently, enterprises are also responsible for the truthfulness and accuracy of the beneficial ownership information they provide. If this regulation comes into effect, for enterprises established before the effective date of this Law, the supplementary declaration of beneficial ownership information shall be carried out concurrently when the enterprise undertakes procedures for registering changes to the content of its Certificate of Enterprise Registration or procedures for notifying changes to its enterprise registration content.

Secondly, the business registration agency has the right to request enterprises to report and provide information to serve the verification and cross-referencing of beneficial ownership information when deemed necessary.

Thirdly, even when an enterprise is dissolved, declared bankrupt, or ceases operations, both the enterprise and the business registration agency must retain information on the enterprise's beneficial owners for at least five years from the date of dissolution, bankruptcy, or cessation of operations.

D.   OTHER NOTABLE FEATURES

First, the scope of individuals and entities permitted to establish, contribute capital to, and manage enterprises is expanded. Specifically, under previous provisions of the Law on Enterprises, public officials, notaries, and public employees were not entitled to establish and manage enterprises. However, the Draft Law excludes public employees and managerial public employees working in public science and technology organizations and public higher education institutions, in accordance with the laws on science, technology, and innovation. Similarly, public employees and managerial public employees working in public science and technology organizations and public higher education institutions, as stipulated by the laws on science, technology, and innovation, are also included in the group of entities permitted to contribute capital to enterprises.

Second, previously, the business lines of a branch had to be identical to the business lines of the parent enterprise. The Draft Law, however, stipulates that the business lines of a branch may include one, some, or all of the business lines of the parent enterprise.

Thirdly, the Draft Law adds the responsibility of shareholders or groups of shareholders for the accuracy and truthfulness of documents provided to competent authorities. They shall also be liable before the law and resolve any related disputes (if any) when convening a General Meeting of Shareholders in cases where the Board of Directors seriously infringes upon shareholders' rights, breaches managerial duties, or makes decisions exceeding its delegated authority.

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• is not considered the viewpoint or opinion of any state agency in any case; and

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