CHANGING BUSINESS: Transforming the type of business
After a period of operation, either because the legal environment changes, or because of business development requirements, the business owner needs to change the type of business. Understanding the procedures and advantages and disadvantages when converting a business type helps business owners make the optimal choice for their growth.
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Bai wrote instructions on how to convert business types, regulations, forms, procedures, taxes, and accounting when converting business types.
1. Regulations on business transformation
Enterprise transformation is a form of corporate restructuring to match the size and development orientation of that enterprise and ensure the conditions of the law. This reorganization of the enterprise led to a change in the legal form of the enterprise to meet the new requirements.
To know the advantages and disadvantages of each type of business, see more detailed articles below:
What type of business should be established?
Which type of business should you choose to establish is a question that Entrepreneurs want to find a satisfactory answer to. Each type has its respective advantages and disadvantages, in order to choose correctly, it is necessary to understand the advantages and disadvantages of different types of businesses.
There are many reasons, but the main ones are:
+ When an enterprise no longer has the minimum number of members and shareholders as prescribed by the law on enterprises, it shall be forced to convert to another suitable type of enterprise so as not to have to proceed with dissolution.
Or when an enterprise wants to raise new capital sources, add new members or shareholders for the business or want to issue bonds or shares but the current type of business does not meet the conditions, they must carry out the following procedures: converted to another type.
i. Conditions of order and procedures: From the time an enterprise is established until its dissolution and termination of operation, there is always a relationship with the State. This relationship is so that the State can protect the common interests of the community, the legitimate rights and interests of the enterprise itself and its members or members, as well as related third parties. To ensure this purpose, the State stipulates the conditions, order and procedures for enterprise transformation.
ii. Conditions of scope of responsibility: The type of limited liability company is a type in which its members only have limited liability within the amount of capital to be contributed as committed. The transition to another type of business always has the potential to affect a third person. Therefore, it is very important that members must fulfill their obligations before the enterprise makes the transformation.
Furthermore, in order to avoid taking advantage of the transformation of the enterprise type to evade or reduce the liability of members, the law may stipulate conditions on the joint responsibility of the founding members of the converted enterprise. .
iii. Labor relations conditions: The relationship between the Employee and the Employer is a legally binding relationship in the enterprise. Stemming from this, the law often stipulates conditions to ensure the inheritance of obligations arising from the labor relationship upon conversion.
iv. Conditions on the basis of conversion:
- In case an enterprise wants to do it: The conversion is entirely at the discretion of the company owner. Therefore, the main basis for conversion is the decision of the General Meeting of Shareholders, the Board of Members, etc., depending on the type of enterprise;
- For the case of a forced conversion: The main basis for conversion is the enterprise structure that does not meet the mandatory conditions set out by the law.
2. Types of businesses to be transformed
Cases of enterprise transformation are prescribed by law as follows:
Converting a joint stock company into a limited liability company with two or more members
- Converting a joint stock company into a one member limited company
- Converting a limited liability company with two or more members into a joint stock company
- Converting a two-member limited liability company into a one-member limited liability company
- Converting a one member limited company into a joint stock company
- Converting a one member limited company into a limited liability company with two or more members
- Converting a private enterprise into a joint stock company
- Converting a sole proprietorship into a partnership
- Converting a private enterprise into a limited liability company with two or more members
- Converting a private enterprise into a one-member limited liability company
3. Procedures for enterprise transformation
Records include:
1. An application for enterprise registration.
2. The company's charter.
3. List of members for limited liability companies with two or more members.
4. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of individuals for company members; Legal papers of the organization for members being an organization; Legal papers of individuals for authorized representatives of members being organizations and documents of appointing authorized representatives.
4. Resolution, decision and copy of the meeting minutes of the General Meeting of Shareholders on the conversion of the company;
5. The transfer contract or documents proving the completion of the transfer in the case of share transfer; Contract of donation in case of donation of shares; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
6. Papers certifying capital contribution of new members or shareholders.
Profile include:
1. An application for enterprise registration.
2. The company's charter.
3. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of an individual, for the company owner being an individual; Legal papers of the organization for the company owner being an organization (except for the case where the company owner is the State); Legal documents of the individual for the authorized representative and the document appointing the authorized representative.
4. Resolution, decision and copy of the meeting minutes of the General Meeting of Shareholders on the conversion of the company;
5. The transfer contract or documents proving the completion of the transfer in the case of share transfer; Contract of donation in case of donation of shares; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
6. Papers certifying capital contribution of new members or shareholders;
Profile include:
1. An application for enterprise registration.
2. The company's charter.
3. List of founding shareholders for joint-stock companies.
4. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of individuals for founding shareholders; Legal papers of the organization for founding shareholders being organizations; Legal documents of individuals for authorized representatives of founding shareholders being organizations and documents of appointing authorized representatives.
5. Resolution, decision and copy of meeting minutes of the Members' Council on company transformation;
6. The transfer contract or documents proving the completion of the transfer in case of transfer of the contributed capital; Contract of donation in case of donation of contributed capital; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
7. Papers certifying capital contribution of new members or shareholders;
Profile include:
1. An application for enterprise registration.
2. The company's charter.
3. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of an individual, for the company owner being an individual; Legal papers of the organization for the company owner being an organization (except for the case where the company owner is the State); Legal documents of the individual for the authorized representative and the document appointing the authorized representative.
4. The transfer contract or documents proving the completion of the transfer in case of transfer of the contributed capital; Contract of donation in case of donation of contributed capital; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law; Merger contract, consolidation contract in case of merger or consolidation of companies;
5. Resolution, decision and copy of meeting minutes of the Members' Council of a limited liability company with two or more members on the transformation of operation into the model of a one-member limited liability company;
Profile include:
1. An application for enterprise registration.
2. The company's charter.
3. List of founding shareholders for joint-stock companies.
4. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of individuals for founding shareholders; Legal papers of the organization for founding shareholders being organizations; Legal documents of individuals for authorized representatives of founding shareholders being organizations and documents of appointing authorized representatives.
5. Resolution, decision of the owner, for a single-member limited liability company, on the conversion of the company;
6. The transfer contract or documents proving the completion of the transfer in case of transfer of the contributed capital; Contract of donation in case of donation of contributed capital; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
7. Papers certifying capital contribution of new members or shareholders;
Profile includes:
1. An application for enterprise registration.
2. The company's charter.
3. List of members for limited liability companies with two or more members.
4. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of individuals for company members; Legal papers of the organization for members being an organization; Legal papers of individuals for authorized representatives of members being organizations and documents of appointing authorized representatives.
5. The transfer contract or documents proving the completion of the transfer in the case of transfer of the contributed capital; Contract of donation in case of donation of contributed capital; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
6. Resolution, decision of the company owner on mobilizing additional capital contributed by other individuals and organizations and papers certifying capital contribution of new members in case of raising capital contribution of new members ;
Records include:
1. An application for enterprise registration.
2. The company's charter.
3. List of founding shareholders for joint-stock companies.
4. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of individuals for founding shareholders being individuals; Legal papers of the organization for founding shareholders being organizations; Legal documents of individuals for authorized representatives of founding shareholders being organizations and documents of appointing authorized representatives.
5. A written commitment of the owner of the private business to be personally responsible with all his/her assets for all unpaid debts and to pay the full amount of the debt when it is due;
6. A written agreement of the owner of the private enterprise with the parties to the unliquidated contract on the receipt and continued performance of such contracts by the converted company;
7. A written commitment or agreement in writing between the owner of the private enterprise and other capital contributors on the receipt and use of existing labor from the private enterprise;
8. The transfer contract or documents proving the completion of the transfer in the case of capital transfer of a private enterprise; Contract of donation in case of donation of capital of a private enterprise; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
Profile includes:
1. An application for enterprise registration.
2. The company's charter.
3. List of members.
4. Copies of the following papers:
a) Legal papers of individuals for company members being individuals; Legal papers of the organization for members of the company being an organization; Legal documents of the individual for the authorized representative and the document appointing the authorized representative.
5. A written commitment of the owner of the private business to be personally responsible with all his/her assets for all unpaid debts and to pay the full amount of the debt when it is due;
6. A written agreement of the owner of the private enterprise with the parties to the unliquidated contract on the receipt and continued performance of such contracts by the converted company;
7. A written commitment or agreement in writing between the owner of the private enterprise and other capital contributors on the receipt and use of existing labor from the private enterprise;
8. The transfer contract or documents proving the completion of the transfer in the case of capital transfer of a private enterprise; Contract of donation in case of donation of capital of a private enterprise; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
Records include:
1. An application for enterprise registration.
2. The company's charter.
3. List of members for limited liability companies with two or more members.
4. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of individuals for company members; Legal papers of the organization for members being an organization; Legal papers of individuals for authorized representatives of members being organizations and documents of appointing authorized representatives.
5. A written commitment of the owner of the private business to be personally responsible with all his/her assets for all unpaid debts and to pay the full amount of the debt when it is due;
6. A written agreement of the owner of the private enterprise with the parties to the unliquidated contract on the receipt and continued performance of such contracts by the converted company;
7. A written commitment or agreement in writing between the owner of the private enterprise and other capital contributors on the receipt and use of existing labor from the private enterprise;
8. The transfer contract or documents proving the completion of the transfer in the case of capital transfer of a private enterprise; Contract of donation in case of donation of capital of a private enterprise; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
Profile include:
1. An application for enterprise registration.
2. The company's charter.
3. Copies of the following papers:
a) Legal papers of the individual for the legal representative of the enterprise;
b) Legal papers of an individual, for the company owner being an individual; Legal papers of the organization for the company owner being an organization (except for the case where the company owner is the State); Legal documents of the individual for the authorized representative and the document appointing the authorized representative.
4. A written commitment of the owner of the private business to be personally responsible with all his/her assets for all unpaid debts and to pay the full amount of the debt when it is due;
5. A written agreement of the owner of the private enterprise with the parties to the unliquidated contract on the receipt and continued performance of such contracts by the converted company;
6. A written commitment or agreement in writing between the owner of the private enterprise and other capital contributors on the receipt and use of existing labor from the private enterprise;
7. The transfer contract or documents proving the completion of the transfer in the case of capital transfer of a private enterprise; Contract of donation in case of donation of capital of a private enterprise; A copy of the document certifying the legal inheritance of the heir in case of inheritance as prescribed by law;
4. Tax and accounting procedures when converting business type
Pursuant to the provisions of the Law on Tax Administration: “Taxes are declared and finalized up to the time of dissolution, bankruptcy, operation termination, contract termination or enterprise reorganization. In case of conversion of enterprise type (excluding equitized state-owned enterprises) and the converted enterprise inherits all tax obligations of the converted enterprise, do not have to ｄｅｃｌａｒｅ tax finalization By the time there is a decision on the transformation of the enterprise, the enterprise shall ｄｅｃｌａｒｅ the final settlement at the end of the year.”
Thus, corporate income tax, personal income tax when converting the type of enterprise, the recipient inherits all tax obligations of the enterprise before the transformation (for example, when converting the type of enterprise from Limited liability company to joint stock company or vice versa) is not required to ｄｅｃｌａｒｅ tax finalization up to the time of decision on conversion, enterprises only ｄｅｃｌａｒｅ tax finalization according to regulations.
Cases that do not inherit the entire tax liability, such as changing from a private enterprise, converting the type of business to a limited liability company, do not inherit the entire tax liability, so a tax finalization must be declared.
For enterprises applying the accounting regime for small and medium enterprises (CURAL 133/2016/TT-BTC)
When converting the form of ownership or the type of enterprise, it is required to close the accounting books and prepare financial statements in accordance with the law. In the first accounting period after the conversion, the enterprise must record in accounting books and present financial statements according to the following principles:
1. For accounting books reflecting assets, liabilities and owners' equity: The entire balance of assets, liabilities and equity in the old enterprise's accounting books is recorded as balance. the beginning of the period in the accounting books of the new enterprise.
2. For the statement of financial position: The entire balance of assets, liabilities and inherited equity of the old enterprise before the conversion is recorded as the opening balance of the new enterprise and is presented in the column “First number of the year”.
3. For the income statement and the statement of cash flows: The data from the time of conversion to the end of the first reporting period is presented in the column “This period”, the column “Previous period” present the data in the column “This period” of the report of the preceding period. The enterprise must present in the notes to the financial statements the reason why the data in the "previous period" column cannot be compared with the data in the "this period" column (if any).
For enterprises applying the corporate accounting regime (Circular 200/2014/TT-BTC)
When converting the form of ownership, an enterprise must close its accounting books and prepare financial statements in accordance with law. In the first accounting period after the conversion, an enterprise must record its accounting books and present its financial statements according to the following principles:
1. For accounting books reflecting assets, liabilities and owners' equity: The entire balance of assets, liabilities and equity in the old enterprise's accounting books is recorded as balance. the beginning of the period in the accounting books of the new enterprise.
2. For the Balance Sheet: The entire balance of assets, liabilities and inherited equity of the old enterprise before the conversion is recorded as the opening balance of the new enterprise and presented to the new enterprise. shown in the column “First number of the year”.
3. For the Income Statement and the Statement of Cash Flows: The figures from the time of conversion to the end of the first reporting period are presented in the column “This period”. The column “previous period” presents accumulated data from the beginning of the reporting year to the time of change of ownership form.
