What is a legal entity? Classification and conditions for legal entity status

What are commercial and non-commercial legal entities? What is legal status? What are the conditions for a business to have legal status? Refer here.

What is a legal entity? What is legal personality?

1. What is a legal entity?

A legal entity is understood as an organization with a certain independent legal status. This organization can participate in economic, political, social activities… according to regulations and is responsible before the law.

2. What is legal status?

A legal entity is an organization recognized by the state to operate independently and be responsible before the law.

An organization with legal status has full rights and obligations of a legal entity as prescribed by law.

Legal entity classification

1. What is a commercial legal entity?

Commercial legal entities include enterprises and other economic organizations. Commercial legal entities operate with two main objectives:

• One is to generate profit;
• Second, share profits equally among members.

For example: Vingroup Joint Stock Company is a commercial legal entity.

2. What is a non-commercial legal entity?

A non-commercial legal entity is a legal entity whose primary objective is not to seek profit. In the event that a non-commercial legal entity makes a profit, this profit is not distributed to its members. 

Non-commercial legal entities include: 

• State agencies, people’s armed forces;
• Political organization;
• Social organization;
• …

For example, the Vietnam Red Cross is a non-commercial legal entity. Because the main goal of the organization is not to make a profit but to carry out humanitarian activities in the community. 

Conditions for legal status

Article 74 of the 2015 Civil Code stipulates that an organization recognized as having legal entity status must satisfy the following four conditions: 

1. Legal entities must be established in accordance with the law.

• Legal entity established or permitted to be established by a competent state agency;
• Legal name must be in Vietnamese;
• The legal entity name must reflect the type of organization of the legal entity and distinguish it from other legal entities in the same field;
• Use the legal name in all civil transactions;
• The name of the legal entity is recognized and protected by law.

For example: ABC LLC is considered legally established when the company submits a registration application and is granted a business registration certificate by the Department of Planning and Investment.

Note:

An organization is recognized as having legal status from the date of being granted a business registration certificate. However, not all organizations granted a business registration certificate are legal entities. 

See now: 

>> Company establishment procedures;

>> Cheap company establishment service.

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2. Legal entities must have a tight organizational structure.

• A legal entity must have a clear executive body. The functions, tasks, and powers of each department and division of the executive body are specifically stipulated in the charter/decision establishing the legal entity;
• Legal entities have other bodies as decided by law or decided by each legal entity.

3. Legal entities must have independent assets and be responsible for their own assets.

According to the provisions of law, a legal entity must own a certain amount of assets to establish rights and obligations in the activities of the legal entity. Such assets are formed from the following sources: 

• Capital contributions of owners, founders, and members of legal entities;
• Other assets owned by legal entities. 

A legal entity has the right to use and dispose of that property according to the charter or the establishment decision of the legal entity. At the same time, the legal entity must take full responsibility for that property. 

Note:

• The assets of a legal entity are independent of the assets of the members of the legal entity;
• The assets of a legal entity are independent of other legal entities.

For example:

In ABC LLC, capital contributors are only responsible for the capital they have contributed, and do not use personal assets to fulfill the company’s obligations (except for partnerships).

4. A legal entity can participate in legal relations independently in its own name.

A legal entity has the right to participate in legal relations independently in its own name through a representative. The representative of a legal entity may be a legal representative or an authorized representative.

• The representative is authorized to carry out all transactions arising during the operation;
• If the representative is no longer able to represent, the legal entity has the right to elect a new representative. 

>> See more: Comparison of legal representative and authorized representative.

Which organizations and businesses have legal status?

1. Limited liability company

The Enterprise Law 2020 stipulates that a limited liability company (1 member, 2 members or more) has legal status from the date of issuance of the enterprise registration certificate. Because a limited liability company meets 4 conditions:

• Legally established;
• Have a tight organizational structure; 
• The assets of a limited liability company are independent of the assets of its members. Members are only liable for the obligations/debts of the company within the scope of their capital contribution; 
• A limited liability company has the right to enter into legal relationships on behalf of the company through a representative. 

See also: 

>> Procedures & conditions for establishing a limited liability company;

>> LLC establishment service.

2. Joint Stock Company 

The Enterprise Law 2020 also stipulates that a joint stock company has legal status from the date of issuance of the enterprise registration certificate. Because a joint stock company meets 4 conditions:

• Legally established;
• Have a tight organizational structure;
• The assets of a joint stock company are independent of the assets of its shareholders. Shareholders are only liable for the obligations/debts of the company within the scope of their capital contribution;
• A joint stock company has the right to participate in legal relationships on behalf of the company through a representative. 

See also: 

>> Procedures & conditions for establishing a joint stock company;

>> Joint stock company establishment service.

3. Partnership

A partnership is a type of business with at least two general partners or more. In addition, a partnership can also have additional capital contributors.

• A general partner is an individual who is personally liable with all of his or her assets for the company’s obligations;
• A capital contributing member is an individual/organization, with limited liability within the scope of the contributed capital for the company’s debts. 

Although the assets of a general partner are not independent of the assets of the company, the assets of a capital contributor are independent of the assets of the company. Therefore, a general partnership is still considered a legal entity from the date of issuance of the business registration certificate.

See also:

>> Procedures & conditions for establishing a partnership;

>> Partnership establishment service.

Which organizations and businesses do not have legal status?

1. Private enterprise 

Clause 1, Article 188 of the 2020 Enterprise Law stipulates that a private enterprise is an enterprise owned by only one individual who is responsible for all activities of the enterprise with all of his/her assets. 

If a private enterprise goes bankrupt, the business owner is forced to use personal assets to pay off the debts of the enterprise. At this time, personal assets are not independent of the assets of the enterprise. Therefore, the private enterprise does not have legal status. 

>> See more: Services for establishing companies and private enterprises.

2. Branches and representative offices of enterprises

 Article 44 of the Law on Enterprises 2020 defines branches and representative offices as follows:

• A branch is a dependent unit of an enterprise, responsible for performing part/all of the functions of the enterprise, including the function of authorized representation;
• A representative office is a subsidiary unit of an enterprise, with the task of representing the interests of the enterprise under authorization and protecting those interests. 

Thus, all activities of branches and representative offices depend on the enterprise and are not allowed to participate in legal relations independently. Therefore, branches and representative offices do not have legal status.

See also: 

>> Service of establishing company and business branches;

>> Representative office establishment service.

3. Business households

Article 79 of Decree 01/2021/ND-CP stipulates that a business household is established by an individual/members of a household. That individual/member must be responsible with all of his/her assets for all obligations/debts of the household. Therefore, a business household does not have legal status. 

See also: 

>> What is a business household? Business household registration procedures;

>> Business establishment service.

Some frequently asked questions about legal entities