Forms and Procedures for Buying, Selling and Transferring LLCs

Forms, procedures for buying and selling – transferring LLCs with 1 member, 2 members or more and things to know will be guided by fdiinvietnam.com in this article.

Legal basis

• Enterprise Law No. 59/2020/QH14 issued on June 17, 2020;
• Decree No. 01/2021/ND-CP of the Government takes effect from January 4, 2021.

Nowadays, the buying and selling of enterprises is quite common. So how does the process of buying and selling LLCs take place? The law does not have regulations on buying and selling LLCs, including LLCs with one member and LLCs with two or more members. However, we can understand it simply: Buying and selling LLCs is when an individual or organization buys back control of an enterprise through the transfer of capital contributions of that enterprise.

Through this article, fdiinvietnam.com will provide businesses with information on the procedures for buying and selling (transferring) LLCs to help businesses minimize risks when buying and selling businesses.

Forms of buying and selling LLCs

1. Buying and selling a single – member LLC

Pursuant to the provisions of Point h, Clause 1, Article 76, Clause 5, Article 77 of the Law on Enterprises:

• The company owner has the right to decide to transfer part or all of the company’s charter capital to another organization or individual;
• Company owners are only allowed to withdraw capital by transferring part or all of the charter capital to another organization or individual.

➨ Thus, in essence, buying and selling a single-member LLC is the owner transferring all of the company’s capital to other individuals or organizations to buy back.

2. Buying and selling LLCs with 2 or more members

Pursuant to Article 52 of the Law on Enterprises, members of a company have the right to transfer part or all of their capital contribution to other individuals or organizations according to the following procedure:

• Offer this capital contribution to the remaining members in proportion to their capital contribution in the company under the same offering conditions;
• If the remaining members of the company do not buy or do not buy all within 30 days from the date of offering, this member can transfer to another individual or organization outside of the company that is not a member, but the transfer can only be made under the same offering conditions as the remaining members of the company.

➨ In essence, buying and selling a limited liability company with 2 or more members is when all members of the company transfer all of their capital, rights and obligations to other individuals or organizations.

Procedures for buying, selling and transferring LLCs

The process of buying and selling a single-member LLC or a LLC with two or more members is carried out in the following 3 steps:

➨ Step 1: Capital transfer procedures

• The buyer and seller carry out the capital transfer and sign the transfer contract;
• The buyer (capital transferee) is an individual who makes the capital payment to the seller (capital transferor) in cash or by bank transfer;
• The buyer is an organization that cannot use cash to make payment of the capital contribution to the seller.

➨ Step 2: Procedures for changing the company’s owner/capital contributor

After both parties have completed the transfer procedure, within 10 days, the company needs to carry out the procedure to change the owner/capital contributor of the company on the business registration certificate.

Agency receiving documents: Business Registration Office – Department of Planning and Investment at provincial/municipal level.

Processing time: 3 – 5 working days from the date of submission of complete documents.

➨ Step 3: Declare and pay personal income tax due to capital transfer

Within 10 days from the date of signing the transfer contract, individuals who generate income from capital transfer must carry out procedures to declare and pay personal income tax (if any) for each occurrence at the tax authority.

Processing time: 3 – 5 working days from the date of submission of complete documents.

Note:

According to Article 11 of Circular No. 111/2013/TT-BTC, personal income tax on capital transfer will be calculated according to the following formula:

• Personal income tax payable = Taxable income x Tax rate 20%.
• In which: Taxable income = Capital contribution transfer price – Purchase price of capital contribution.

Therefore, if an individual transfers at par value and does not generate taxable income, he/she will not need to pay tax, but must still carry out declaration procedures at the tax authority. 

See also:

>> LLC buying and selling services;

>> Service of transferring capital contribution of LLC.

Notes when buying and selling LLCs

1. Before deciding to acquire a business, organizations and individuals need to accurately check information on the business’s operating status, labor usage status, other tax statuses and obligations of the business to minimize future risks;
2. The parties may agree on the transfer price, which may be higher, equal to or lower than the value of the capital contribution recorded in the business registration certificate. However, when submitting the personal income tax declaration, the tax authority may determine the transfer price to calculate the personal income tax payable in case it finds that the transfer price agreed upon by the two parties is unreasonable;
3. The parties need to make a specific list of assets to be transferred when buying and selling a business to avoid future disputes;
4. In case of transferring a business to a foreign individual or organization, in addition to the two procedures listed above, the parties need to apply for permission to contribute capital and purchase shares for foreigners at the Foreign Economic Affairs Department – Department of Planning & Investment before making changes.

Frequently asked questions about LLC buying and selling procedures

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