In the context of today’s increasingly developed economy, selecting an appropriate business model plays a pivotal role in ensuring the stability and expansion of business operations for individuals and organizations. After a period of operation, many household businesses reach a certain scale and begin encountering limitations in legal status, operational scope, and expansion capacity. This necessitates a transition to the enterprise model to achieve more sustainable and professional development.
This article outlines the registration procedures for converting a household business into an enterprise and analyzes the practical benefits of this conversion. It aims to provide individuals and households with comprehensive insights to make informed decisions aligned with their future business development strategies.
1. What is a household business?
Article 79.1 of Decree No. 01/2021/ND-CP stipulates that a household business is established upon registration by an individual or household members, who bear unlimited liability with their entire assets for the business activities of the household. Accordingly, a household business does not have legal status, and the head of the household business is responsible for fulfilling tax obligations, financial liabilities, and all business activities of the household as prescribed by law.
2. Procedures for converting a household business into an enterprise and terminating its operations:
2.1. Step 1: Register the conversion from household business to enterprise at the Business Registration Office under the Department of Finance
Competent Authority: The Business Registration Office under the Department of Finance where the enterprise intends to establish its headquarters, pursuant to Article 27.1 of Decree No. 01/2021/ND-CP.
Dossier components:
- Original Certificate of Household Business Registration;
- Copy of Tax Registration Certificate;
- Additional documents corresponding to the specific type of enterprise post-conversion.
2.2. Step 2: Terminate household business operations at the District-Level Planning And Finance Division
Competent authority: The District-Level Planning and Finance Division, pursuant to Article 92.1 of Decree No. 01/2021/ND-CP.
Required documentations:
- Notification of termination of Household Business Operations;
- Tax authority’s notice of Tax Code Cancellation;
- Copy of the Minutes of the Household Members’ Meeting regarding termination (for household businesses registered by family members);
- Original certificate of Household Business Registration.
Benefits of converting a household business into an enterprise:
| HOUSEHOLD BUSINESS | ENTERPRISE | BENEFITS |
| Does not possess legal entity status. | Possesses legal entity status | As a household business lacks legal entity status, all transactions between the household business and partners/customers must be conducted through the household business owner. An enterprise, possessing legal status, can engage in transactions directly and independently |
| The owner bears unlimited liability with all personal assets for the business operations | Owners/shareholders/contributing members bear liability limited to their capital contribution | In the event of business risks such as incurred debts or disputes, the household business owner must use all personal assets to settle these obligations. Conversely, owners/shareholders/contributing members are liable only within the scope of their capital contribution to the company. |
| An individual is permitted to register only one household business nationwide | There is no statutory restriction on an individual establishing multiple enterprises | The ability for an individual to establish multiple enterprises enables the development of diverse business lines nationwide, allowing for distinct management of each business activity |
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- New regulations on value-added tax, personal income tax and tax management for business households and individuals
Disclaimers:
This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.
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Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Business and Investment and contact our team of lawyers in Vietnam via email info@apolatlegal.com.
