Startup: 5 Legal Issues To Consider Before Starting Up A Business

Startup: 5 Legal Issues To Consider Before Starting Up A Business

Any individual intending to start up a business should pay attention to the following 5 issues: 

1. Business line

Before deciding to start up, individuals need to determine the specific business line or sector they will operate in. This is the first factor that needs to be considered prior to start up a business. Individuals intending to start up can rely on their personal experience, market demand or current relationships to choose and determine the appropriate business line.

2. Capital

After determining the business line, founders need to look at the necessary costs for operating a company, and then determine the appropriate amount of capital to invest in the Company and maintain that Company’s operation during a fixed period (from 6 months to 1 year). In particular, founders should consider the following costs:

  • Rents,
  • Labor costs;
  • Marketing costs;
  • Costs of investing in devices, machinery, stationery, etc. for use in business activities;
  • Costs of purchasing input materials;
  • Other necessary costs relating to the group of chosen business lines.

3. Co-founders 

After determining the business line and necessary capital for establishing the Company, founders need to think about whether they will cooperate with a group of people (friends, colleagues, family members, etc.) or start up the business on their own.

Working together to start up a business will help the founders to mobilize enough financial sources for operating the company in case they lack financial capability at the time of starting up. In addition, cooperation will improve the management of the company by sharing rights and obligations with each person. 

However, founders need to be conscientious in considering and choosing the right partners. Different people may have different mindsets and business visions, which may lead to conflicts during the Company’s operation. This will affect the Company’s development.

Therefore, this issue needs to be considered before cooperating in a start-up. 

4. Type of company

Nowadays, business owners usually opt for the following common types of company:

  • Single-member limited liability company: will be selected in case the founder starts up a business on their own. With this company type, the founder will be the Company’s owner and has full rights to decide on every matter of the Company.
  • Multi-member limited liability company: will be selected in case the founder cooperates with multiple people to run the Company. After sufficiently contributing the capital, the members shall become the Company’s members and shall not withdraw their capital. In case one of the limited members wants to transfer their contributed capital to another person who is not a member of the Company, this transfer will need to be approved by the Board of Members. This regulation is made to secure the maintenance of limited members and prevent any disputes when a new member whose vision and opinions do not align with those of the remaining members is added to the Company.

The number of limited members in this company model shall not exceed 50 members.

  • Joint stock company: will be considered for selection in case the founder cooperates with multiple people to run the Company together. With this company type, the mobilization and transfer of the capital of the shareholders will be effortless and flexible. After 3 years from the date of issuance of the Enterprise Registration Certificate, founding members can freely transfer their capital to existing shareholders as well as outsiders without being permitted by the General Meeting of Shareholders.

This model is suitable for inviting investment and raising capital.

Each company type has its own advantages and disadvantages, therefore, prior to starting up a business, founders should weigh up the pros and cons of each model to choose the most appropriate one.

5. Company structure 

After choosing the suitable company type, the members/shareholders should look into the structure of each company model to vote/appoint each person to the appropriate position or hire experienced personnel to take charge of running the Company.

In conclusion, establishing a Vietnamese Company is very simple and quick, but to successfully operate the company, founders should examine and study carefully the aforementioned matters before starting up a business in order to avoid running into a wall or causing damage when losing control of costs, personnel and internal conflicts of partners.

Disclaimer: This article is for general information only and is not a substitute for legal advice. Apolat Legal is a Vietnamese law firm with experience and capacity to advise on matters related to Corporate. Please click here to learn more about our services and contact our lawyers in Vietnam for advice via email info@apolatlegal.com.

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