Distinguishing Between Joint Stock Company and Limited Liability Company

Among the popular types of enterprises in Vietnam, Joint Stock Companies (JSC) and Limited Liability Companies (LLC) are two options that attract significant interest from investors. Let's distinguish between a Joint Stock Company and a Limited Liability Company to gain a comprehensive understanding of these types of enterprises. From here, you can choose the most suitable form for your business registration.

What is a Joint Stock Company?

To distinguish between a Joint Stock Company and a Limited Liability Company, we will first explore the characteristics of each type of enterprise. Initially, let's introduce the features of a Joint Stock Company. A Joint Stock Company is a type of enterprise in which the charter capital is divided into equal parts called shares. Shareholders are the owners of these shares and have rights and obligations corresponding to the number of shares they own. By law, a Joint Stock Company has legal status from the date it is granted the Business Registration Certificate.

Number of Shareholders:

• A Joint Stock Company has at least 3 founding shareholders.
• There is no limit to the maximum number of shareholders.

Share Transfer:

• Shareholders have the right to freely transfer their shares to others.
• The company can be listed on the stock exchange.

Organizational Structure:

• General Meeting of Shareholders: The highest decision-making body.
• Board of Directors: The management and representative body of the company.
• Board of Management: Handles the daily management of the company.
• Supervisory Board (if applicable): Oversees the company’s activities.

Legal Liability:

Shareholders are only liable for the company’s debts and other financial obligations to the extent of their contributed capital.

Advantages and Disadvantages of a Joint Stock Company

A Joint Stock Company has many advantages and disadvantages. Therefore, businesses should carefully consider the favorable and challenging factors before deciding to establish this type of company. Here are the key pros and cons of a Joint Stock Company.

Advantages of a Joint Stock Company:

• Enhanced Image and Reputation: Enterprises established as Joint Stock Companies are often highly regarded for transparency, professionalism, and credibility compared to other types of enterprises. This helps businesses attract customers, partners, and investors more easily.
• Easy Capital Transfer: Shareholders can easily transfer their shares to others through the stock market or direct agreements, allowing investors to participate and exit the company effortlessly.
• Easy Capital Mobilization: The company can raise capital from various sources by issuing shares to the public, making it easier to mobilize funds for business development.

Disadvantages of a Joint Stock Company:

• Risk of Shareholder Disputes: There may be disputes among shareholders regarding their rights and obligations to the company.
• Dispersed Control: With many shareholders, decision-making can be slow and challenging, especially when shareholders have differing opinions.
• Public Disclosure of Financial Information: Listed companies must publicly disclose financial information and activity reports, which can reduce business confidentiality.

What is a Limited Liability Company?

A Limited Liability Company (LLC) is an enterprise established by one or more members. Generally, it is suitable for medium and small-sized businesses.

Charter Capital:

The charter capital of an LLC is divided among its members as capital contributions. These contributions are not called shares and are not freely transferable like shares in a Joint Stock Company.

Number of Members:

• An LLC can be established as a single-member LLC or a multi-member LLC:
•   Multi-Member LLC: From 2 to 50 members.
•   Single-Member LLC: Only one member, which can be an individual or an organization.

Management and Administration:

An LLC may have a Members' Council (for multi-member LLCs) or a Company President (for single-member LLCs). The Board of Management can be hired to manage the daily activities of the company.

Transfer of Capital Contribution:

The capital contribution of LLC members is not freely transferable like shares in a Joint Stock Company. The transfer of capital contribution must comply with legal regulations and the company’s charter.

No Share Issuance:

LLCs do not have the right to issue shares to raise capital like Joint Stock Companies.

Comparison Between Joint Stock Company and Limited Liability Company

In general, Joint Stock Companies and Limited Liability Companies differ in many criteria. Typically, Joint Stock Companies are larger in scale than LLCs. To better understand, please see the detailed comparison table below:

This article has clearly and comprehensively distinguished between Joint Stock Companies and Limited Liability Companies. Through this, you can choose the type of enterprise that best suits your business direction. As one of the most reputable service providers for business establishment in Vietnam, we are always ready to support you. If you need any assistance with procedures and business registration, please contact us immediately.