Is it more profitable to establish a company or a business?
“Should I establish a company or a business?” is a question that many people are interested in when intending to “start a business”. However, not many people really understand the advantages and disadvantages between the two models and whether establishing a company or business is more beneficial. The article below will help readers answer the above questions.
1. Overview of business households and companies
1.1. Household business
Business household is owned by an individual or an organization that is a Vietnamese citizen at least 18 years old, has full civil capacity, or is owned by a family. Business households are only allowed to employ less than 10 employees, registered at one location, and the business household owner must bear all of his or her assets for business activities.
If members of the household register their business, they need to authorize one member to act as the business representative. The individual who is authorized by the members to act as representative will be the business owner.
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1.2. Company
Establishing a company is an organization with its own name, transaction office, assets and established or registered for business in accordance with the law for business purposes. According to the Enterprise Law 2020, types of businesses are clearly defined as follows:
1.2.1 Limited Company:
Limited Company includes a single-member LLC owned by an organization or an individual; LLC with 2 or more members and a maximum of 50 organizations or organizations as members. Limited company members are only responsible to the extent of their contributed capital when it comes to debts and other property obligations of the company.
1.2.2 Joint stock company:
A specific type of enterprise in which the charter capital is divided into equal parts called shares. Individuals or organizations can be shareholders of the company and the minimum number is 3 shareholders and there is no maximum limit.
1.2.3 Partnership company:
An enterprise with at least two general partners, and may have additional capital contributing members in addition to general partners. Capital contributing members can be individuals or organizations, and are only responsible for the company’s debts limited to the extent they contributed capital, while general partners must be fully responsible for all assets. about the company’s obligations.
1.2.4 Private enterprise:
An enterprise owned by an individual and responsible for all of its assets. A sole proprietorship can only be established by an individual. The owner of a private enterprise cannot also be the owner of a business household or a general partner in a partnership company.
2. Advantages and disadvantages of each type of business
2.1 About the advantages of household businesses
- Compared to companies, household businesses have relatively simple establishment procedures and do not take too much time or expense.
- Because the number is small, mainly members of the same household, management is easy.
- Without being constrained by capital, business households can do business with a small or large amount of capital, so business households have the ability to quickly turn capital around, creating favorable conditions for the business process.
- Business households can pay a fixed monthly flat tax rate decided by the tax authority and license fees will depend on each year’s revenue without incurring any costs.
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2.2 About the disadvantages of business households
- Small scale, each business household can only employ a maximum of 10 workers. This is a small quantity, which limits the ability of business households to expand and develop.
- You can only register your business at one location, you cannot open any other business locations or branches.
- Without legal status, when participating in transactions, you will be in the capacity of an individual, so the legal status of the business household is not strict.
- All members of the business household must be responsible for all assets of the household’s business activities.
2.3 About the advantages of this type of company
- Have legal status (except private enterprises), have a legal seal and are allowed to issue red invoices.
- There is no limit on the number of employees and business lines.
- The owner is only responsible for the assets contributed to the company, not taking personal assets to be responsible for the company (except for private enterprises).
- The ability to mobilize capital is higher than that of a business household because the company can issue stocks and bonds, increase the ability to borrow from credit institutions, and the number of members contributing capital is also higher than that of a business household.
2.4 About the disadvantages of this type of company
- Accounting, bookkeeping, and auditing regimes are complex and businesses also have to pay more taxes than business households.
- The procedure for establishing a company is quite complicated. Documents and records must be prepared as prescribed in Decree 78/2015/ND-CP and submitted to the registration agency for processing.
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