The advantages and disadvantages of the type of private enterprise play an important role in choosing the right type of business for individuals. It can be seen that many people are interested in and choose this type of private enterprise to do business. However, to ensure suitability for yourself as well as meet the conditions, individuals need to pay attention to some advantages and disadvantages of private enterprise. When understanding the advantages and disadvantages of this type of private enterprise, individuals can consider whether it is suitable for their business plans or not. To better understand this issue, please follow Viet My is article below.

1. What is a private enterprise?

A private enterprise is understood as a type of business owned by an individual, who must be responsible for all business activities of the company with all of his or her own assets.

According to Article 188 of the current Enterprise Law 2020, there is a definition of private enterprise as follows: A private enterprise is an enterprise owned by an individual who is responsible for all activities of the enterprise with all of its assets. its property. Each individual has the right to establish only one private enterprise.

2. Characteristics of private enterprises

When establishing a private enterprise, individuals must understand the characteristics of this type of private enterprise to make the right choice for themselves.

A private enterprise is established and owned by an individual with his or her own capital

Private enterprises do not have capital contributions like companies with many owners; the capital of private enterprises also mainly comes from assets owned by a single individual.

The investment capital of a private enterprise is contributed by the private enterprise owner and self-registered with the business registration agency.

Regarding capital ownership relations in private enterprises

The owner of a private enterprise must be responsible for registering the total amount of investment capital in the enterprise accurately and honestly, in which this investment capital amount must be clearly stated in Vietnamese Dong or in foreign currency. due to conversion, gold and other assets. In case of using other types of assets to contribute capital, the owner registration must clearly state the type of asset, quantity of assets and remaining value of each asset.

The initial capital of a private enterprise comes mainly from the assets of the private enterprise owner. During operation, private business owners have the right to increase or decrease investment capital, but must only declare to the Business Registration Authority in case of reducing enterprise capital below the registered level. Therefore, there is no limit between the enterprise capital and assets put into business by a private enterprise and the remaining assets owned by the private enterprise owner. That means it is not possible to clearly separate the assets of the owner of a private enterprise from the assets of that private enterprise.

About private enterprise management

A private enterprise has only one investor in the company, so the individual will have the right to decide on all issues related to the organization and business operations of the private enterprise. The owner of a private enterprise is the legal representative of a private enterprise.

The owner of a private enterprise is the legal representative of the enterprise as a requester to resolve legal issues such as: Civil cases, plaintiffs/defendants, people with related interests or obligations. before arbitrators and courts, and is the person who exercises other rights and obligations according to the law for his or her private enterprise.

Regarding business profit distribution

The issue of profit division is not raised for private enterprises because  a private enterprise has only one owner and all profits earned from the company’s business activities will belong to him alone. private business owner. However, that also means that that single individual will be responsible for all risks and losses in business.

Regarding the legal status of private enterprises

A legal entity must have its own assets, which means there must be separation between the assets of that business and those who create the business. Private enterprises do not have independence in terms of assets because the assets of private enterprises are not independent in relation to the assets of the private enterprise owner.

Regarding the risk responsibility of private business owners

Due to the lack of independence in assets, the private business owner – the person who is solely responsible for all risks of the company – will have unlimited liability. The owner of a private enterprise is not only responsible for the business activities of the enterprise within the scope of the registered business investment capital, but is also responsible for all of his or her assets in case of investment capital. Registered business is not enough.

3. Advantages and disadvantages of private enterprises

Any type of business has its own advantages and disadvantages. To help individuals have more useful information to be able to decide on the type of business that best suits them, Viet My offers the advantages and disadvantages of the type of private enterprise as follows:

3.1 Advantages of private enterprise

This type of private enterprise has the following advantages:

• In a private enterprise, the business owner will have the right to make decisions for all business activities of the private enterprise independently.
• Profits after paying taxes and fulfilling other financial obligations will be left to the private business owner to decide how to use the generated profits?
• According to Article 189 of the Enterprise Law 2020, the capital of a private enterprise is self-registered by the owner with the business registration agency, so there is no need to carry out procedures to transfer asset ownership like other types of businesses.
• The owner of a private enterprise has unlimited rights and responsibilities for the business activities of the private enterprise, so it is easier to gain the trust of customers because if any bad risks occur, the business owner Private enterprises must step up and use all of their own assets to solve the problem. From there, customers will limit risks when cooperating and investing.
• The regulated unlimited liability regime helps private enterprises easily gain trust from partners, thus easily mobilizing capital and doing business cooperation.
• Private enterprises will be less bound by law and can easily control risks because there is only one individual as the legal representative.
• The corporate organizational structure of a private enterprise is relatively simple

3.2 Disadvantages of private enterprises

Besides the advantages, the private enterprise still has some disadvantages as follows:

• The owner of a private enterprise must be responsible for using all of the business’s assets and his or her own assets to settle debts that the private enterprise cannot pay. This has high potential risks because even though the private enterprise cannot repay debt and must go bankrupt, the private enterprise owner still has to continue to pay debt with personally owned assets.
• Private enterprises are not allowed to issue their own securities and do not have the right to contribute capital or purchase shares or capital contributions in Partnership Companies, LLCs or Joint Stock Companies, so private enterprises will often encounter Lack of capital when a large amount of capital is needed for business.
• Because a private enterprise is owned by only one individual, there is no association to contribute capital; It is difficult to immediately meet the need for large capital resources for business.
• Private business owners have the right to decide on all business activities of their company, so this will cause inadequacies in ensuring objectivity in decisions.
• Private enterprises do not have legal status, so they cannot carry out certain legal transactions on their own.
• The owner of a private enterprise must be responsible before the law for all business activities of the enterprise.
•  The owner of a sole proprietorship has unlimited liability with all of his or her personal assets. Thus, if the assets of a private enterprise are not enough to pay off loans or other financial obligations, the private enterprise owner will have to use his or her own assets to settle these debts immediately even after declaring bankruptcy.

4. Frequently asked questions about establishing a business

4.1 How many private enterprises can an individual establish?

Each individual is only entitled to establish one private enterprise. The owner of a private enterprise will not be the owner of a business household at the same time. And they also do not have the right to become a member of a partnership company.

4.2 Does the owner of a private enterprise have the right to sell the business?

Have. Private business owners have the right to sell their business to others.

4.3 Does the owner of a private enterprise have the right to lease the enterprise?

Private business owners have the right to lease the entire business they own but must notify the business registration agency and tax agency.

4.4 Do private business owners’ capital and assets have to be recorded?

Pursuant to the provisions of Article 189 of the Enterprise Law 2020, capital and assets of private enterprise owners used in business activities of the enterprise need to be fully recorded in the company’s accounting books and corporate financial reports.

4.5 Can private business owners contribute capital to buy shares in other types of businesses?

Private enterprises will not have the right to contribute capital to establish or purchase shares or capital contributions in partnerships, limited liability companies or joint stock companies.

Above are the advantages and disadvantages of Viet My’s private enterprise type in 2024. If you have difficulty establishing a private business or other related issues, contact VIET MY LAW AND ACCOUNTING. Viet My is a full-service and professional business establishment service company, providing customers with the best service experience.