Following articles discussing the changes of ULE 2005 and CLI 2005, this article further discusses and analyses the issues in connection with the option of existing foreign invested enterprise in Vietnam to do re-registration under these laws.

The enacting of these twin laws, to a certain extent, brings impacts on existing enterprises whether they are prepared for these legislative changes or not. Unlike local enterprises, which are already operating under a similar system (Law on Enterprises 1999), foreign invested enterprises that were established before July 1, 2006 challenge a lot of impacts. The most feared scenario in which all 6,000 existing foreign invested enterprises established under Law on Foreign Investment in Vietnam 1996 (LFI 1996) are required to re-register will not happen. Instead, the good news is that under the ULE 2005, existing foreign invested enterprises are entitled to choose to either:
First, not re-register for the business registration in accordance with the ULE 2005. In this case, both organisational structure and operation of the enterprise shall remain unchanged as setting forth in the granted investment licence; or
Second, re-register and re-organise the organisational management of the enterprises in accordance to the ULE 2005 and the relevant regulations. This re-registration can be conducted at any time during the first two years as from July 1, 2006. If the deadline is missed, such enterprise shall be deemed as ‘not wishing to re-register’.
This provision seems to have attracted the most attention from existing foreign investors and foreign invested enterprises. They have to consider both advantages and disadvantages of such re-registration before making a decision.
If re-registration is selected under the ULE 2005, the foreign-invested enterprises shall have the same status enjoyed by enterprises with domestic capital.
Firstly, the re-registered enterprises shall be entitled to have more than one investment project without setting up a new entity by foreign investors for every single investment project as required by the LFI 1996.
Secondly, the enterprises are untied from only the business lines prescribed in the granted investment licence and feasibility study to do possible business lines like local ones, in accordance with laws and commitment of Vietnam to foreign countries.
Thirdly, the re-registered enterprises shall have indefinite operational term, thanks to which, the enterprises can operate as long as they desire.
Fourthly, enterprises shall have the right to increase and reduce their charter capital provided that this must be registered with the licensing authority.
However, according to several latest drafts of the decree guiding the business registration, the capital decrease cannot make the charter capital lower than the “legal capital” (meaning the minimum amount of capital required by the laws for the enterprise establishment in some specific industries) and member – limited liability enterprises are not entitled to reduce capital. This shall be far better than the provision of the LFI 1996, which does not allow the reduction of charter capital of foreign-owned enterprises under any circumstances.
Additionally, the draft Decree on re-registration (Draft Decree) that is currently being submitted to the government guarantees that upon completion of the re-registration, enterprises can retain corporate names, seals, tax code and bank accounts. This will lessen the worry of foreign investors and foreign invested enterprises on the volume of workloads generated from the re-registration procedures if the draft decree is approved.
Apart from encouraging points brought about by the re-registration, some inflexible requirements may cause the reluctance the foreign invested companies in the option of re-registration. Among those, specific corporate forms have been defined and applied corresponding to the existing invested foreign companies as follows:
100 per cent foreign owned enterprises with one foreign investor shall be re-registered as limited liability companies with one member;
Joint venture enterprises and 100 per cent foreign owned enterprises with two investors or more shall be re-registered as limited liability companies with two members or more;
Converted foreign invested joint stock enterprises (converted under Decree 38/2003/ND-CP, dated April 15, 2003) shall be re-registered as shareholding companies; and Business Cooperation Contract (BCC) shall be registered as BCC under the CLI 2005.
Besides, it also unclear in case the investors wish to change other corporate matters such as the company’s address, charter capital, investors, business lines, etc. upon the re-registration and whether these changes shall be accepted or not. If yes, shall this specific case require additional paper and procedures?
In the mean time, the non re-registered enterprises may be crucified with investment licences, per several recent drafts decrees. This means that they would be prohibited from revising their investment licenses in relation to amendment of business lines, operational term, conditions of division, consolidation or merger of the enterprise, or conversion of enterprise forms. We do hope that this restriction shall be removed when the government issues the decree as it sounds unfair to the enterprises, which selected to keep going unchanged with the licenced project as they may desire to slightly change their current business by revising the investment licence.
Please note that the draft decree requires both registered and non-registered foreign invested enterprises to comply with the ULE 2005 and CLI 2005. With these broad requirements, to what extent the non re-registered enterprises must comply with the ULE 2005 is still unclear. For instance, whether a joint stock company or wholly foreign invested company, who now have a “board of management” shall have to change into “members’ council” structure to conform to the ULE 2005.
Furthermore, the passage of resolutions of board of management is required to have a majority of at least 65 per cent or 75 per cent (subject to specialty of the resolutions, such as 75 per cent for the charter amendment) as required by ULE 2005 and the non existence of the consensus principle under the ULE 2005 shall affect the interests of minor investors of non re-registered enterprises.

Source: www.vir.com.vn