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This article provides an in-depth analysis of two popular business models in Vietnam: Sole Proprietorship and Company. The article will compare these two models in detail based on the most important criteria, from legal foundation, liability regime, tax, accounting to scalability and modern support tools. The purpose is to help individuals and businesses have a comprehensive view, grasp the advantages and disadvantages, thereby making strategic decisions that best suit their vision and resources. After reading, readers will not only understand the nature of each model but also know how to operate effectively and flexibly when necessary.
A sole proprietorship (SPP) is defined as a business model registered by an individual or household members, and the household owner is responsible for all of his or her assets for business activities. Since Decree 01/2021/ND-CP took effect, the subjects allowed to establish a SPP include individuals who are Vietnamese citizens aged 18 years or older, with full civil act capacity, or a household. It is noteworthy that this regulation has removed "groups of individuals" from the list of subjects allowed to establish a SPP.
In terms of scale, HKD is allowed to operate in many different locations, but must fully notify the tax authorities and market management agencies at the place of operation. However, HKD is strictly limited in not being allowed to open more branches or representative offices. Another important change in Decree 01/2021/ND-CP is the abolition of the previous maximum number of employees (less than 10 people), allowing HKD to employ more than 10 employees without being required to convert to an enterprise. The liability regime of HKD is unlimited, meaning that the owner is responsible with all of his personal assets for all debts and obligations arising from business activities.
An enterprise (Company) is an organization with its own name, independent assets and legally established to conduct business activities. Common types of companies in Vietnam include Limited Liability Companies (one member or two or more members), Joint Stock Companies, Private Enterprises and Partnerships. A prominent feature of a company is that it has legal status (except for private enterprises) and a legal seal.
The company also has the right to expand its scale by establishing branches and representative offices in different locations and is not limited in the number of employees. The liability regime of the company depends on the type, but popular models such as LLC and JSC all have limited liability, meaning that members are only responsible within the scope of the capital contributed to the company.
The choice and operation of one of these two business models is strictly governed by a specific system of legal documents. These documents not only shape the way of operation but also serve as the basis for resolving any problems that arise during the business process.
The Enterprise Law 2020 (No. 59/2020/QH14) is the core legal foundation, detailing the types of enterprises, establishment conditions, governance structure, and rights and obligations of members.
Decree 01/2021/ND-CP plays an important role in providing detailed guidance on the process of registering enterprises and business households, replacing the previous Decree 78/2015/ND-CP. This document has changed many important regulations on business households, especially on the subjects of establishment and labor limits.
The 2019 Law on Tax Administration and guiding circulars such as Circular 40/2021/TT-BTC stipulate tax obligations and tax calculation methods applicable to both models, including the distinction between the lump-sum tax method and the declaration method.
Decree 130/2018/ND-CP is the legal basis for electronic transactions, regulating the legal value, safety conditions and use of digital signatures and digital signature certification services.
For an overview and easy comparison, below is a summary table of the main differences between Sole Proprietorship and Company.
| Criteria | Sole Proprietorship (SPP) | Company (eg LLC, Joint Stock) |
| Legal status | No legal status, no legal seal | Has legal status (except private enterprises), has legal seal |
| Legal liability | Unlimited liability with all assets | Limited liability within the scope of capital contribution |
| Labor scale | No limit on number of employees under new regulations | Unlimited number of workers |
| Scalability | No branches or representative offices allowed. | Open branches and representative offices |
| Accounting mode | May not require bookkeeping (consolidated tax) or may require basic bookkeeping (declared tax) | It is mandatory to organize accounting, bookkeeping and financial reporting. |
| Tax liability | Pay business license fees, VAT, personal income tax. Can apply lump sum or declaration method | Pay business license fees, VAT, personal income tax, and corporate income tax |
| Capital raising | Very limited, mainly from own capital or personal loans | Can increase capital contribution or issue bonds (LLC, Shares) |
The most fundamental difference between these two business models is the liability regime. This is a key factor that affects the level of risk faced by the owner.
The unlimited liability of a Sole Proprietorship is an important feature. The Sole Proprietorship Owner must use all of his or her assets, including personal assets not directly used for business purposes, to pay off the debts and financial obligations of the Sole Proprietorship. This creates a huge financial risk. If the business fails or goes bankrupt, the Sole Proprietorship Owner risks losing all of his or her assets, which has a direct and serious impact on the lives of the individual and his or her family.
On the contrary, the limited liability of the Company is a great advantage, especially for LLCs and Joint Stock Companies. Capital contributors are only responsible for the debts of the company within the scope of their contributed capital. This creates a layer of protection for the personal assets of the owners and members. This regime helps to minimize risks for investors, thereby creating a more favorable environment to attract capital from outside, which is the premise for the company to expand its scale safely and sustainably.
Tax obligations and accounting regimes are two factors that significantly differ between HKD and companies, but are tending to integrate strongly.
Tax obligations: Currently, businesses with revenue of 100 million VND/year or more must pay 3 main types of taxes: business license fee, VAT and personal income tax. Businesses can pay taxes by lump sum or declaration. VAT and personal income tax are calculated based on taxable revenue multiplied by the tax rate corresponding to each business line.
For companies, in addition to similar taxes, they must also pay Corporate Income Tax (CIT) at a general rate of 20%.
The policy change from 2025-2026 shows a remarkable trend. From June 1, 2025, businesses with revenue of VND 1 billion/year or more will no longer be subject to the lump-sum tax method and must switch to electronic tax declaration and use electronic invoices.
Next, according to Resolution 198/2025/QH15, from January 1, 2026, the lump-sum tax regime will be completely abolished for HKD. This means that all HKD, regardless of revenue, are required to declare and pay taxes according to the declaration method.
This change increases the administrative burden and the need for accounting expertise for the owner, which are the main advantages of the HKD model. As the tax line between HKD and micro-enterprises blurs, converting to a company becomes a more rational decision, not only to comply with new regulations but also to protect personal assets through limited liability.
Accounting and bookkeeping regime: Previously, businesses paying lump-sum tax were not required to keep books. However, according to the latest regulations, businesses paying tax by declaration method must open and maintain basic accounting books such as detailed revenue books, expense books, cash books, etc.
Meanwhile, companies are required to organize a professional accounting department, keep detailed books and submit quarterly and annual financial reports according to the 2015 Accounting Law.
Limitations of HKD: HKD can only register to do business at a single location and is not allowed to open branches or representative offices. This creates a major barrier to expanding the market and business scale. HKD's ability to mobilize capital is also very limited, mainly relying on its own capital or borrowing from individuals and credit institutions.
Advantages of the Company: In contrast, the corporate model allows businesses to expand their operations flexibly by establishing branches, representative offices or business locations in many different localities.
Furthermore, types of companies such as LLC and JSC can raise capital more easily through increasing capital contributions of members or issuing bonds and shares (for JSC). This brings strategic advantages for long-term growth and development.
Digital signature is an indispensable tool in the modern business environment, especially when electronic transactions are increasingly popular.
Concept and legal value: Digital signature is a form of electronic signature created by an asymmetric cryptographic system. It acts as a handwritten signature or a business seal, with equivalent legal value.
To be recognized as legal, a digital signature must satisfy the security conditions in Article 9 of Decree 130/2018/ND-CP, including being created during the validity period of the digital certificate and the secret key being under the control of the signer only at the time of signing.
Popular types of digital signatures: Currently, there are many types of digital signatures in use, each with its own advantages and disadvantages, suitable for the needs of each subject:
USB Token: This is the most traditional and popular type of digital signature, stored on a compact USB device. It is highly secure and easy to use, but requires plugging into a computer to perform digital signature.
HSM: Is a type of digital signature stored on specialized hardware devices, capable of high-speed and large-quantity digital signatures, often used for large enterprises, banks and financial institutions.
SmartCard: Integrated into the phone SIM, allowing flexible digital signature on mobile devices. However, it has limitations in security and depends on the network coverage area.
Remote Signing: Is a new technology that allows storing secret keys on the provider's server, helping users sign digitally anytime, anywhere without the need for physical devices.
Digital signature is a mandatory tool for businesses to carry out public administrative procedures and electronic transactions such as tax declaration and payment, business registration, social insurance declaration, and electronic contract signing.
For small businesses, outsourcing accounting services is a smart strategic solution, helping to optimize resources and minimize risks.
Outstanding advantages:
Cost optimization: The cost of hiring accounting services is often much lower than recruiting and maintaining an internal accounting department, especially experienced accountants. Businesses do not have to pay high salaries, do not need to invest in equipment, accounting software, or employee benefits.
High expertise and legal updates: Accounting service companies have a team of highly qualified experts who are regularly updated with the latest circulars and tax laws, helping to ensure accuracy and legal compliance.
Risk mitigation: Reputable service providers often have a clear commitment in the contract to take responsibility and compensate for damages if errors occur due to their fault.
Potential risks and how to avoid them:
Despite the many benefits, there are still risks associated with using outsourced accounting services. Some unprofessional units may create false figures, fail to hand over complete documents, or fail to update legal changes in a timely manner, leading to tax risks and heavy fines for businesses.36 To avoid these risks, businesses should not only focus on low prices but also choose reputable units with many years of experience, clear working processes, and a team of personnel with practice certificates issued by the Ministry of Finance.
The Sole Proprietorship model is suitable for individuals who are just starting a business with limited resources and clear goals. This model is suitable when you want to do business on a small scale, in a single location and do not intend to expand into a chain.
It is also ideal for simple businesses that do not require complex regulations or high-level certifications. However, it is important to accept the high financial risk due to the unlimited liability regime, which means that all personal assets can be used to pay off debts.
On the contrary, the corporate model is a strategic choice for those with a long-term development vision. This model allows you to expand your scale and market by establishing branches and representative offices.
Limited liability is a big plus, helping to protect personal assets from business risks. Moreover, forming a company helps build credibility and facilitates capital mobilization and cooperation with large partners. For groups of individuals contributing capital and management, the company provides a clear and tight legal structure.
With the ongoing changes in tax policies, converting from a limited liability company to a company is no longer an optional choice but a strategic move that needs to be seriously considered. Once a limited liability company grows to a certain level, the tax and accounting procedures become more complex, reducing the initial advantages of this model.
Meanwhile, the risks of unlimited liability still exist. Converting to a company will help formalize the business model, protect personal assets and open up more opportunities for growth.
The conversion process includes the following steps:
Step 1: Complete financial obligations. Before registering a new business, the owner must pay all debts, employee salaries and taxes incurred up to the present time.
Step 2: Prepare documents. The documents include important documents such as the original Certificate of Business Registration, application for business registration, company charter and list of members/shareholders (depending on the type of company intended).
Step 3: Submit the application. Submit the prepared application to the Business Registration Office under the Department of Planning and Investment (DPI) of the province/city where the new enterprise's headquarters is located.
Step 4: Dissolve the business. After receiving the new Business Registration Certificate, the owner needs to carry out the procedure to dissolve the old business to terminate its operations.
Choosing between establishing a Company and registering a Sole Proprietorship is not just a matter of legal formalities, but a strategic decision that shapes the future of your business. A detailed analysis shows that each model has its own advantages and disadvantages, suitable for different stages and goals.
Final recommendation:
You should start with the Household Business model if you just want to test your business idea on a small scale, with limited resources and accept high financial risks.
You should choose to establish a Company from the beginning if you have a long-term vision, want to expand, build a professional brand and most importantly want to protect personal assets from business risks.
Regardless of the model chosen, it is essential to stay up to date with legal changes, especially the tax policies that will come into effect in 2026. Furthermore, investing in professional tools and services from the beginning, such as digital signatures and outsourced accounting services, will ensure efficient operations, legal compliance and maximum risk reduction.
