Scenario: a two-member FDI LLC wants to become a joint-stock company to raise capital more easily and “look professional” to partners. The director thinks “it’s just a type change, done in a week.” Five traps await — one of which can kill the subsequent fundraising.
Procedure: not complex, but order matters
Article 202 of the 2020 Law on Enterprises (in force as of 19/10/2026) lets an LLC convert directly into a JSC without dissolution: the converted company inherits all rights, obligations, and lawful interests of the old one. Sequence: (1) the members’ council adopts the conversion decision, the new JSC charter, and the plan converting capital contributions into shares; (2) register the conversion under Decree 168/2025/ND-CP; (3) update seals (re-engrave — the type name changed), invoices, bank accounts, e-signatures, and sub-licenses.
Five common traps
- Trap 1 — Accidental “founding shareholders”: LLCs have no such concept, but on conversion, signatories of the first registration dossier may count as founding shareholders — whose ordinary shares face transfer restrictions (Article 120, 2020 Law on Enterprises). A new investor planning a 2-year flip gets stuck.
- Trap 2 — Valuing contributions: members’ capital contributions must convert into shares (quantity × par value). Vague conversion ratios seed “I contributed 30% but got 25% of shares” disputes.
- Trap 3 — Investment incentives: the investment registration certificate and tax incentives may attach to the specific type/entity. Discovering lost incentives after conversion is real damage — check and adjust the IRC first.
- Trap 4 — Sub-licenses and contracts: conditional business licenses, credit contracts, and land leases naming “LLC…” need updating or transfer consent, or bank/partner transactions jam.
- Trap 5 — Tax: conversion is not a capital transfer, so no transfer tax arises; but finalize tax duties up to conversion (declarations, finalization) and notify the tax authority of registration changes.
Advice before signing the conversion decision
Answer three questions: who counts as founding shareholders (and do they accept transfer restrictions), the contribution-to-share conversion ratio (a valuation annex signed by all members), and whether investment incentives survive (written confirmation from the investment registration authority). Answer these and 80% of risk is gone.
Frequently asked questions
Must the old LLC be dissolved to convert?
No. Article 202 of the 2020 Law on Enterprises allows direct conversion; the new company inherits all rights, obligations, and lawful interests.
Do converted LLC members face share transfer restrictions?
Possibly. Those deemed founding shareholders of the new JSC face ordinary-share transfer restrictions under Article 120 of the 2020 Law on Enterprises. Identify founders upfront.
Are investment incentives lost on conversion?
Possibly, if tied to the specific type/entity. Check the investment registration certificate and complete adjustment procedures before converting.
Does conversion trigger capital-transfer tax?
No — it is not a capital transfer. But finalize tax duties up to conversion and update tax registration information.
This article has been quality-reviewed by the FLAW AI Legal Council Content prepared by the AI Legal Council of FLAT Law Firm for general reference only; it has not been reviewed by a human lawyer for your specific situation.