Conditions for Establishing a Social Enterprise in Vietnam

The conditions for establishing a social enterprise are key to unlocking sustainable development and delivering genuine value to the community. This not only helps shape the business environment but also ensures that social enterprises operate within the legal framework and meet the societal objectives they set out to achieve. Join us in exploring the requirements for establishing a social enterprise in the article below.

What are the conditions for establishing a social enterprise?

A social enterprise must meet certain legally stipulated conditions to be established. Pursuant to Article 10 of the Law on Enterprises 2020, these conditions include:

• Being an enterprise registered for establishment in accordance with this Law;
• Having operational objectives aimed at addressing social and environmental issues for the benefit of the community;
• Using at least 51% of the enterprise’s total annual after-tax profit for reinvestment to achieve its registered objectives.

Notably, the condition regarding reinvestment to achieve registered objectives is not only a requirement at the time of establishment but must also be maintained throughout the operational duration of the social enterprise.

According to Clause 1, Article 3 of Decree 47/2021/ND-CP, “A social enterprise must maintain its social and environmental objectives, the level of profit retained for reinvestment, and other content specified in the Commitment to Implement Social and Environmental Objectives throughout its operation.

Except in cases of terminating social or environmental objectives before the committed deadline, a social enterprise must refund all incentives, aid, and sponsorships it has received to implement its registered social and environmental objectives if it fails to implement or inadequately implements the Commitment to Implement Social and Environmental Objectives and the level of profit retained for reinvestment.“

In addition to the above conditions, a social enterprise must also meet other general establishment conditions similar to other enterprises, such as conditions regarding founders, enterprise name, headquarters, charter capital, business lines, etc.

Template for the Commitment to Implement Social and Environmental Objectives

Unlike other enterprises, when carrying out the procedures for establishing a social enterprise, in addition to the standard establishment documents for each specific type of enterprise, a social enterprise is mandatorily required to have a “Commitment to Implement Social and Environmental Objectives.”

This commitment is made according to the template provided in Appendix II-26 of Circular 01/2021/TT-BKHDT and includes the following content:

• Enterprise information.
• Social and environmental objectives and methods of resolution.
• The timeframe for implementing activities aimed at addressing social and environmental issues.
• The annual profit level the enterprise retains for reinvestment in its registered social and environmental objectives.
• Principles and methods for handling surplus aid and sponsorship when the enterprise is dissolved or the commitment period expires, in cases where the enterprise receives aid or sponsorship.

You can download the template below for more detailed information.

DOWNLOAD: TEMPLATE FOR COMMITMENT TO IMPLEMENT SOCIAL AND ENVIRONMENTAL OBJECTIVES

Note on the authorized signatories for the Commitment to Implement Social and Environmental Objectives, as stipulated in Clause 1, Article 28 of Decree 01/2021/ND-CP, depending on the type of enterprise:

• For a private enterprise: the owner of the private enterprise;
• For a partnership: the general partners;
• For a limited liability company: individual members; the legal representative or authorized representative for organizational members;
• For a joint stock company:
  • Founding individual shareholders, other individual shareholders, if these shareholders agree with the content of the commitment and wish to sign this commitment along with the founding shareholders;
  • The legal representative or authorized representative for founding organizational shareholders, the legal representative or authorized representative for other organizational shareholders, if these shareholders agree with the content of the commitment and wish to sign this commitment along with the founding shareholders.

Frequently Asked Questions about Conditions for Establishing a Social Enterprise

Below is our compilation related to the conditions for establishing a social enterprise. We invite readers and clients to refer to it.

What exactly is the definition of a social enterprise under Vietnamese law?

The Law on Enterprises does not provide a direct definition for a social enterprise but rather lists the criteria, which are also the conditions for establishing a social enterprise, in Article 10. From this regulation, it can be understood that a social enterprise is a registered business entity whose primary mission is to address social and environmental challenges for the common benefit of the community. Simultaneously, this enterprise must commit to allocating a minimum of 51% of its annual after-tax profit to reinvest in implementing its stated social and environmental objectives.

What is the core financial obligation related to the profits of a social enterprise?

One of the key financial obligations of a social enterprise, as outlined in Article 10 of the Law on Enterprises 2020, is to allocate at least 51% of its annual after-tax profit for reinvestment into its registered social and environmental objectives. Clause 1, Article 3 of Decree 47/2021/ND-CP also emphasizes that this commitment is not only an initial condition upon establishment but must also be consistently maintained throughout the enterprise’s operational lifecycle.

Is the “Commitment to Implement Social and Environmental Objectives” a mandatory document?

Yes, a significant difference in the procedure for establishing a social enterprise compared to other types of enterprises is the mandatory requirement to include the “Commitment to Implement Social and Environmental Objectives” in the registration dossier, as stipulated in Clause 1, Article 28 of Decree 01/2021/ND-CP. This is a fundamental requirement for the enterprise to be recognized and operate under this designation, as indicated in the article based on enterprise dossier regulations.

What primary information must be presented in the “Commitment to Implement Social and Environmental Objectives”?

According to the template specified in Appendix II-26 of Circular 01/2021/TT-BKHDT, the “Commitment to Implement Social and Environmental Objectives” must include detailed enterprise information, specific social and environmental objectives, and the methods for addressing them. Additionally, the commitment must clearly state the projected timeframe for these activities, the percentage of annual profit the enterprise will retain for reinvestment, and the principles for handling any surplus aid or sponsorship upon dissolution of the enterprise or expiration of the commitment period.

Who is authorized to sign the “Commitment” for a Limited Liability Company (LLC)?

For a Limited Liability Company, Clause 1, Article 28 of Decree 01/2021/ND-CP clearly stipulates that authorized signatories include individual members, or the legal representative or an authorized representative in the case of organizational members.

What happens if a social enterprise fails to properly implement its social objectives or its registered reinvestment commitment?

Clause 1, Article 3 of Decree 47/2021/ND-CP states that, unless the enterprise terminates its social or environmental objectives prematurely in accordance with the committed terms, if it fails to implement or inadequately implements the Commitment and the profit retention level for reinvestment, the social enterprise must refund all received incentives, aid, and sponsorships.

Does a social enterprise need to comply with the general business establishment conditions applicable to other types of enterprises?

Yes, in addition to specific conditions, a social enterprise must still fully meet other standard establishment conditions that apply generally to all enterprises. These include, for example, regulations concerning founders, enterprise name, head office location, charter capital (if any), and permitted business lines, in accordance with the general principles of the Law on Enterprises.

In a Joint Stock Company (JSC), who signs the “Commitment” if a founding shareholder is an organization?

For a Joint Stock Company, Clause 1, Article 28 of Decree 01/2021/ND-CP specifies that the legal representative or an authorized representative of a founding organizational shareholder will sign the commitment. This also applies to other organizational shareholders if they concur with and wish to co-sign the commitment.

What is the minimum percentage of annual after-tax profit that a social enterprise must reinvest?

Article 10 of the Law on Enterprises 2020 clearly requires that a social enterprise must use at least 51% of its total annual after-tax profit for reinvestment to realize its registered social and environmental objectives.

Who is authorized to sign the commitment for a private enterprise and a partnership?

Clause 1, Article 28 of Decree 01/2021/ND-CP specifically regulates the authorized signatories as follows: for a private enterprise, it is the owner of the private enterprise; for a partnership, all general partners must sign the commitment.

Consulting Services for Establishing a Social Enterprise

To assist in navigating the procedures for establishing a social enterprise, Long Phan Consulting Company offers advisory services covering the following issues:

• Advising on the necessary conditions for establishing a social enterprise.
• Advising on the process and essential legal requirements for establishing and operating a social enterprise.
• Advising on drafting the commitment to implement social and environmental objectives.
• Representing clients in carrying out the procedures for establishing a social enterprise.
• Providing regular consulting services as needed by clients.
• Other tasks as agreed.

Conclusion

Thus, the establishment of a social enterprise must meet legally stipulated conditions. For an enterprise to be fully legally compliant and quickly become operational, a team of experts with in-depth knowledge is necessary. If you require Long Phan Consulting Company’s business registration services, please contact us via hotline 1900.63.63.89 for assistance. We are committed to providing the best service to our clients. Thank you!