How does the current law regulate the change of sole proprietorship's owner?

A sole proprietorship is a business owned by an individual whose responsibility for its entire operation is equal to his/her total assets. In some cases, such as buying, donating, or inheriting, it is imperative to change the owner of a sole proprietorship. The buyer, the beneficiary, or the heir must make a registration to change the owner of the sole proprietorship. You may be curious about how the current law regulates the change of proprietor, and how the associated records and procedures are managed. Let's explore the answer together with NPLAW in the article below. 

I. When do you need to change your sole proprietorship's owner?

According to Article 54 of Decree 01/2021 / ND-CP, the change of owners can be seen in the following cases:

- Sole proprietorship's owner sells, donates to businesses.

- Sole proprietorship's owner is dead, missing.

The person registering the change of the owner is the buyer, the beneficiary, and the heir.

II. How does the regulation change sole proprietorship's owner?

Changing sole proprietorship's owner is prescribed in Article 192 of the Law on Enterprise 2020 when the owner exercises the right to sell his/her business, specifically: 

- The sole proprietorship's owner is entitled to sell it to another individual or organization.

- After the sale, the owner shall still be liable for debts and other property obligations arising before the date of transfer, unless otherwise agreed upon by the owner, the buyer, and the creditors.

- The sole proprietorship's owner and buyer must comply with the provisions of the Law on Labor.

- The buyer must register to change the owner in accordance with the regulations.

Thus, when transferring the sole proprietorship to another owner, it is necessary to register to change the owner in accordance with the regulations. Depending on the parties' agreement, the former owner is still responsible for the debts and other property obligations occurring before the date of transfer after selling the sole proprietorship. 

III. What are the conditions for changing private business owners?

Changing the sole proprietorship's owner occurs when the owner sells, donates his/her business or the owner dies, and the buyer, heir, and beneficiary must meet the conditions of the private business in Article 188 of the Enterprise Law 2020 such as:

- The owner shall not be simultaneously the owner of a household business or a member of a partnership.

- A sole proprietorship is not entitled to contribute capital upon establishment or buy shares, stakes in a partnership, limited liability company or joint stock company

The buyer, the beneficiary, or the heir shall make a registration to change the owner.

IV. Guidelines for registration procedures for changingthe sole proprietorship's owner 

The procedure for registering the change of sole proprietorship's owner is specified in Article 54 of Decree 01/2021/ND-CP. 

1. Application 

In accordance with Clause 1, Article 54 of Decree 01/2021 / ND-CP, the application for registration of a sole proprietorship in case of selling and donating enterprises, owner's death includes the following documents:

- A written notice of changing the contents of the business registration signed by the seller, donor and buyer, and beneficiary in case of selling and donating the private business; or signed by the heir to the case where the owner is dead;

- Copies of legal documents of the individual for buyer, beneficiary, or heir.

- Contract of sale or documents proving the completion of the purchase when selling the sole proprietorship; contract of donation in case of donating the private enterprise; a copy of documents confirming the legal inheritance rights of the heir in case of inheritance.

2. Sequence of execution

In accordance with Clause 1, Article 54 of Decree 01/2021 / ND-CP, the application for registration of a sole proprietorship in case of selling and donating enterprises or the owner's death is made in the following order.

Step 1: Preparing application

Step 2: Submit your application at the business registration office where the business is headquartered 

Step 3: The authority receives the application and gives receipts, checks its validity.

Step 4: The authority issue a certification of enterprise registration.

V. Some questions about changing the owner

1. If you want to register a change in the investment capital's owner, who should you send it to?

According to Article 55 of Decree 01/2021 / ND-CP, the registration of investment capital changes of owners is prescribed as follows:

In case of increase and decrease in registered investment capital, the owner must send a notice of the change of investment capital to the business registration office where the business is headquartered. After receiving the business registration application, the business registration office hands the receipt, checks the validity of the application and issues the enterprise registration certificate to the enterprise.

Thus, it is necessary to send the notice to the business registration office where the business is headquartered if you want to register the change in the investment capital.

2. How to register the change of the owner in case the business owner dies

If the owner dies, his/her heir shall register to change the sole proprietorship's owner in accordance with Article 54 of Decree 01/2021/ ND-CP, specifically: 

Step 1: Preparing application included as follows:

- A written notice to change the contents of the enterprise registration signed by the heir 

- Copies of legal documents of the heir;

- Copies of the document confirming the legal inheritance rights of the heir.

Step 2: Submit your application at the business registration office where the business is headquartered 

Step 3: The authority receives the application and gives receipts, checks its validity.

Step 4: The authority issues a certification of enterprise registration.

3. Does a sole proprietorship's owner who sells his/her business to another one incur personal income tax?

According to Article 3 of the Law on Personal Income Tax 2007 amended by Clause 1 of Article 1 of the Law on Personal Income Tax amended in 2012 on taxable income, including income from capital transfer as follows: 

Income from capital transfer, including:

- Income from capital transfer in economic institutions;

- Income from transfer of securities;

- Income from capital transfer in other forms.

Income from the transfer of real estate, including:

- Income from the transfer of use rights of land and property attached to the land;

- Income from the transfer of ownership or use rights of housing;

- Income from the transfer of the rights to rent land, water surface

- Other income received from the transfer of real estate in any form.

According to the law on personal income tax, the transfer of a sole proprietorship can be seen as the transfer of capital, machinery, equipment, production facilities, etc. Therefore, the owner shall incur personal income tax from capital transfers and tax from the transfer of capital shares in economic organizations.

VI. Services of consulting and implementation of procedures for changing sole proprietorship's owner

NPLAW provides services on the procedure for changing the sole proprietorship's owners:

- NPLAW will advise and carry out procedures in accordance with the law.

- NPLAW will draft and submit documents, receive results from the business registration authority when performing the procedure for changing the sole proprietorship's owner, and hand the certificate of changing the owner to customers.

If you are in trouble and need advice and support on procedures related to changing the sole proprietorship's owners, you can completely trust NPLAW and contact us immediately via the following information.