Conversion of a Household Business into an Enterprise: Procedures and key legal consideration
In the context of expanding operational scale and enhancing competitiveness, many household business owners choose to convert into an enterprise model in order to take advantage of legal incentives and better align with their business development needs. However, in many cases, such conversion is carried out without a full assessment of the legal consequences relating to taxation, financial obligations, and legal liabilities arising after the conversion. This article analyzes the procedures for converting a household business into an enterprise under current law, and highlights key legal issues that household business owners should pay particular attention to.
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1. Conversion of a household business into an enterprise from the legal perspective of termination and establishment of a business entity
It should be noted that the conversion of a household business into an enterprise constitutes the termination of the former business entity (the household business) and the establishment of a new business entity (the enterprise) in accordance with the Law on Enterprises.
From the time the Enterprise Registration Certificate is issued, the converted enterprise has an independent legal status and, in the case of a partnership, limited liability company, or joint stock company, legal person status. At the same time, it is assigned a new enterprise identification number (which also serves as its tax identification number). The enterprise is required to comply with the accounting, invoicing, and tax obligations applicable to enterprises, which differ significantly from the simplified management regime applicable to household businesses.
Accordingly, the household business does not continue to exist in parallel with the converted enterprise, but must complete the procedures for termination of operations and may no longer conduct business from the date on which the enterprise converted from the household business is issued the Enterprise Registration Certificate1.
2. Types of enterprises that may be chosen after conversion
Pursuant to the Law on Enterprises 2020, a household business may be converted into one of the following types of enterprises: a limited liability company, a joint stock company, a partnership, or a private enterprise.
In practice, single-member limited liability companies and multi-member limited liability companies are the most suitable options for the majority of household businesses due to their simple governance structure, ease of operation, and the fact that asset liability is limited to the amount of capital contributed, except for obligations arising prior to the conversion.
3. Procedures for conversion of a household business into an enterprise
The conversion of a household business into an enterprise is carried out in the following order: (1) the household business submits an application for enterprise registration on the basis of conversion to the Business Registration Office; (2) after the Enterprise Registration Certificate is issued, the Business Registration Office sends relevant information to the commune-level business registration authority to carry out the procedures for termination of the household business; (3) the commune-level business registration authority announces that the household business is undergoing termination procedures on the National Business Registration Portal and sends relevant information to the tax authority; (4) the household business completes its tax obligations; (5) the tax authority confirms the completion of tax obligations and notifies the commune-level business registration authority; and (6) the commune-level business registration authority updates the legal status of the household business to “terminated” in the household business registration database2.
Household business owners should also note that where an enterprise converted from a household business has foreign investors or foreign-invested economic organizations contributing capital, purchasing shares, or acquiring capital contributions and such transactions are subject to registration under the Law on Investment, the household business owner and the investor must complete the procedures for registration of capital contribution, share purchase, or acquisition of capital contribution with the investment registration authority before submitting the application for conversion of the household business into an enterprise to the business registration authority3.
4. Incentives and benefits of converting a household business into an enterprise Tax and fee incentives
Enterprises are entitled to tax and fee incentives under applicable laws to encourage the conversion of household businesses. In particular, pursuant to the Corporate Income Tax Law 2025, Resolution No. 68/NQ-TW, and Resolution No. 198/2025/QH15, notable incentives include: (i) exemption from license fee during the initial period of operation; (ii) enterprises newly established from household businesses with annual revenue not exceeding VND 50 billion are exempt from corporate income tax for two consecutive years from the first year in which taxable income arises; and (iii) small and medium-sized enterprises are exempt from corporate income tax for the first three years from the date of issuance of their first Enterprise Registration Certificate. These incentives help reduce operating costs and enable enterprises converted from household businesses to stabilize their organizational structure and reinvest in business expansion.
Legal person status and limitation of risks to personal assets
Enterprises after conversion have an independent legal status, particularly when converted into a limited liability company or a joint stock company. With legal person status, the enterprise participates independently in legal relations and bears liability with its own assets, thereby limiting risks to the personal assets of the household business owner, as compared to the household business model where business liability is closely tied to the individual.
At the same time, legal person status enhances credibility and trust in relationships with partners, customers, and state authorities, thereby facilitating access to large domestic and foreign partners.
Access to capital and financial resources
Conversion into an enterprise improves access to capital and financial resources. Enterprises may obtain bank loans, mobilize capital from investors, or participate in state financial support programs channels that household businesses often find difficult to access due to limitations in legal status and financial transparency. This is a key factor for household businesses with medium- and long-term growth strategies.
Market expansion and enhanced competitiveness
The enterprise model facilitates market expansion and enhances competitiveness. Enterprises may establish branches, representative offices, and business locations in multiple localities, and more readily enter into contracts with large partners, participate in bidding processes, or cooperate in projects that require a high level of legal capacity areas where household businesses commonly face constraints.
Access to business development support programs
Enterprises converted from household businesses have opportunities to access business development support programs, including management training, legal and financial consultancy, digital transformation support, innovation initiatives, and other support policies implemented in different stages of economic development. Such support contributes to improving corporate governance capacity, legal compliance, and adaptability in an increasingly competitive business environment.
5. Matters to be noted when converting a household business into an enterprise
Tax identification number and tax obligations
An enterprise after conversion will be assigned a new identification number in accordance with its Enterprise Registration Certificate. The tax identification number of the former household business will cease to be valid, while the personal tax obligations of the household business owner will continue to be managed under the individual tax identification number of the household business representative.
Prior to conversion into an enterprise, the household business is required to fully fulfill its tax obligations with the tax authority. In the event that the household business fails to complete such tax obligations:
– The newly converted enterprise will inherit all rights and obligations of the former household business;
– Where the conversion is into a limited liability company or a joint stock company, the household business owner (the household business representative) shall remain liable with all of his/her assets for any outstanding debts of the household business.
Post-conversion procedures
After being issued the Enterprise Registration Certificate, the enterprise must engrave its seal, display its business signboard, and complete initial tax registration procedures, including registration for the use of electronic invoices, in accordance with applicable laws.
This article was prepared by Vy Le with consultation from Lawyer Y Huynh.
This article is provided for general informational purposes only and does not constitute legal advice for any specific case. The legal regulations cited herein are effective as of the time of publication but may have been amended, supplemented, replaced, or expired at the time of readers’ reference. Therefore, readers are advised to seek advice from qualified lawyers before applying the information contained herein.
For any inquiries or needs for related legal services, please contact CBI Law Firm for further assistance.
- Clause 3, 4 Article 27 of Decree No. 168/2025/NĐ-CP ↩︎
- Clause 3 Article 27 of Decree No. 168/2025/NĐ-CP ↩︎
- Clause 2 Article 27 of Decree No. 168/2025/NĐ-CP ↩︎
