HM&P lawyers discuss challenges faced by household businesses in transitioning to enterprises

On March 7, 2025, Lawyer Nguyen Nhat Duong, representing HM&P Law Firm (“HM&P”), participated in an online interview with the Voice of Ho Chi Minh City People (VOH), where he shared legal insights on the process of transitioning household businesses into enterprises. This topic has garnered significant attention from household businesses, particularly in the context of Vietnam’s increasingly dynamic and integrated economy. The transition from household businesses to enterprises is becoming an inevitable trend aimed at enhancing competitiveness and expanding business operations.

Benefits of transitioning from a household business to an enterprise 

During the interview, Lawyer Nguyen Nhat Duong emphasized that although household businesses are a common business model in Vietnam, they face numerous legal limitations. Specifically, household businesses lack legal entity status, are not permitted to establish branches or representative offices, and encounter difficulties in accessing government support policies. 

Transitioning into an enterprise offers significant benefits, including: 

• Legal entity status, which enhances credibility and trust with clients and business partners. 

• Improved access to financing, including bank loans and potential investors. 

• Government support policies, such as tax exemptions and reductions during the initial establishment period. 

• Expansion opportunities, allowing businesses to scale up operations and participate more actively in supply chains and international trade. 

Lawyer Nguyen Nhat Duong also highlighted that from a macroeconomic perspective, encouraging household businesses to transition into enterprises contributes positively to the national budget through taxation and creates additional employment opportunities, thereby fostering overall economic development. 

Challenges in the transition process 

Despite its advantages, many household businesses remain hesitant to transition to an enterprise model. According to Lawyer Nguyen Nhat Duong, several key factors hinder this process, including: 

• Reluctance to change: Many household businesses are accustomed to a simpler management model with fewer legal obligations and are concerned about complying with stricter business regulations, such as accounting, taxation, and human resources management. 

• Higher operating costs: Enterprises must adhere to more stringent regulations on taxation, social insurance, and accounting systems, leading to increased financial pressure. 

• Lack of information and legal guidance: Some household businesses are unfamiliar with the legal procedures for transitioning and worry about complex, time-consuming, and costly conversion processes. 

• Tax obligations: Although newly established enterprises may benefit from tax incentives, many household businesses are concerned about higher tax obligations compared to their current model. 

• Limited management skills: Household businesses often operate under a simple management structure. Transitioning into an enterprise requires adopting more professional management practices. 

Lawyer Duong emphasized that while there is currently no legal mandate requiring household businesses to convert into enterprises, this transition is essential for optimizing economic benefits and ensuring sustainable development. 

Support solutions for the transition process 

Government support policies 

To facilitate the transition process, the Government has introduced various incentive policies for small and medium-sized enterprises (SMEs), particularly newly established businesses transitioning from household businesses, including: 

• Exemption from business license fees for the first three years. 

• Legal consulting support, business registration assistance, and corporate information disclosure services. 

• Corporate income tax exemptions and reductions, along with access to preferential loan programs. 

Lawyer Nguyen Nhat Duong recommends that to maximize these benefits, household business owners should proactively research and complete the required legal procedures. Additionally, developing a comprehensive business plan and enhancing management capabilities are crucial factors for operating a successful enterprise after the transition. 

Proposed solutions to promote household business transition 

To accelerate the transition process, Lawyer Nguyen Nhat Duong suggests several measures for regulatory authorities, including: 

• Reducing the tax burden on newly established small and medium-sized enterprises. 

• Simplifying business registration procedures to facilitate an easier transition for household businesses. 

• Providing financial support and management training to help new enterprises enhance their competitiveness. 

• Promoting digital transformation, enabling businesses to integrate technology into their operations. 

It can be said that transitioning from a household business to an enterprise not only allows individuals and organizations to expand their business scale and improve competitiveness but also provides significant legal, financial, and managerial advantages. Although certain challenges remain, with supportive government policies and thorough preparation by household business owners, the transition process can be carried out smoothly and yield high efficiency. 

With extensive expertise in corporate consulting, HM&P is always ready to assist clients throughout the business model transition process, from completing legal formalities to developing effective growth strategies. 

HM&P extends its gratitude to VOH for providing the opportunity to share valuable insights with the business community. We hope that HM&P’s analysis will contribute to raising awareness of legal regulations while helping household businesses and enterprises develop effective business strategies that ensure compliance with Vietnamese law. 

Please follow the link below for the detailed content of this interview: 

Chuyển đổi hộ kinh doanh thành doanh nghiệp: ưu thế và hạn chế gì?