Dissolution; Suspension of Operations; “Neglection” of the Company: Which Option Is More Appropriate?

Authors: Truong Trong Minh – Senior Associate, Nguyen Dinh Sac – Paralegal.

In the course of operation, not every enterprise is able to maintain continuous business activity. Financial difficulties, a change in business direction, restructuring, or simply the owner no longer having a need to continue business operations may give rise to the question: should the company suspend operations, undergo dissolution, or be “neglected”?

In practice, these three options give rise to different legal consequences. Suspension of operations does not equate to termination of the enterprise’s existence; dissolution is the process by which an enterprise’s legal existence is formally terminated in accordance with law; whereas “neglection” of the company is not a formal legal procedure, and the enterprise’s legal obligations continue to remain in effect.

Which option is appropriate? The article below by CDLAF will analyze a number of issues that enterprises should take into consideration before making a decision.

1. What is suspension of business Operations? When should an enterprise suspend operations?

Suspension of business operations may be understood as an enterprise’s temporary cessation of business activities while continuing to maintain its legal existence.

This is generally an appropriate option where an enterprise is facing difficulties but still retains the ability or intention to resume operations in the future.

Under current regulations, an enterprise must submit a notice of suspension to the provincial-level Business Registration Authority. The suspension period stated in each notice may not exceed 12 months, and the total duration of consecutive suspension of business operations may not exceed 24 months.

During the suspension period, the enterprise must still settle any outstanding tax liabilities and social insurance contributions, and must continue to perform its obligations relating to contracts, customers, and employees, unless otherwise agreed by the relevant parties.

Accordingly, suspension is suitable for an enterprise that is temporarily halting operations while awaiting an opportunity to re-enter the market, rather than for an enterprise that has already resolved to withdraw from the market.

Example: A technology company has exhausted its operating capital and is in the process of negotiating a new funding round. Rather than proceeding with dissolution, the enterprise suspends its business operations for 12 months in order to reduce operating costs, while retaining its legal entity status, intellectual property assets, and license for handover to the investor should the transaction be successful. Should the negotiations fail, the enterprise may subsequently proceed to dissolution.

2. Dissolution – When an enterprise needs to conclusively wind up its operations

Unlike suspension, dissolution is the option intended to terminate the legal existence of an enterprise.

Under the Law on Enterprises, an enterprise may be dissolved in certain circumstances, such as upon the expiry of its operating term without an extension thereof, or pursuant to a decision of the enterprise.

As a matter of principle, an enterprise may only be dissolved once it has ensured full payment of all debts and other property obligations, and provided that it is not undergoing dispute resolution before a Court or an Arbitration institution.

Accordingly, before proceeding with dissolution, an enterprise needs to comprehensively review and address matters such as:

• Tax obligations and accounting records/dossiers;
• Debts owed to partners, banks, and third parties;
• Wages and entitlements of employees;
• Obligations ralating to social insurance, health insurance, and unemployment insurance;
• Contracts that remain in effect;
• The enterprise’s assets;
• Existing procedures, licenses, or projects.

It may thus be said that dissolution of an enterprise is the process of terminating the entirety of the enterprise’s legal relationships.

Example:A company has incurred continuos losses for several years and has attempted various restructing measures (downsizing stores, reducing personnel, suspending business operations for a period of time), but the situation has not improved and no new investor has been found. The General Meeting of Shareholders resolves to proceed with dissolution rather than allow the company to continue incurring maintenance costs without generationg revenue. Dissolution is the final step once an enterprise has determined that it no longer has the capacity, or no longer has the need, to continue operating.

3. “Neglection” of the company –Why is this not a safe option?

One of the situations CDLAF frequently encounters is that of an enterprise that has, in practice, ceased operations but has neither carried out the procedures for suspension of business operations nor for dissolution.

This is precisely the situation commonly and informally referred to as “neglection” of the company. Importantly, cessation of actual operations does not equate to termination of legal existence.

Where an enterprise fails to fully perform its tax, accouting, and related obligations, such matters do not simply disappear of their own accord; on the contrary, they become risks that the enterprise will have to confront in the future.

In practice, an enterprise that has been “neglected” for a number of years may encounter issues such as:

• Accouting records, invoices, and documents that are no longer complete;
• An inability to determine the enterprise’s tax status and financial obligations;
• The accrual of late-payment penalties or other matters requiring resolution;
• A head-office address that is no longer in use;
• The legal representative or owner being subject to a temporary exit ban;
• The loss of corporate records, the company seal, or orther legal documents;
• Increased complexity in restoring or terminating the enterprise’s legal status.

In particular, the law currently in force provides specific mechanisms for addressing cases in which an enterprise fails to perform its obligations to the Business Registration Authority – such as giving notice upon cessation of opertations, updating registration information upon any change thereto, or reporting on its business situation when so requested – in addition to the tax and accounting obligations reffered to above.

Example: An individual establishes a single-member limited liability company to conduct online business, but after a short period without generating any revenue, ceases to use the company, fails to file tax reports, allows the office lease to expire, and likewise fails to carry out either suspension or dissolution procedures, believing that “an inactive company will automatically be struck off.” Several years later, when this individual needs to establish a new company, they discover that the tax code of the former company is recorded as being “not operating at its registered address,” together with an accumulated penalty for late filing that has built up over several years — an amount considerably greater than the cost of carrying out dissolution procedures from the outset would have been.

4. Should it be suspended, dissolved or re-handled the enterprise that is being “neglected”?

There is no single option suitable for every enterprise.

Instead, an enterprise may begin with a simple question:

Does the enterprise still want to resume operations?

If YES: Suspension of business operations may be the appropriate option, allowing the enterprise additional time to restructure, prepare its resources, and re-enter the market.

If NO: Dissolution may be the more appropriate option, provided that the enterprise fully satisfies the conditions relating to the complete payment of debts and other property obligations, together with other applicable legal conditions.

If the enterprise has ALREADY BEEN NEGLECTED for an extended period: Continued neglection should not persist. The enterprise should first review its legal status, tax and accounting records, financial obligations, employees, contracts, and assets, and on that basis determine the appropriate course of action.

Conclusion:

Suspension is a pause. Dissolution is an endpoint. “Neglection,” however, is not a viable option.

An enterprise may cease operating in practice, but if it has not completed the necessary procedures, its legal obligations do not thereby automatically cease to exist.

Accordingly, before deciding to suspend or dissolve, an enterprise should conduct a comprehensive review of its legal status, tax and accounting position, finances, labor matters, contracts, and assets, so as to select the appropriate course of action and limit the costs and risks that may otherwise arise in the future.

Consultancy & implementation of enterprise dissolution procedures service at CDLAF

CDLAF Law Firm supports enterprises to carry out dissolution procedures in a legally safe manner and on schedule, including:

• Reviewing and assessing the legal status, tax obligations, debts and asset liquidation plan of the enterprise before dissolution; proposing appropriate plans and roadmaps for each enterprise.
• Drafting dossiers, representing the enterprise to work with competent state agencies during the dissolution process.
• Advising on legal situations arising during the dissolution process.

📩 BOOK A CONSULTATION WITH CDLAF’S LEGAL TEAM

Do not let procedural errors disrupt your business plans. Contact CDLAF today to receive a preliminary risk assessment from our team of Lawyers:

Hotline/Zalo: [+84 909 668 216]

Email: info@cdlaf.vn

You can refer for more information:

• • Abandoning an Inactive Company Without Dissolving It — Will There Be Penalties?
  • Latest procedures and dossiers for enterprise dissolution in 2026
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  • Transferring Employees to Perform Other Works: Key Considerations for Enterprises
  • Lawful Labor Discipline: Procedures and Key Notes for Enterprises