When starting a business, choosing the legal form directly impacts operations, tax obligations, legal risks, and future scalability. In practice, most small and medium-sized businesses are torn between the two most common options: sole proprietorships and companies.

Both models are legal and recognized by Vietnamese law, but they differ profoundly in nature, not simply in terms of "size." Understanding these differences correctly will help business owners choose the right model from the start, avoiding hasty transitions or costly legal consequences.

What is the difference between a sole proprietorship and a business enterprise?

What is a sole proprietorship?

A household business is a form of business established by an individual or members of a household who are liable for the business's operations with all their assets. If multiple members participate, one person must be authorized to act as the head of the household.

Simply put, a household business is a business model closely tied to an individual, with no separation between business assets and the owner's personal assets. This is why this model is often chosen when starting a small business.

A sole proprietorship is a business model closely associated with an individual.

What is a business?

A business is an economic organization with legal personality, a distinct name, assets, a registered office, and established in accordance with the law for the purpose of conducting business.

Businesses exist independently of the individuals who contribute capital. Depending on the type, owners or members are only liable to the extent of their capital contribution, except in some special cases such as partnerships.

The core principle of this business lies in the legal separation of personal and business activities.

Depending on the type of business, the owner or member is only liable to the extent of their capital contribution.

Comparing household businesses and enterprises based on core criteria.

To make it easier to understand, the table below summarizes the most important differences, focusing on those that directly affect business owners in practice.

Looking at the table, the biggest difference isn't about "paying more or less tax," but rather about legal responsibility and scalability.

Read more: Everything You Need to Know About Electronic Invoices: When to Issue Them, How to Handle Errors

When should you choose to become a sole proprietorship?

Sole proprietorships are suitable for the initial stages, when operations are small, risks are low, and business owners want to simplify procedures. This model is often chosen when there is no need to raise capital, expand scale, or build a legal entity brand.

However, this very liability, which is why it puts many people at risk when revenue increases rapidly, is also a major factor, especially in online sales, e-commerce, or service sectors where complaints and disputes arise.

Read more: Guide to Registering a Household Business: Process, Documents, and Things You Need to Know

When is a business a more sensible option?

A business model is a suitable option for entrepreneurs with a long-term vision, who want to expand their scale, build a brand, and minimize personal legal risks. It's also essential if operating in sectors requiring strict legal regulations, working with large partners, or participating in formal supply chains.

In reality, many businesses start as sole proprietorships but convert to enterprises when they reach a certain threshold in terms of revenue, personnel, or risk level.

A realistic perspective for online business owners.

In reality, many people start as sole proprietorships to test the market, then convert to a business when revenue and risk increase. This is a perfectly logical path if accounting, invoicing, and business data are prepared in advance.

Choosing the right model from the start not only saves costs but also avoids difficult legal complications later on, especially as tax authorities increasingly rely on data and cash flow for management.

Read more: What are the consequences of selling online without issuing invoices?

Conclude

There is no single "perfect" model for every situation. Household businesses and enterprises are designed to serve different stages and objectives of the business process.

If the right model is chosen from the start, business owners can optimize costs, manage effectively, and minimize legal risks. Conversely, if the wrong model is chosen for the actual operation, the adjustment costs and risks arising later are often much greater than the initial setup costs.

Therefore, before registering, business owners should carefully assess their scale, development direction, management capabilities, and risk tolerance level, and then choose the most suitable model for themselves.