When required by law or to take advantage of the available strengths of partners in Vietnam, foreign companies and individuals with foreign nationality frequently choose to establish a joint venture company. However, to establish a joint-venture company, foreign investors must pay attention to both countries’ laws concurrently. In this article, LSX Legal Firm would like to give you an insight into: “Establish a joint-venture company in Vietnam”
- Law on Enterprise 2020
- Law on Investment 2020
The concept of “joint-venture company”
The Law on Enterprises and Investment in 2020 no longer defines joint venture companies. The current laws and legal documents do not stipulate what is a joint venture enterprise and very little mention is made of the form of joint venture enterprise. Joint venture companies are now referred to under a common name as “foreign-invested economic organizations”.
In common, joint venture company means an enterprise established in Vietnam by two or more parties cooperating on the basis of a joint venture contract or an agreement signed between the Government of the Socialist Republic of Vietnam and Foreign Government, foreign-invested enterprises cooperating with Vietnamese enterprises.
- In a joint-venture company, each party will take responsible for the amount of capital committed to contribute to the legal capital of the enterprise.
- Joint venture company has legal status from the date of issuance of investment registration certificate.
- The operation organization of the joint venture company has the cooperation and capital contribution in the production and business investment of foreign investors and Vietnamese investors. The level of participation in the management of the enterprise, the percentage of profits to be enjoyed as well as the risks each party to the joint venture has to bear, is based on the capital contribution ratio of the parties.
The joint venture contract, the basis for establishing a joint venture enterprise. Through the joint venture contract, the parties sign an agreement on business cooperation in the form of establishing a new company owned by the parties at the same time. In other words, the joint venture contract takes part in as the legal basis for recording the investment relationship.
The signing of the contract resulted in the establishment of a legal entity under the Law on Enterprises of Vietnam. Therefore, the foreign investor must fully satisfy the provisions of current Vietnamese law on enterprises or as agreed upon in the international agreements in which Vietnam takes part. The subject to sign must ensure the conditions as prescribed by the Law on Investment, the Law on Enterprises,… The content of the agreement must contain issues related to the internal organization of the enterprise to establish, such as type of enterprise, field, line of business and scope of business, charter capital, capital contribution of each party, method and schedule of contribution charter capital, conditions for operation termination, enterprise dissolution, etc.
The joint venture contract not considered as a form of investment, it only plays the role of a legal basis for recording the investment relationship. As a result of the process of entering into a joint venture contract, a joint venture enterprise was born. Therefore, this agreement presents as a mandatory document in the application for an investment certificate.
Thus, a joint venture contract means an organizational contract or a company establishment contract. The operating charter of the joint venture enterprise must based on the agreed contents of the contract. After being granted the investment certificate, together with the operation charter of the joint venture enterprise, the joint venture contract is a legally effective document during the implementation of the investment project.
Contents of joint venture contract
- National title, motto.
- Time and place of contract establishment.
- Basic information about the parties to enter into the joint venture contract.
- Company name.
- Type of business.
- Address of head office, business location, branch and representative office of the company.
- Business lines of the enterprise.
- Total legal capital and investment capital of the company.
- Information of the legal representative of the company.
- Mechanism of management and organization of the operating apparatus of the joint-venture enterprise.
- Ratio of loss, profit and risk-bearing responsibility of each party to the joint venture contract.
- Rights and obligations of each party when entering into the contract.
- How to resolve if there is a dispute.
- Other agreements (if any).
- Validity of contract.
- Some other agreement contents, etc.
- Sign and seal to confirm agreement with the above agreements of the contracting parties.
Establishing joint-venture company
Currently, there are 3 main ways that are common regarding setting up a joint venture company:
Carry out procedures to change the content of the business registration
When meeting the following grounds, the investors only need to carry out procedures to change the content of the business registration:
- Foreign investors purchase capital contributions, contribute capital, or purchase shares of a Vietnamese economic organization operating in an industry without conditions (industries not listed in Appendix 04 of the Law on Investment).
- Foreign traders’ equity accounts for 49% or less.
Apply for an investment registration certificate
When the foreign traders’ equity accounts for 51% or more, the investors have to carry out procedures to apply for an investment registration certificate in order to satisfy the conditions prescribed in the law on Investment 2020 in the following case:
- Foreign investors purchase capital contributions, contribute capital, or purchase shares of a Vietnamese economic organization operating in an industry without conditions (industries not listed in Appendix 04 of the 2014 Investment Law).
Foreign traders invest 100% of capital in Vietnam
In this case, the foreign traders invest in Vietnam in the form of investment in the establishment of a business entity.
Conduct of investment activities by foreign-invested business entities
Article 23 of the Law on Investment 2020:1. When establishing a business entity, when making an investment by contributing capital, purchasing shares or purchasing stakes of a business entity, or when making an investment under a business cooperation contract in one of the following cases, the foreign investor must satisfy the conditions and follow investment procedures applied to foreign investors:
a) Over 50% of its charter capital or more is held by a foreign investor(s) or the majority of the general partners are foreigners if the business entity is a partnership;
b) Over 50% of its charter capital or more is held by a business entity(ies) mentioned in Point a of this Clause;
c) Over 50% of its charter capital or more is held by a foreign investor(s) and a business entity(ies) mentioned in Point a of this Clause.
2. Business entities other than those mentioned in Points a, b, and c Clause 1 of this Article shall satisfy conditions and follow investment procedures applied to domestic investors when establishing a business entity, when making an investment by contributing capital, purchasing shares, or purchasing stakes of a business entity or when making investment under a business cooperation contract.
3. If a foreign-invested business entity that is established in Vietnam has a new investment project, procedures for executing such investment project shall be followed without having to establish a new business entity.
4. The Government shall elaborate procedures for establishing business entities and conduct of investment activities by foreign investors and foreign-invested business entities.
Thus, in the case of Clause 1, Article 24, the investor must carry out the procedures for investment registration, then enterprise registration.
In the case of Clause 2, Article 24, investors only have to carry out business registration procedures.
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Frequently asked questions
In Vietnam, you can establish a joint-venture company in the form of a limited liability company or a joint stock company
4 main forms of investment prescribed in Article 21 of the Law on Investment 2020:
Investment in the establishment of a business entity.
Investment in the form of capital contribution or purchase of shares or stakes.
Execution of an investment project.
Investment in the form of a business cooperation contract.
Joint-venture contract is different to business cooperation contract.
In nature, a joint-venture contract results in the establishment of a business entity. In contrast, a business cooperation contract (BCC) does not result in the establishment of a business entity.