Following the severe economic impact of lockdowns triggered by the COVID-19 pandemic in mid-2021, Vietnam’s economy witnessed severe turmoil following the arrest of two real estate tycoons in late 2022. The local property market is in a downbeat mood following the financial crunch from most major real estate companies. The lost revenue, and workforce cut-down by real estate companies, has created domino effects on the whole Vietnam economy.

As of the first half of 2023, Vietnam has continuously faced challenges in addition to its domestic crisis, including the ongoing Russian-Ukrainian War, and the bankruptcy of certain banks in the United States and Europe, which have created economic slowdowns. In response to these difficulties, the Vietnamese government and relevant ministries have taken proactive measures, implementing various programmes to support socio-economic rehabilitation and development. Notably, the Vietnamese government has decided to apply a reduced VAT rate of 8% in the second half of 2023 to support Vietnamese enterprises in overcoming these downturns.

On the bright side, Vietnam’s macro-economy still remains stable in certain aspects, and inflation is being effectively managed. Notably, approximately 75,900 businesses have been registered, with most adopting the form of companies and a total registered capital of VND707.5 trillion. The post-COVID-19 period has seen the return of numerous businesses to the market, signifying positive signs of economic recovery and growth.

In this economic climate, joint venture (JV) vehicles have emerged as a favoured choice for both local and international investors seeking market entry. JVs offer the advantage of establishing robust investment partnerships by leveraging the strengths of each party involved. Vietnamese investors bring their familiarity with the local legal system and easy access to resources such as land, human capital, distribution networks and domestic consumer markets; while foreign investors contribute significant capital, international expertise, advanced technology, and experience in import-export markets.

Given the favourable legal and market conditions, JV vehicles are projected to be a prominent investment trend over the next 12 months, as they provide a strategic and synergistic approach to business expansion.

Within the last 12 months and particularly the first half of 2023, the following industries and sectors were more active than others.

• Technology and e-commerce – these sectors have experienced significant growth, driven by an increasingly digital-savvy population, expanding internet access, and rising smartphone penetration. The convenience of online shopping and the growing preference for digital services have boosted e-commerce activities in the country.
• Renewable energy – Vietnam has been actively developing its renewable energy sector, including solar and wind power. The government’s focus on sustainable development and efforts to reduce reliance on fossil fuels have led to increased investments in renewable energy projects.
• Real estate and construction – urbanisation and a growing middle-class population have driven demand for residential and commercial properties. Major cities like Ho Chi Minh City and Hanoi have seen a boom in real estate development and construction activities.
• Fintech and financial services – the rise of fintech companies and digital banking services has gained momentum in Vietnam, providing greater accessibility and convenience for financial transactions and services.
• Healthcare and pharmaceuticals – as the Vietnamese population’s disposable income increases, there is a growing demand for improved healthcare services and pharmaceutical products, leading to increased investments in the healthcare sector.
• Education and training – Vietnam’s young and increasingly educated population has created a demand for quality education and vocational training, leading to investments in the education sector.

The activity of these sectors can be attributed to various factors, such as:

• government policies and incentives;
• changing consumer preferences;
• technological advancements; and
• global economic trends.

As Vietnam continues to be an attractive destination for investment and business opportunities, it is likely that these industries will remain active, with new sectors emerging to cater to the evolving needs and demands of the market.

Under Vietnamese law, most JVs must establish an enterprise for carrying out the business. The enterprise may take the following forms:

• a joint stock company (JSC);
• a limited liability company (LLC) with two or more members; or
• a partnership company (PC) in the case of parties to the JV being individuals only.

Enterprise establishment is not required for one type of JV – ie, that operating under a business co-operation contract (BCC).

Each type of JV has its own advantages and disadvantages. For the JSC and LLC, each party is only responsible for debts and obligations of the company within its contributed capital. However, the maximum number of parties contributing capital into an LLC is 50, and they would have a close relationship due to the transfer of contributed capital regime – ie, offering to current parties first. There is no such limit for a JSC, but there must be at least three parties. The parties of a JSC are free to transfer their contributed capital (known as shares), except in the case of founding shareholders’ transfer of shares within the first three years from establishment.

A PC must have at least two individual partners who are joint owners of the company, and who must be liable for all debts and obligations of the company (unlimited liability).

For the BCC, there is no mandatory requirement for the establishment of an enterprise. The co-ordination and management of collaboration among the involved parties is overseen by an executive board, which is established and agreed upon by the parties. Consequently, operating a BCC requires careful consideration and comprehensive implementation.

The primary drivers for choosing the appropriate JV vehicle can be influenced by various factors specific to the country’s business environment – in particular, as follows.

• Market access and local expertise – establishing a JV can provide foreign companies with valuable market access and local expertise in Vietnam. Partnering with a local company can help navigate cultural nuances, regulatory requirements and market conditions more effectively.
• Legal and regulatory considerations – Vietnam has specific laws and regulations governing foreign investment and business operations. Choosing the right JV vehicle is crucial for ensuring compliance with local legal requirements.
• Resource sharing and risk mitigation – JVs can facilitate the sharing of resources, including capital, technology and human resources. By partnering with a local entity, companies can leverage shared resources to reduce costs, expand capabilities and mitigate risks associated with market entry and operations in Vietnam.
• Market penetration and expansion – JVs can provide an effective means for companies to enter and expand in the Vietnamese market. Local partners can offer established distribution networks, customer relationships and market knowledge, enabling faster market penetration and increased competitiveness. Especially in a real estate development project, partnering with a local entity will aid foreign investors in quickly accessing the land use rights by receiving land as capital contribution from a local partner.
• Government relations and local network – building relationships with governmental entities and local stakeholders is essential in Vietnam. A JV with a reputable local partner can help navigate government bureaucracy, foster positive relationships, and access influential networks that are vital for business success.
• Intellectual property (IP) protection – IP rights and protection are crucial considerations in Vietnam. Selecting an appropriate JV structure that ensures the safeguarding of IP assets and technology transfers is important for companies looking to operate in Vietnam.
• Tax and financial considerations – the JV choice of vehicle should take into account tax implications and financial benefits. Assessing the tax and financial advantages of different structures can help optimise profitability and overall financial outcomes.

It is important to note that the drivers for selecting the appropriate JV vehicle can vary depending on the industry, specific business objectives and nature of the partnership.

In Vietnam, the primary regulators that generally oversee JVs and their activities are listed below, in addition to the specialised governmental agencies that oversee the specific operation areas of the JVs.

• Ministry of Planning and Investment (MPI) – the MPI is the main governmental body responsible for formulating and implementing regulations related to investment and foreign investment activities, including JVs. It plays a crucial role in approving and overseeing JV projects in Vietnam.
• Department of Planning and Investment (DPI) – operating at the provincial level, DPIs are responsible for implementing investment regulations and for providing guidance on JV establishment and operation. They review and approve investment proposals, licences and other related documents.
• State Bank of Vietnam (SBV) – the SBV is the central bank of Vietnam and regulates financial and monetary matters. It plays a role in overseeing certain aspects of JVs, particularly those related to foreign exchange control, foreign loans and capital transactions.
• Ministry of Finance (MOF) – the MOF is responsible for managing financial matters, including tax regulations and incentives. It provides guidance on tax-related issues concerning JVs, such as tax registration, obligations and incentives.
• Ministry of Industry and Trade (MOIT) – the MOIT regulates specific sectors and industries in Vietnam. The MOIT may have specific regulations and requirements for JVs operating in sectors under its purview, such as in energy, manufacturing and trade.

The main statutory provisions governing JVs in Vietnam include the following.

• WTO commitments and free trade agreements – these commitments and agreements play significant roles in shaping the environment for JVs in Vietnam with framework for market access, investment protection and various regulatory provisions that affect the establishment and operation of JVs. Several industries require foreign investors to form JVs with a local partner in order to carry out the relevant services, for example:
1. services incidental to agriculture, hunting and forestry (foreign ownership 51% max);
2. container handling services (foreign ownership 50% max); or
3. advertising services (no limitation on foreign ownership).
• The Law on Enterprises – this law, along with its implementing decrees, outlines the legal framework for establishing and operating businesses in Vietnam, including JVs. It provides guidelines on company types, registration procedures, corporate governance, and rights and obligations of shareholders.
• The Law on Investment – this law governs domestic and foreign investment activities in Vietnam. It sets out the general principles, procedures and conditions for investment, including provisions related to JVs. It covers investment incentives and investment approval processes.
• The Commercial Law – this law provides regulations on various commercial activities. It addresses matters related to contracts, commercial transactions, rights and obligations of parties.
• Sector-specific laws – depending on the industry or sector in which the JV operates, there may be additional specific laws and regulations. These can include laws on banking, insurance, education, hospitals, energy, telecommunications, land, housing and other sectors.

The implementation of anti-money laundering (AML) regulations plays a crucial role in preventing enterprises and businesses from being exploited for money laundering activities. In Vietnam, the main statutory provisions governing AML are outlined in the Law on AML issued in 2022. This law, along with its guidance documents, serves as the primary legal framework for combating money laundering in the country.

In general, JVs in Vietnam are not subject to AML obligations unless they fall within either of the following categories.

• Financial institutions – JVs engaged in specific financial activities are subject to AML regulations. These activities include acceptance of deposits, lending, financial leasing, payment services, payment intermediary services, bank guarantees, securities brokerage, investment fund management, life insurance, currency exchange and other relevant financial services.
• Specific sectors – JVs operating in certain sectors are also subject to AML requirements. These sectors encompass dealing in prize-winning games, casinos, conducting real estate business, trading in precious metals and gems, providing accounting, notarisation or legal services, and offering enterprise establishment, management, operation, corporate directorship, secretarial and legal arrangement services.

It is important to note that the government has the authority, with the consent of the National Assembly Standing Committee, to specify emerging activities that pose money laundering risks beyond those mentioned above.

If subject to AML regulations, JVs must implement the following measures:

• customer identification – to collect, update and verify customers’ identification information, and classify clients based on the level of money-laundering risk they pose;
• internal regulations and reporting – to develop internal regulations pertaining to reporting, provision, storage and record-keeping of information related to money-laundering prevention and combat;
• suspicious transaction reporting – to review, detect and report suspicious transactions that surpass the prescribed reporting threshold;
• information collection and exchange – to collect, process, analyse, exchange, provide and transfer information relevant to AML efforts; and
• temporary measures and violation handling – when necessary, to apply temporary measures and take appropriate actions addressing violations related to AML regulations.

When considering co-operation with JV partners, it is essential to take into account certain restrictions and considerations, particularly in relation to sanctions laws and national security regulations. The following points are crucial to keep in mind.

• Sanctions laws – Vietnam adheres to international sanctions imposed by the United Nations and may have its own sanctions laws and regulations. Ensuring compliance with these laws is vital when selecting and collaborating with JV partners. Thorough due diligence is necessary to ensure that potential partners and their activities do not violate any applicable sanctions.
• Restricted industries – under the Law on Investment and its guiding documents, many sectors are not permitted for foreign investment, such as investigation and security services, public postal services, journalistic activities and news collection activities of any kind. Certain sectors or industries have specific restrictions or regulations concerning foreign participation or ownership, such as telecommunications, aircraft manufacturing, printing and publishing, and broadcasting services.
• Foreign investment review – Vietnam has mechanisms for reviewing and approving foreign investments, including JVs, to protect national security and economic interests. Some investments may necessitate prior authorisation or clearance from authorities such as the National Assembly, the Prime Minister or the provincial People’s Committee.
• Parties establishing the enterprises – where the JV involves the establishment of a new enterprise, there are restrictions on the parties eligible to establish such enterprise. Certain individuals or organisations, such as state agencies, armed forces units using state assets for profit-making purposes, or individuals defined in laws on cadres, civil servants and public employees, may be prohibited from establishing enterprises.

In Vietnam, antitrust regulations apply equally to all types of companies, including JVs, and are primarily governed by the Law on Competition. Significant relevant antitrust regulations that apply to JVs in Vietnam include the following.

Economic Concentration

According to the Law on Competition, economic concentration can take the form of JVs (involving the establishment of a new company) between enterprises and mergers, consolidations or acquisitions that result in control over the acquiree. When such economic concentration meets specific thresholds defined in the law, it becomes subject to notification requirements to the National Competition Committee (NCC). This notification must be completed before the establishment of the JV or the occurrence of the merger, consolidation or acquisition.

Anti-competitive Agreements

The Law on Competition prohibits anti-competitive agreements between enterprises that restrict competition, such as price-fixing, market allocation and bid rigging. JVs must ensure that any agreements made within the JV do not violate these regulations.

Abuse of Dominant Market Position

The Law on Competition prohibits enterprises with a dominant market position from abusing that position to restrict competition. JVs that involve dominant entities should avoid any actions that could be considered abusive under the law.

Unfair Competitive Practices

The Law on Competition also addresses unfair competitive practices that harm competition or consumers’ interests. JVs should be mindful of engaging in any practices that could be deemed unfair under this law.

Listed companies are subject to the same legal framework and considerations as non-listed companies when forming JVs. They must comply with the relevant laws and regulations related to JVs, such as the Law on Enterprises, the Law on Investment and the specific regulations for the respective industry in which the JV operates.

While there are public disclosure requirements, entities operating in Vietnam may be required to disclose beneficial ownership and UBO (ultimate beneficial owner) information for AML and due diligence purposes. These records are used to identify and assess potential risks related to money laundering and other illicit activities.

In 2017, Vietnam passed the AML Law, which includes provisions related to customer due diligence and the identification of beneficial owners of legal entities. Financial institutions and designated non-financial businesses and professions (as listed in 3.2 AML) are required to perform customer due diligence measures, including identifying and verifying the identity of beneficial owners, for certain types of business relationships and transactions.

Under the laws of Vietnam, the regulations on court proceedings apply generally to all civil issues. Also, many court decisions still have not been announced publicly.

Most conflicts and disputes concerning JVs have arisen from and are related to the JV agreement, especially regarding the management, operation and ownership of the JV entity and/or other assets.

Under Vietnamese law, there is no requirement regarding documents, which may be used/signed in the negotiation stage or before the formation of a JV. Typically, during the negotiating stage of a JV, several important documents are used to outline the terms, conditions and responsibilities of the parties involved. These include the following.

Memorandum of Understanding (MoU) or Letter of Intent (LoI)

This document sets out the initial understanding and intention of the parties to enter into a JV. It outlines the basic terms, objectives and general framework of the collaboration. While an MoU or LoI is generally not legally binding, it serves as a preliminary agreement before the parties proceed to negotiate a definitive JV agreement.

Confidentiality and Non-disclosure Agreements (NDAs)

Parties may sign NDAs to protect sensitive information shared during the negotiation process and to maintain confidentiality.

Term Sheet

A term sheet is a concise summary of the key terms and conditions of the proposed JV. It covers essential elements such as the scope of the JV, shareholding structure, management and decision-making, capital contributions, profit-sharing and dispute resolution. The term sheet helps streamline negotiations and provides a foundation for drafting the final JV agreement.

JV Agreement

The JV agreement is the primary legal document governing the JV. It details the rights, obligations and responsibilities of each party, along with the specific terms and conditions of the collaboration. The JV agreement covers various aspects, including capital contributions, management structure, decision-making procedures, deadlock-handling scheme, profit distribution, IP rights, dispute resolution and termination clauses.

JV Charter

The JV charter is a crucial document for a JV as a separate legal entity. It outlines the internal rules and regulations governing the JV’s operation, including the rights and duties of shareholders, meeting procedures, voting rights and other corporate governance matters. This document would be submitted to the licensing authority for the establishment of the JV, and would be considered as one of the institutional documents of the JV.

Business Plan and Financial Projections

These documents present the business goals, strategies and financial forecasts for the JV. The business plan provides an overview of the market, competitive analysis, marketing plans and operational strategies. The financial projections detail revenue estimates, expenses, capital requirements and expected financial performance.

For the JV with enterprise establishment, the regulatory requirements around disclosing a JV depend on the nature of the JV and the industry in which it operates. Generally, there are several key aspects to consider regarding disclosure requirements for JVs in Vietnam.

Business Registration

All JVs with enterprise establishment, regardless of the industry, must be registered with the relevant authorities. The registration process involves submitting necessary documents. Once registered, the JV becomes a legal entity, and its details are publicly available through the business registration office.

Economic Concentration Notification

If the JV constitutes an economic concentration, as defined by the Law on Competition, parties to the JV may need to notify the National Competition Committee (NCC) before its establishment. This requirement applies when certain thresholds related to assets, revenue or market share are met.

Sector-Specific Disclosures

Certain industries in Vietnam may have additional sector-specific disclosure requirements – for instance, financial institutions, listed companies, and companies in regulated sectors may have to comply with additional disclosure obligations as specified by relevant regulatory authorities.

Reporting and Tax Compliance

JVs are required to submit regular reports and to comply with tax regulations. These reports may include financial statements, tax returns and other relevant information.

Corporate Governance Disclosures

For JVs operating as separate legal entities, corporate governance disclosures may be necessary, especially for publicly listed JVs. Companies may be required to disclose information related to the board of directors, executive compensation, shareholder rights and other governance matters.

For the JV without enterprise establishment, there is no requirement of disclosure.

Setting up a JV in Vietnam involves several key steps and legal procedures. Below is a general outline of the process.

• Preliminary research and planning – conducting thorough market research and due diligence to identify potential JV partners and assess the feasibility of the collaboration. Determining the objectives, scope and structure of the JV.
• Choosing the legal form – selecting the appropriate legal form for the JV, which can be either an LLC, a JSC or a partnership, depending on the nature of the business and the parties’ preferences.
• Drafting the JV agreement – preparing the JV agreement and outlining the terms, conditions and responsibilities of each party involved. The agreement should cover capital contributions, profit-sharing, management structure, decision-making procedures, dispute resolution and termination clauses.
• Economic concentration notification – if the JV constitutes an economic concentration, as defined by the Law on Competition, parties to the JV may need to notify the National Competition Committee (NCC) before its establishment. This requirement applies when certain thresholds related to assets, revenue or market share are met. The purpose of notification is to allow the NCC to assess potential anti-competitive effects arising from the JV.
• Registering the JV – registering the JV with the competent authorities, typically the provincial Department of Planning and Investment (DPI) where the JV’s main office is located. The outcome of this process is an enterprise registration certificate (ERC). Additionally, a JV with foreign partners is required to obtain an investment registration certificate from the DPI or principal approvals from the National Assembly, the Prime Minister or the provincial People’s Committee prior to obtaining the ERC.
• Tax registration – registering the JV for tax purposes with the tax authorities. Obtaining a tax code and complying with relevant tax regulations.
• Capital contribution – each party must contribute its agreed capital share to the JV. Capital can be contributed in cash, assets or other forms as outlined in the JV agreement.
• Business licensing – after the registration process, the JV must apply for a business licence if it operates in specific sectors, such as financial services, insurance, education, real estate development, retail, transportation, firefighting consultancy, construction or labour leasing. This licence allows the JV to conduct its specified business activities legally.

The specific documentation requirements may vary based on the legal form chosen for the JV vehicle – ie, an LLC, a JSC or a partnership. Below is a general overview of how to document the terms of a JV, considering the different forms.

LLLC or JSC

• JV Agreement – prepare a detailed JV agreement that outlines the core terms and conditions of the JV, including:
1. JV objectives and scope of business;
2. capital contribution and ownership percentages of each party;
3. distribution of profits and losses;
4. management structure and decision-making processes;
5. responsibilities and contributions of each party;
6. dispute resolution mechanisms;
7. termination and exit procedures;
8. IP rights and technology transfer, if applicable; and
9. non-compete and confidentiality provisions.
• Charter – provide more detailed rules and regulations for the JV’s internal governance, shareholder meetings, voting rights and other matters related to the JV’s operation.

Partnership

• Partnership agreement – for a partnership-based JV, prepare a partnership agreement that clearly defines the terms of the collaboration between the partners, including:
1. JV objectives and scope of partnership;
2. capital contributions and profit-sharing ratios;
3. management and decision-making responsibilities;
4. contribution of resources, assets or expertise by each partner;
5. dispute resolution and exit procedures; and
6. duration and termination provisions.

Dealing with decision-making in a JV entity involves establishing a clear and efficient governance structure that ensures effective collaboration between the parties involved. The decision-making process should be defined in the JV agreement or in the JV’s charter, and should consider the specific needs and objectives of the JV. In practice, the following mechanisms are generally considered.

• Management structure – defining the management structure of the JV entity. This may include appointing a board of directors, a management committee or other decision-making bodies. Specifying the roles, responsibilities and decision-making authority of each body.
• Voting rights – determining the voting rights of each party based on their capital contribution or other agreed-upon criteria. Decisions may be made through a majority vote or a super-majority vote, depending on the significance of the decision.
• Reserved matters – identifying certain critical matters that require unanimous consent or approval from all parties. These reserved matters could include major investments, changes to the JV agreement, or significant changes to the business strategy.
• Day-to-day operations – for routine operational decisions, delegating authority to the management team or specific executives within the JV entity. Establishing clear guidelines for their decision-making powers and limitations.
• Dispute resolution – including a mechanism for resolving disputes related to decision-making. This may involve arbitration, mediation or other methods to avoid potential conflicts and ensure smooth decision-making processes.
• Decision-making meetings – scheduling regular meetings for the decision-making bodies to discuss and make necessary decisions. Defining the quorum for these meetings and the notice period required to call for meetings.
• Information sharing  – ensuring that all parties have access to relevant information and data necessary for informed decision-making. Transparency and open communication are crucial for effective governance.
• Deadlock resolution – addressing the possibility of a deadlock situation, where parties cannot reach a consensus on a decision. Including provisions for deadlock resolution, such as a tie-breaking mechanism or the involvement of a neutral third party.

The funding of a JV entity typically involves capital contributions from each of the JV partners. The contributions may come in various forms, and the specific funding structure will depend on the agreements made between the parties. The common methods of funding a JV entity are as follows.

• Cash contributions – the most straightforward form of funding is through cash contributions. Each JV partner contributes a certain amount of money to the JV based on the agreed-upon capital structure. Cash contributions are often used to cover initial setup costs, working capital and investments in the JV’s operations.
• Asset contributions – in addition to cash, partners may contribute assets such as equipment, machinery, land or intellectual property rights to the JV. The value of these assets is usually assessed and considered as part of the partner’s overall capital contributions.
• Technology or know-how contributions – in technology-intensive JVs, a partner may contribute proprietary technology, patents or know-how to the JV. These contributions are treated as part of the partner’s capital contribution and can add value to the JV’s operations.
• Debt financing – besides equity contributions, the JV entity may also obtain funding through debt financing. This can be in the form of bank loans, lines of credit or other borrowings. Debt financing can be used to supplement the partners’ equity contributions and provide additional working capital for the JV.
• Profit reinvestments – as the JV generates profits, the partners may agree to reinvest a portion of the profits back into the business. This serves as a form of ongoing funding to support the JV’s growth and expansion.

Dealing with future equity funding by a participant and the consequent ownership changes in a JV requires careful consideration and clear provisions in the JV agreement. The process typically involves:

• addressing how additional equity contributions will be made;
• how ownership changes will be determined; and
• how the rights and obligations of the parties will be affected.

The following should be considered when handling future equity funding and ownership changes.

• Predefined funding mechanism – including a predefined funding mechanism in the JV agreement to address future equity funding. This mechanism should outline how and when additional equity contributions can be made by the participants.
• Proportional ownership – determining the proportionate ownership rights of each participant based on their equity contributions. This ensures that the ownership structure accurately reflects each participant’s financial stake in the JV.
• Dilution protection – considering including provisions to protect existing participants from excessive dilution of their ownership if new participants join the JV through future funding rounds. Dilution protection mechanisms may include pre-emptive rights or anti-dilution clauses.
• Rights and obligations – clearly defining the rights and obligations of participants in relation to future equity funding. This includes the right to participate in future funding rounds, voting rights, information rights and responsibilities related to capital calls.
• Capital call procedures – establishing procedures for making capital calls to participants for future equity funding. Specifying the notice period, the amount of the capital call, and the payment deadline.
• Valuation of new equity – determining the valuation methodology for new equity contributions. This can be based on a pre-agreed formula or an independent valuation, depending on the circumstances.
• Governance changes – addressing how ownership changes may affect the governance structure of the JV. Considering whether significant ownership changes trigger changes in management roles or decision-making processes.

Deadlocks usually arise when the parties (or their decision-making authority – ie, members’ council or general meeting of shareholders) cannot approve a decision or resolution in certain consecutive meetings. The reasons may be that the meetings cannot be held as the attendance rate has not been reached, or that the issue which needs voting cannot be passed as the minimum number of votes has not been reached.

Generally, deadlocks may occur between representatives of the JV partners in the board, not between the board and the JV partners. The deadlocks are typically addressed through mechanisms outlined in the JV agreement or the JV’s charter. The specific procedures for dealing with deadlocks may vary depending on the terms agreed upon by the JV partners. Below are several typical solutions to be considered.

Presenting the Deadlocks to the High-Level Representatives of the Parties or an Intermediate

• Presentation to the high-level representatives of the parties – the parties can agree that each party in the JV contract will appoint one of its representatives (usually a senior management member) to negotiate and resolve the “deadlock”. The joint decision shall be final and binding upon the parties.
• Independent expert opinion – the parties will refer the “deadlock” to an independent expert for its opinions, and this opinion will be binding on the parties (this solution is usually applied in issues requiring technical and technological expertise).
• Casting vote – applied where the number of votes for the “deadlock” is equal, and the opinion vote of the chairman of the board of directors/management board will be the final opinion.

Withdrawal of the JV

• Compulsory sale at fair value – one party (usually the party that votes against the issue or does not attend the meeting so that the meeting can meet the minimum attendance rate) must sell all the shares/contributed capital to the shareholders/members at “fair value”.
• Offer to buy or sell – each party will be able to offer to buy all of the other’s shares or offer to sell all of its shares at a price that the party determines itself. The other party can choose to buy or sell at a specified price.
• Winding-up – in extreme cases, the JVA may specify conditions under which the JV entity can be dissolved if a deadlock persists for a certain period. This option is usually considered as a last resort if all other resolution attempts fail.

In addition to the JVA, there are other documents that may be required based on the specific nature of the JV and industry-specific regulations. These may include the following.

• Business transfer agreement – the JV participants may opt to transfer all of their business units to the newly formed JV on a going-concern basis together with all the licences, grants and authorisations, or they may choose to agree on conditions for some tangible assets such as machinery, land, equipment, etc.
• Business plan – a detailed business plan outlining the objectives, strategies and financial projections of the JV. The business plan helps demonstrate the feasibility and viability of the JV’s operations to potential investors, partners and regulatory authorities.
• IP transfer – if the JV involves technology transfer, licensing or the use of intellectual property, relevant agreements for technology sharing, licensing or protection of intellectual property rights should be prepared.
• Lease agreements – if the JV requires a physical office space or facilities, lease agreements with the property owner should be prepared.
• Employment contracts and policies – if the JV entity plans to hire employees, employment contracts, and relevant HR policies need to be prepared in accordance with Vietnamese labour laws. This includes ensuring compliance with minimum wage requirements, working hours and other labour regulations.

The structure of the board of directors is typically outlined in the JV agreement or the JV charter. The board’s composition and decision-making authority are essential aspects for ensuring effective governance and representation of the JV partners. The following lists how the board is typically structured between the participants.

• Board composition – the board of directors is usually composed of representatives from each of the JV partners. The number of board seats allocated to each partner is determined based on their respective ownership percentages or as agreed upon in the JV agreement.
• Equal representation – in some JVs, especially those with an equal ownership structure, each JV partner may have an equal number of seats on the board, ensuring equal representation and decision-making power.
• Proportional representation – if the ownership percentages of the JV partners are not equal, the board seats may be allocated proportionally to reflect each partner’s ownership stake. For example, if one partner owns 60% of the JV and the other owns 40%, the board may be structured with a 3:2 ratio of seats.
• Chairmanship – the JV agreement may determine the chairmanship of the board, which could rotate among the JV partners or be assigned to a specific partner for a defined period.
• Decision-making – the board makes significant decisions regarding the JV’s strategy, major investments, financial matters and other critical aspects of the business. The JV agreement may outline specific matters requiring board approval, such as changes to the JV’s capital structure, business plan or annual budget.
• Quorum and meeting procedures – the JV agreement should specify the quorum required for board meetings, the frequency of meetings and the procedures for calling and conducting meetings.
• Deadlock resolution – in the event of a deadlock on the board, the JVA may include provisions for resolving disputes or deadlock situations, such as through mediation, arbitration or casting votes.

In the context of corporate governance in Vietnam, a JV operating in the form of a JSC is allowed to issue preferred-voting shares that hold more voting power than ordinary shares. The specific number of votes for each preferred voting share is specified in the company’s charter. However, it is important to note that these preferred-voting shares can only be held by the founding shareholders and remain effective for a period of three years from the issuance date of the enterprise registration certificate. Following this three-year period, the preferred-voting shares are required to be converted into ordinary shares, which hold a standard one vote per share.

In contrast, other corporate forms, such as LLCs or partnership companies (PCs), adhere to the general principle of “one share, one vote”. This means that each share or contributed capital of a company entitles the respective shareholder or owner to one vote in corporate decision-making processes.

The director (manager/chief executive officer) shall have the following general rights and obligations:

• to organise the implementation of resolutions and decisions of the board;
• to decide on issues related to day-to-day business operations of the company;
• to organise the implementation of business plans and investment plans of the company;
• to issue the internal management regulation of the company, unless otherwise specified in the company’s charter;
• to designate and dismiss the company’s executives, except those within the competence of the board;
• to make recommendations on plans for the organisational structure of the company;
• to propose plans for use and division of profits or settlement of business losses;
• to recruit employees; and
• other rights and obligations specified in the company’s charter, resolutions and decisions of the board, and in their employment contract.

The appointment of a director is usually subject to the decision and agreement between parties (via the board) and the parties may consider granting the scope of decision-making rights to the director internally. As provided by law, the director shall manage the company’s everyday business in accordance with the law, the company’s charter, their employment contract with the company, and resolutions and decisions of the board. The director shall be legally responsible for and pay damages to the company.

Delegation of the board to subcommittees is not provided for specifically under the law, but may depend on the internal decision regarding operation and management of the JV, provided that at least the organisational structure of the JV corporate entity is in compliance with the law. 

In Vietnam, conflicts of interest in a JV are managed through transparency, disclosure and adherence to corporate governance principles. A conflict of interest occurs when a director’s personal interests or the interests of another entity they are affiliated with (such as a JV participant) may interfere with their duty to act in the best interests of the JV company. The conflicts of interest are typically managed by the following.

• Disclosure – directors must promptly disclose any potential conflicts of interest to the board of directors. This includes disclosing any personal interests or relationships that may affect their impartiality in decision-making.
• Abstention – if a director has a conflict of interest concerning a particular matter being discussed by the board, they should abstain from voting or participating in the decision-making process related to that matter.
• Fiduciary duty – directors are reminded of their fiduciary duty to act in the best interests of the JV company, and they should prioritise those interests above any personal or affiliated interests.

Regarding the appropriateness of a person taking a seat on the JV company board due to their position in a JV participant, this depends on the circumstances and potential conflicts of interest involved. If the individual’s role in the JV participant creates a situation where their loyalty to the JV company may be compromised or where they may prioritise the interests of the participant over those of the JV, it could be considered inappropriate.

When setting up a JV corporate entity in Vietnam, several key IP issues should be carefully considered and addressed through specific clauses and provisions in the JV agreement to protect the interests of the parties involved and ensure the smooth operation of the JV. The following essential IP issues should be taken into account.

• Ownership of existing IP – determining the ownership and rights to use any existing IP contributed by each party to the JV. Clarifying whether the parties grant licences to the JV for the use of their IP or transfer ownership to the JV outright.
• Licensing agreements – if the JV needs to use IP owned by one of the parties, establishing appropriate licensing agreements outlining the terms and conditions for such use, including royalty payments, scope of use and duration of the licence.
• Development of new IP – addressing the ownership and usage rights of any IP developed by the JV during its operation. Determining whether the JV will own such IP jointly, or whether one party will have sole ownership, and how it can be used by the parties outside the JV.
• Confidentiality and non-disclosure – implementing robust confidentiality and non-disclosure agreements to protect sensitive information shared between the parties during the negotiation and establishment of the JV.
• Branding and trade marks – discussing the usage of the parties’ brand names and trade marks within the JV, and determining whether the JV will have the right to use the parties’ trade marks and brand assets for its operations.
• Patent and technology transfer – if the JV involves the transfer of patented technologies or specialised know-how, addressing the terms of technology transfer, licensing and any restrictions on its use.
• Research and development – if the JV is engaged in research and development activities, clarifying the ownership and rights to any IP resulting from these activities.
• Non-compete and non-solicitation – considering including non-compete and non-solicitation clauses to prevent parties from using the JV’s IP to compete against the JV or to poach its employees.
• Dispute resolution mechanism – establishing a dispute resolution mechanism in the JV agreement to address any IP-related disputes that may arise between the parties during the course of the JV.
• Termination and IP rights – defining the fate of IP rights upon the termination of the JV. Addressing the transfer of IP rights back to the original parties or specifying the continued use of certain IP by the parties post-termination.

Engaging in a JV often involves leveraging the IP made available by the parties to benefit the collaboration. In many cases, the JV entity will need to utilise the IP owned by the parties to operate effectively. To safeguard their IP assets and maintain ownership, parties may prefer to grant the JV company a licence to use the IP rather than transfer ownership.

By opting for a licensing arrangement, the parties retain ownership of their respective IP even if the JV’s business faces challenges or fails. This approach also allows them to control and use their IP outside the JV, providing greater flexibility and preserving their IP rights in the long-term.

To formalise this arrangement, a written licensing agreement is typically established, often recorded within the JV agreement itself. This licensing agreement outlines the terms and conditions under which the JV entity can use the parties’ IP. It may include a detailed description and specification of the technology, initiatives or inventions covered by the licensing arrangement. This ensures clarity and legal protection for all parties involved in the JV.

By keeping the IP ownership intact and using licensing agreements, the parties can collaborate on a mutual basis, sharing their technology and innovations while safeguarding their individual interests. This approach fosters a co-operative and synergistic relationship, allowing the JV to harness the collective strengths of the parties without compromising their IP rights.

ESG is a set of environmental, social and governance standards for company operations.

In Vietnam, the framework for ESG and other sustainable development challenges is still in its infancy. The People’s Court recently handed down a number of verdicts and rulings on environmental pollution committed both by people and by organisations. Up to this point, Vietnam has made some significant first moves to catch up with the ESG trends around the world. The government has specifically instructed the necessary ministries and departments to act on ESG concerns, and as a result, recent legislative advancements have been released, including the following.

• Law on Investment No 61/2020/QH14 dated 17 June 2020 disallows extension of investment projects utilising obsolete technologies that may pose a danger to the environment. Specifically, the investment term of a project for which obsolete, environment-threatening or resource-intensive technology is utilised shall not be extended.
• The new Law on Environment Protection No 72/2020/QH14 dated 17 November 2020 also stipulates a number of significant environmental protection principles and state polices. Accordingly, environmental protection is the right, obligation and responsibility of every agency, organisation, residential community, household and individual. Additionally, one of the main State policies on environmental protection is to give priority to environmental pollution elimination and recovery of degraded natural ecosystems, and to attach great importance to environmental protection in residential areas.
• Notably, the Prime Minister issued Decision No 1658/QD-TTg dated 1 October 2021 on approving the National Strategy on Green Growth for the period 2021 to 2030, with a vision towards 2050. This sets out general objectives of the State to accomplish green growth and transition Vietnam towards a carbon-neutral economy.

It is clear from the national objectives and the most current regulation that all businesses, and JVs in particular, have a duty to operate responsibly while preserving the environment. The government encourages businesses to invest in scientific research and development of technologies for waste recycling and treatment, pollution elimination, and economically and effectively extracting and using natural resources. It also encourages the development of green and renewable energy sources and technical infrastructure for environmental protection.

A JV arrangement can come to an end through various means, depending on the terms and conditions specified in the JV agreement and the circumstances surrounding the collaboration. Generally, JV arrangements may be terminated for one of the following reasons.

• Expiry of JV agreement – the JV agreement may have a predetermined duration, and the JV arrangement ends automatically upon the expiry of the agreed-upon term.
• Fulfilment of purpose – the JV may be formed to achieve a specific purpose or project. Once that purpose is accomplished, the JV may come to an end as its objective has been fulfilled.
• Mutual agreement – the parties involved in the JV may agree to terminate the arrangement by mutual consent. This can occur if the parties have achieved their goals or wish to pursue other opportunities, or if the collaboration is no longer viable.
• Termination by default – if one or both parties fail to fulfill their obligations as per the terms of the JV agreement, the other party may have the right to terminate the JV due to a breach of contract.
• Bankruptcy or insolvency – if one of the parties becomes bankrupt or insolvent, it may lead to the termination of the JV, especially if the other party cannot continue the collaboration alone.
• Dissolution of the JV entity – if the JV is established as a separate legal entity, it can be dissolved as per the procedures outlined in the company’s governing documents or applicable laws.
• Force majeure – in exceptional circumstances, such as natural disasters, political unrest or unforeseen events beyond the parties’ control, the JV agreement may allow for termination due to force majeure events.
• Buyout or sale – the JV may end if one party buys out the other’s stake in the venture or if the entire JV entity is sold to a third party.
• Change in regulatory environment – changes in laws or regulations may render the JV unviable or impractical, leading to its termination.

On termination of a JV, several crucial matters need to be addressed to ensure a smooth and orderly conclusion of the collaboration – namely the following.

• Transfer of assets and liabilities – determining how the assets and liabilities of the JV will be allocated or transferred back to the original parties or other entities, as appropriate.
• Distribution of profits or losses – deciding on the distribution of any remaining profits or the allocation of losses among the parties upon termination.
• IP rights – addressing the treatment of any IP developed or utilised during the JV. Clarifying whether the parties will retain ownership or how the IP will be transferred or licensed.
• Winding-up of operations – outlining the procedures for winding up the JV’s operations, including closing accounts, settling outstanding debts and resolving any ongoing obligations.
• Employee matters – determining the fate of employees working for the JV. Addressing their transfer, termination or any relevant severance packages.
• Dispute resolution – including mechanisms for resolving any disputes that may arise during the termination process.
• Confidentiality and non-competition – reinforcing confidentiality obligations and addressing any non-compete clauses that may continue after the JV’s termination.
• Regulatory compliance – ensuring that all parties fulfil their obligations in compliance with applicable laws and regulations during the termination process.
• Termination costs and expenses – determining how termination costs and expenses will be handled and shared among the parties.
• Post-termination obligations – specifying any ongoing obligations or responsibilities that may persist after the JV’s termination.

The JV agreement should include provisions that govern the process of termination and the rights and obligations of the parties involved.

Generally, the assets contributed by the JV participants and the assets generated by the JV all belong to the ownership of the JV. The arrangement of assets settlement is all subject to decision and agreement between the parties, provided that such arrangement:

• complies with the relevant regulations or laws;
• does not affect the ability to pay the debt of the JV; and
• does not affect rights and obligations of third parties.

Transferring assets between JV participants is a critical aspect of the termination process. It involves the allocation or return of assets that were contributed or acquired during the JV’s operation. To ensure a fair and smooth asset transfer, several considerations should be taken into account.

• Asset valuation – determining the fair value of each asset to be transferred. This valuation should be conducted objectively to avoid disputes and to ensure transparency between the JV participants.
• Asset identification – clearly identifying and listing all assets owned or controlled by the JV. This includes tangible assets (such as machinery, equipment and inventory) and intangible assets (such as IP, trade marks and patents).
• Ownership documentation – ensuring that ownership documentation for each asset is clear and readily available. Verifying that all assets are free from encumbrances or third-party claims.
• Regulatory compliance – ensuring that the asset transfer complies with all applicable laws, regulations and contractual obligations. Obtaining necessary approvals or permits from relevant authorities, if required.
• Taxes and duties – addressing tax implications associated with the asset transfer. Determining the party responsible for any applicable taxes, duties or transfer fees.
• Title and risk transfer – clarifying the point at which ownership and risk of loss or damage of the assets transfer from one party to another.
• Transfer of employees – if the assets include employees working for the JV, considering the process for their transfer or termination, including severance packages and legal requirements.
• Confidentiality and IP – addressing confidentiality obligations and IP rights related to any proprietary information or technology involved in the assets.
• Post-transfer support – considering the need for post-transfer support, such as training or assistance with the assets’ integration into the recipient’s operations.

The differences between assets originally contributed to the JV by a participant and assets originating from the JV itself lie in their ownership, source and treatment upon the termination of the JV. The key distinctions are as follows.

Ownership

• Assets originally contributed by a participant – these assets are owned by the participant and are brought into the JV as their contribution. The participant retains ownership, but the assets are used collectively for the JV’s operations.
• Assets originating from the JV itself – these assets are acquired or developed by the JV during its operation. The JV entity owns these assets collectively, and they are not owned by any individual participant.

Treatment on JV Termination

• Assets originally contributed by a participant – upon JV termination, these assets are typically returned to the contributing participant, as they were owned by that participant from the outset. The terms and conditions for returning the assets are usually outlined in the JV agreement.
• Assets originating from the JV itself – on JV termination, the ownership and disposition of assets originating from the JV depend on the JV agreement and applicable laws. These assets may be distributed among the participants according to their respective ownership stakes or liquidated with the proceeds distributed among the participants.

Contribution and Withdrawal

• Assets originally contributed by a participant – participants contribute these assets to the JV at the beginning of the collaboration. If a participant decides to withdraw from the JV, they typically take back their originally contributed assets.
• Assets originating from the JV itself – these assets are part of the JV entity’s overall assets and are not associated with any individual participant’s contributions. In the event of a participant’s withdrawal, they would not take these assets with them.

It is essential for the JV agreement to clearly distinguish between these types of assets and specify their treatment upon termination or participant withdrawal. Additionally, accounting practices should appropriately record these assets in the JV’s financial statements to avoid confusion and ensure a smooth transition in the event of termination or changes in participation.