In 2023 and the first half 2024, in addition to the economic downtrend suffered from years of COVID-19, there are many economic and political changes around the world (including wars in Ukraine and the Middle East as well as the concerns about inflation and interest rate fluctuations) which have had an impact on the flows of foreign investments into Vietnam. However, given the efforts of the government of Vietnam to maintain economic and political stability and flexible policies (including taxes) to encourage the increase of private business and foreign investments, we have seen many transactions (including green-field and brown-field joint ventures (JVs)) in Vietnam with foreign investors from not only ASEAN and APAC regional countries like Thailand, Singapore, Indonesia, Japan, Korea and China but also Western countries like the USA or EU member states. 

In Vietnam, JV structures have been a popular form of investment for foreign investors to co-operate and implement their investment projects in a wide range of industries and sectors; the recent large-scale foreign investments have been actively focused on real estate, energy and infrastructure, healthcare services, retail, manufacture of high-tech and raw materials.

Corporate Forms of JV Permitted by the Laws of Vietnam

A JV is typically formed in Vietnam as a multiple-member limited liability company (LLC) or a joint stock company (JSC), noting that the Vietnamese law requires a JSC to have at least three shareholders while the number of capital contributing members of an LLC ranges from two to fifty.

Differences (and Pros and Cons) Between LLC and JSC Under the Laws of Vietnam

The provisions on corporate governance and operations of LLCs and JSCs are set out under the Law on Enterprises 2020, according to which the key differences are as follows.

• Charter capital: charter capital of an LLC is the total value of capital contributions of members. Meanwhile, the charter capital of a JSC is the total aggregate par value of shares of all classes which have been sold to shareholders.
• Shares: only a JSC has shares under Vietnamese law. There are different classes of shares including ordinary shares, and preference shares (dividend preference shares, redeemable preference shares, voting preference shares and any other preference shares as prescribed in the company’s charter and Vietnamese securities law).
• Issuing shares, bonds and securities: while a JSC has the right to issue shares, bonds and other securities, an LLC may issue bonds but is not allowed to issue shares except for conversion into a JSC.
• Management structure: in an LLC, the management structure comprises of the members’ council, chairperson of the members’ council and (general) director. A JSC can choose one  of the following two structures.
1. General meeting of shareholders (GMS) + board of management (“board”) + inspection committee + (general) director. If a JSC has less than 11 shareholders and the shareholders being organisations together own less than 50% of the total shares of the JSC, the JSC is not required to have an inspection committee.
2. GMS + board + (general) director. If this structure is chosen, at least 20% of the board members must be independent members and an internal audit committee must be established under the board.
• Legal representative: an LLC has at least one legal representative holding the position of chairperson of the members’ council or (general) director and, if the LLC’s charter does not provide otherwise, the chairperson of the members’ council shall be the legal representative of the LLC. For a JSC, at least one legal representative must hold the position of the chairperson of the board or the (general) director. If the JSC’s charter does not provide otherwise, the chairperson of the board shall be the legal representative and, if there is more than one legal representative, the chairperson of the board and the (general) director shall be the legal representatives of the JSC.

Number of meetings and quorum for meetings of the members’ council/the GMS

Meetings of the members’ council of an LLC shall be held at least once per year and the LLC’s charter would specify the frequency of meetings. A meeting of the members’ council is convened when there are attending members representing 65% or more of the charter capital with the specific quorum to be stipulated in the LLC’s charter. If the quorum for the first meeting of the members’ council is not met, the second meeting would be convened when there are attending members representing 50% or more of the charter capital. If the quorum for the second meeting of the members’ council is also not met, the third meeting would be convened irrespective of the number of attending members and of the amount of charter capital represented by attending members.

Annual meeting of the GMS of a JSC shall be held once per year within four months from the end of a financial year. Unless otherwise provided by the charter, the board can decide to extend the time for holding GMS’s annual meeting where necessary, but it should not be more than six months from the end of a financial year in any case. A meeting of the GMS is convened when shareholders representing more than 50% of the total voting shares attend with the specific quorum to be stipulated in the JSC’s charter. If the quorum for the GMS’s first meeting is not met, the second meeting would be convened when shareholders representing 33% or more (or another quorum specified under the JSC charter) of the total voting shares attend. If the GMS’s second meeting also cannot be convened, the third meeting would be convened irrespective of the number of attending shareholders and of the total voting shares represented by attending shareholders.

Approval of the resolutions of the members’ council/the GMS at the meeting

For an LLC, unless otherwise provided under the LLC’s charter, resolutions of the members’ council of an LLC would be passed at the meeting if it is approved by the members representing 65% or more of the total capital contribution of all members attending and voting at the meeting of the members’ council; or 75% or more of the total capital contribution of all members attending and voting at the meeting of the members’ council with respect to certain (important) matters (including amendment of the charter or reorganisation and dissolution of the LLC).

For a JSC, unless otherwise provided under the JSC’s charter, resolutions of the GMS would be passed at the meeting if it is approved by the shareholders representing more than 50% of the total voting shares of all shareholders attending and voting at the GMS’s meeting or 65% or more of the total voting shares of all shareholders attending and voting at the GMS’s meeting with respect to certain (important) matters (including amendment of the charter or reorganisation and dissolution of the JSC). The appointment of members of the board and of the inspection committee would be approved by way of cumulative voting unless otherwise provided by the JSC’s charter. Resolutions of the GMS on matters which result in an adverse change of rights and obligations of a preference shareholder will be passed if approved by the shareholders representing at least 75% of the total issued preference shares of such class attending the GMS’s meeting.

Number of meeting and quorum for meeting of the board

This requirement is only applicable to a JSC. Meetings of the board of a JSC shall be held at least once every quarter and may be held on an extraordinary basis. It would be convened if attended by at least three quarters  of the total members of the board. If the quorum for the board’s first meeting is not met, the second meeting would be reconvened within seven days from the intended date of the first meeting, except where the JSC’s charter provides a shorter time-limit. In this case, the second meeting could be convened if it is attended by more than half of the total members of the board.

Restrictions on transfer capital contribution (of LLC)/shares (of JSC) after establishment

Within a period of three years from the first issuance date of the JSC’s Enterprise Registration Certificate (ERC), ordinary shares of a founding shareholder can be transferred to other founding shareholders and could only be transferred to third parties upon approval of the GMS. There is no similar restriction on the transfer of capital contribution applicable to an LLC.

Increasing charter capital

An LLC could increase its charter capital by way of increasing the capital contribution portions of existing members and/or receiving additional capital contribution from new members. A JSC could increase its charter capital by offering shares to existing shareholders, private placement and public offering of shares.

In practice, the choice of corporate form for a JV company would largely depend on the parties’ considerations of the commercial and legal implications of each option, but the primary drivers would be management structure (including control and decision-making regime), and, in certain scenarios, the vision of the opportunity for the JV company (in the form of a JSC) going public and being listed on the stock exchange(s) in the future.

How is JV Defined in Vietnam?

In the past, the JV and JV agreement were expressly defined under the laws on investment of Vietnam. For example, Article 2.7 of the old Law on Foreign Investment in Vietnam 1996 (as amended) defined a JV as an enterprise established in Vietnam by two or more parties based on a JV agreement or a treaty between the government of the Socialist Republic of Vietnam and the foreign government, or an enterprise established by a foreign-invested enterprise(s) and domestic enterprise(s) or by existing JV(s) and foreign investor(s) based on a JV agreement. Article 2.10 of the old Law on Foreign Investment in Vietnam 1996 (as amended) further defined a JV agreement to mean a written agreement entered into by the JV parties in order to set up the JV in Vietnam.

From 1 July 2015, which was the effective date of the old Law on Investment 2014, and subsequently after the effective date of the existing Law on Investment 2020, the provisions and requirements on JV and JV agreement have no longer been provided by the investment laws of Vietnam. Accordingly, the JV agreement signed by the investors is not mandatorily required for the application dossier for Investment Registration Certificate (IRC) (formerly called as the “investment licence”) for the investment project, despite the fact that the JV set up by the investors could still be regarded as a form of investment. However, the concept of a JV still exists under other laws of Vietnam, for example, pursuant to Article 29.5 of the Law on Competition 2018, a JV is defined as “two or more enterprises jointly established a new entity by contributing a portion of their lawful assets, rights, obligations and interests to form a new enterprise.” As a matter of practice, the choice of JV by foreign investors is still widely utilised as a form of implementing their investment project(s) in Vietnam.

Particular Concerns on Investment Treatment(s) for Foreign Investors Compared to Domestic Investors in JVs in Vietnam

As of May 2024, Vietnam became a member of the World Trade Organization (WTO) and has entered into 16 Free Trade Agreements (FTAs), with three more FTAs currently under negotiation. Specifically, Vietnam has varying market access commitments depending on the different investment treaties to which Vietnam is a party. Therefore, the determination of nationality of the foreign investors would be necessary for the assessment on the feasibility of the investment project to be implemented by the JV, including the maximum ownership ratios that the foreign investors could hold in such JV. Some examples of the differences in permitted foreign-ownership ratios for foreign investors to establish JVs in Vietnam as prescribed by several investment treaties to which Vietnam is a party are as follows.

• In freight transportation (CPC 7123), WTO Commitments: 51%; AFAS-10th Pack: 70%; and CPTPP, EVFTA and VJFTA: 49% (51% depends on market demand).
• In rental/leasing services without operators (relating to other machinery and equipment (CPC 83109), WTO Commitments, CPTPP and VJFTA: unbound; AFAS-10th Pack: 70%; and EVFTA: 51%.
• In maritime auxiliary services (customs clearance services), WTO Commitments, AFAS-10th Pack, EVFTA and VJFTA: Establishing JV with no foreign ownership limitation; and CPTPP: unbound.

Pursuant to Article 9.2 of the Law on Investment 2020, the government has, based on the applicable laws and regulations as well as existing investment treaties to which Vietnam is a party, promulgated a list of business lines and activities for which market accession is restricted for foreign investors (the “List of Restricted Business”), that are categorised into two groups: (i) a list of business lines and activities conditional to the foreign investors, and (ii) a list of business lines and activities not yet permitted for the foreign investors. Foreign investors may enjoy the same market access conditions as domestic investors for business lines and activities that are not specifically listed in the List of Restricted Business. The List of Restricted Business is attached to Annex I of Decree 31/2021 implementing the Law on Investment 2020.

With respect to the List of Restricted Business, foreign investors must satisfy the following conditions:

• ratio of ownership of charter capital of foreign investors in economic organisations;
• forms of investment;
• scope of investment activities;
• capacity of investors and other parties participating in the investment activity; and
• other conditions pursuant to laws and resolutions of the National Assembly, ordinances and resolutions of the Standing Committee of the National Assembly, decrees of the government and international treaties to which Vietnam is a party.

Furthermore, foreign-invested organisations (including JV company) once established in Vietnam shall be required to comply with conditions stipulated in specific local laws, regulations or policies applicable to their business activities.

With respect to business lines and activities which are not yet committed by Vietnam (ie, unbound activities) for market access by foreign investors, Article 17.4 of Decree 31/2021 provides that if the laws of Vietnam do not set out any provisions restricting market access to those business lines, the foreign investors shall be treated the same as domestic investors. However, given this provision of Decree 31/2021 has a broad scope of application, in practice, foreign investors usually carry out consultation in advance with the relevant competent authorities in Vietnam before making any investment decisions.

The JV parties, especially when having foreign investors involved, should carry out initial research, assessment and analysis on the feasibility of the intended business scope of JVs under the laws of Vietnam and from a practical perspective before starting the negotiations of a JV agreement.

Key Regulatory Licences for Establishing a JV and Relevant Investment Projects in Vietnam

The key regulatory licences for setting up a JV (having foreign investor(s) involved) in Vietnam include:

• the Investment Policy Approval (IPA) if the investment project falls into the list of investment projects subject to in-principle approvals of the competent state authorities in accordance with the Law on Investment 2020;
• the Investment Registration Certificate (IRC);
• the Enterprise Registration Certificate (ERC); and,
• if so required by the applicable laws of Vietnam, sub-licences or authorisations for the business activities to be carried out by the JV company (for example, the trading licence for retail business activities).

Subject to the location where the JV company will be incorporated for the implementation of the investment project, and other features of the investment project/business activities carried out by the JV, the primary regulators of the JV in Vietnam would normally be the provincial-level Department of Planning and Investment or, if the JV is located in industrial zone or processing zone, the Management Board of Industrial Zones, Export  Processing Zones or Economic Zones. The sub-licences and permits, if required by the laws of Vietnam for the proposed business activities of the JV after it is incorporated, will be granted by relevant government authorities having management authority in charge of such business activities (for example, the trading licence for retail business activities to be granted by the provincial-level Department of Industry and Trade or credit rating agency licence for credit rating services to be granted by the Ministry of Finance).

Time-wise, it may take two to five months to obtain an IPA, two to three months for an IRC, and two to three weeks for an ERC, from the date of receiving a valid and complete application dossier by the relevant licensing authority. Subject to the business activities to be carried out by the JV, the estimated timing for licensing procedures on setting up the JV could be longer or shorter than the above-mentioned timeline.

Investment Incentives That Could be Enjoyed by the JV Under the Laws of Vietnam

An investment project registered in the form of establishing a JV company may enjoy the following investment incentives:

• corporate income tax (CIT) incentives, comprising application of a lower rate of CIT than the normal tax rate for a definite period or for the whole duration of implementation of the investment project; and exemption from and reduction of tax and other incentives in accordance with the law on CIT;
• exemption from import duty on goods imported to form fixed assets; or on raw materials, supplies and components imported for production in accordance with the law on import and export duties;
• exemption or reduction of land rental, land-use fees and land-use tax; and
• accelerated depreciation and increase in the amount of deductible expenses when calculating taxable income.

Based on the aforesaid form of investment incentives, the competent state authority will decide, on a case-by-case basis (ie, depending on the sector, scale and/or location of the investment project as required by law), to grant specific incentives for entitled investment projects.

In addition to the Law on Anti-Money Laundering 2022 of Vietnam and its implementing regulations setting out certain AML obligations that the JV investors and the JV company would need to adhere to for Vietnamese law compliance, the JV investors (eg, the investors from the USA, Europe or Japan) normally insist on incorporating specific standard AML clauses into the JV agreement to confirm with requirements of their original jurisdictions. As a matter of practice, the inclusions of such standard AML clauses would generally be acceptable, provided that such clauses are not contrary to the fundamental principles of Vietnamese law.

There is no specific law on sanctions in Vietnam. According to the Law on Anti-Money Laundering 2022 of Vietnam, there shall be a “black-list” setting out (i) a list of organisations and individuals relating to acts of terrorism and terrorist financing compiled by the Ministry of Public Security of Vietnam, and (ii) a list of organisations and individuals determined to be involved in the proliferation and financing of weapons of mass-destruction established by the Ministry of National Defence of Vietnam, but such “black-list” is not in the public domain.

In practice, the JV investors, especially investors from the USA and/or Europe, would insist on incorporating specific standard sanction clauses into the JV agreement in order to comply with requirements from their original jurisdictions. As a matter of practice, the inclusion of such standard sanction clauses would generally be acceptable, provided that such clauses are not contrary to the fundamental principles of Vietnamese laws.

Merger filing under the Law on Competition 2018 and its implementing regulations is an issue that investors need to consider for any JV in Vietnam. A JV is a form of “economic concentration” defined under the Law on Competition 2018, which would trigger merger filing if it meets any of the following notification thresholds:

• the total asset value or the total revenues in the Vietnamese market of (i) a party participating in the JV or (ii) a group of affiliates in which a party participating in the JV is a member reached VND3,000 billion (approximately USD120 million) or more in the latest fiscal year;
• the value of the JV is VND1,000 billion (approximately USD40 million) or more; or
• the combined market shares of all parties participating in the JV is 20% or more in the relevant market in the latest fiscal year.

Article 33.1 of the Law on Competition 2018 requires that a merger filing notification must be submitted “before carrying out economic concentration”, and, while there is no further guidance on this point, the investors should submit the merger filing notification dossier to the Vietnam Competition Commission (VCC) as soon as possible if they conclude that the JV is subject to the merger filing requirement under the Law on Competition 2018, and as a matter of practice, merger filing clearance (by way of obtaining written approval from the VCC permitting the JV transaction to proceed without any prohibition or restriction under the competition law) would be structured as a condition for setting up the JV in Vietnam.

The JV investors, if they are public and listed companies under the Vietnamese law, will be subject to the regulations on the management of public and listed companies under the Law on Securities, including but not limited to, where applicable, the requirements on public disclosure or restrictions on the transactions between public and listed companies with related parties under the Law on Securities and its implementing regulations.

The names and details of JV investors (who make capital contributions to the JV companies) will be shared with the licensing authorities in Vietnam and recorded under the IRC (for the investment project registration) and the ERC (for the JV company registration). It is unlikely that the ultimate beneficial owners (UBOs) of such investments would be subject to public disclosure under Vietnamese law, except for JVs in highly regulated sectors like banking services in which the details of UBOs may be requested by the competent regulator(s).

There is no centralised database or tool available for carrying out litigation and investigation search in Vietnam, although the Supreme Courts of Vietnam in recent years have promulgated a number of court decisions and judgments for the purpose of developing a case-law system in Vietnam but the number of cases are limited. Therefore, there are no official statistics on the disputes and/or litigations relating to JVs and/or business collaboration in the last five or ten years.

While the Vietnamese law remains silent on whether or not the signing of a binding/non-binding term sheet or non-binding memorandum of understanding is mandatory for investors to enter into the JV agreement and it is largely subject to the commercial arrangement by the investors, a mutual agreement between the investors on the key terms and conditions of the JV agreement for setting up the JV should be negotiated and concluded at an early stage, from which the investors would have a basis for further negotiation on detailed terms and conditions of the official JV agreement at later stage. For the term sheet and memorandum of understanding, the investors may agree that almost all clauses thereunder (including key terms and conditions of the JV agreement) are non-binding; however, certain clauses such as confidentiality, governing law and dispute resolutions, exclusivity and costs/expenses must be binding on all parties thereunder.

In the past, Article 54 of the old Decree 108 provided that a JV agreement must contain the following:

• details of the parties in the JV and proposed details of the JV company;
• corporate form of the JV company;
• scope of the proposed business activities of the JV;
• charter capital and investment capital contribution by each party to the JV;
• implementation schedule, term and location of the investment project;
• rights and obligations of each party in the JV;
• principles on financial management, profit distribution and loss handling during the business of the JV;
• amendment(s), supplement(s) or termination of the JV agreement;
• scenarios for assignment of, or liquidation of, the JV company;
• clauses dealing with responsibilities when breaching the JV agreement and dispute resolutions; and
• other provisions that the parties could freely agree to that are not contrary to the laws of Vietnam. 

Currently, while the old Decree 108 is no longer in effect, the laws of Vietnam do not provide any template for, or require the necessary contents of, a JV agreement. In practice, the draft JV agreement, subject to the commercial arrangement and position of the parties in the JV, would normally be proposed by a party who has made a majority capital contribution to or has an important role in the JV.

There is no legal requirement for the JV agreement to be disclosed to the public. However, the JV investors may still need to agree on, in addition to the confidentiality clause under the JV agreement, a media and publication strategy for the JV setting out the strategy and messaging approach in Vietnam in relation to the JV and related parties. 

Please refer to 3.1 Regulators for information on the key regulatory licences for establishing a JV in Vietnam.

Following the ordinary process, the licensing procedures for setting up the JV would only be carried out by the parties after the JV agreement (and other relevant contracts and documents like a company charter) are concluded and signed by the JV investors, according to which, the investors could ensure that their commitments and obligations are upheld.

However, since the JV agreement is no longer required for the IPA/IRC application dossier for registering an investment project under the Law on Investment 2020, the investors may initiate licensing procedures for applying to the IPA/IRC without waiting for the JV agreement to be signed by the investors. By applying this parallel approach, the investors must ensure that they have agreed on, among others, confidentiality and allocation of obligations and responsibilities among the parties (ie, who will be the party in charge of licensing matters in Vietnam), including costs and expenses incurred from these licensing procedures that could be later accounted by the JV company for pre-investment costs of the investment project. If the JV has been licensed with an IPA/IRC by the competent authority for investment project registration but the parties fail to conclude and sign the JV agreement, the return of the IPA/IRC and the process for revocation of the investment project would be complicated.

Management and Corporate Governance of the JV Company

The management and corporate governance of the JV company will follow the provisions of the Law on Enterprises 2020 subject to its corporate form, ie, whether it is a JSC or LLC. Certain concepts of common law like “reserved matters” or “veto rights” are widely acceptable for JVs in Vietnam, but prudently speaking, while “veto rights” (of minority shareholders/members) is not clearly recognised by the laws of Vietnam and could be challenged by the Vietnamese courts for its inconsistency with Vietnamese laws, the investors may instead agree on higher voting thresholds (than the minimum voting thresholds set out by law) for a list of “reserved matters” at the levels of GMS/members’ council and the board, which could be in favour of the minority shareholders/members in the JV.

For example, Article 148.2 of the Law on Enterprises 2020 provides that the GMS’s resolutions will be passed and adopted if it is approved by the shareholders representing more than 50% of the total voting shares of all voting shareholders attending and casting votes at the meeting of the GMS and the specific voting threshold will be established in the company’s charter. Based on this provision, the investors may agree that the a “reserved matter” of the GMS will only be passed and adopted if it is approved by the shareholders representing more than 75% of the total voting shares of all voting shareholders attending and casting votes at the GMS’s meeting. If so agreed, 25% of shareholder(s) as the minority shareholder(s) could be given a shareholder right to block the adoption for certain “reserved matters” of the GMS as targeted by the minority shareholder(s).

Requirements for the Legal Representative(s) of the JV Company (JSC and LCC)

According to Article 12.2 of the Law on Enterprises 2020, the JV company may have more than one legal representative(s). In that case, the rights and obligations of each legal representative must be specified in the company’s charter, otherwise each legal representative will have equivalent rights and obligations to represent and act for and on behalf of the company.

Furthermore, Article 12.3 of the Law on Enterprises 2020 requires that there must be at least one legal representative residing in Vietnam, and if such legal representative travels outside of Vietnam, they must authorise another individual who resides in Vietnam to perform the rights and duties of the legal representative.

From the above, the investors may, in the early stages of the JV, provide for the JV company to have more than one legal representative, one of whom could be a local individual residing in Vietnam to meet the requirement of Article 12.3 of the Law on Enterprises 2020, provided that the rights and obligations of that local representative will be limited under the JV agreement, and subsequently, in the company’s charter.

Common-law Concepts of Share/Capital Transfers Under the JV Agreement

In general, the Vietnamese laws provide the JV partners, as the capital contributing members (in the case of an LLC) or shareholders (in the case of a JSC), with certain rights (in particular, the “pre-emptive right” and “right of first refusal”) when there is a share/capital transfer. In practice, other common-law concepts of transfer rights of JV partners (eg, rights of first offer, put option, call option, tag-along and drag-along rights) would also be widely accepted in the JV agreements and become key aspects of the JV agreement subject to negotiations and some other factors including the parties’ positions in and contributions to the JV.

Pre-emptive Right

By law, the capital contributing members (in the case of an LLC) or shareholders (in the case of a JSC) would have statutory rights to make additional capital contributions or subscribe for new shares, respectively, when the company wants to increase its charter capital. The additional contributed capital and newly issued shares will be allocated to capital contributing members or shareholders in proportion to their shareholding in the company’s charter capital. The Law on Enterprises 2020 further allows the capital contributing members (in the case of an LLC) or shareholders (in the case of a JSC) to transfer their pre-emptive rights (ie, the contribution or subscription rights) to other parties.

If a capital contributing member of an LLC fails to make capital contribution or only pays part of the capital contribution, the unpaid amount of additional capital contribution of such member will be divided amongst other capital contribution members in proportion to their respective shareholding in the company’s charter capital unless otherwise agreed by the capital contributing members. Meanwhile, for a JSC, the board will have right to determine whether to sell the unsubscribed shares of a shareholder to the remaining shareholders of a JSC or third parties, provided that the sale must not have conditions more favourable than the conditions of the initial offering to the shareholders, unless otherwise approved by the GMS of the company or the Vietnamese securities laws.

Please refer to 6.1 Agreement Documentation on the management and corporate governance of JV companies.

Investment capital (of investment projects) is defined to mean money and other assets used for carrying out investment activities, and total investment capital of an investment project, including (i) equity capital contributed by the investors, and (ii) other capital mobilised for the project, including but not limited to loans or credits provided from lender(s). The investment capital  will be declared by the investors in the IRC application dossier and will be recorded under the IRC once it has been allocated to the investment project. The ratios of equity capital contributions by the investors (which will later form the charter capital of the JV company to be recorded under the ERC of the JV company) in the total investment capital could be freely negotiated and agreed among the JV investors based on their financial capabilities and investment objectives, subject to the restrictions on foreign ownership ratios set out by the applicable laws of Vietnam (see 1.2 Key Industries). For the large-scale  investment projects, the investors may agree on phasing the capital contributions in accordance with the schedule for implementation of the investment project.

The declaration of total investment capital for the investment project and the equity capital (or, in other words charter capital of the JV company) under the IRC application dossier need to be converted into Vietnamese Dong by applying an exchange rate decided by the investors, which is normally the exchange rate of a reputable Vietnamese bank announced on the date nearest to the submission of the IRC application dossier; this should be generally agreed by the investors in the JV agreement for avoidance of any dispute in licensing procedures with the competent state authorities of Vietnam.

Furthermore, while the total investment capital of the investment project must be paid in line with the schedule recorded under the IRC of the investment project, the equity capital (or, in other words, the charter capital of the JV company) must be fully paid by the investors within 90 days from the incorporation date of the JV company. Otherwise, its charter capital must be reduced to the actual amount of capital contributed by the investors.

Deadlock can arise in a JV in a number of scenarios, for example, the GMS, the board (in a JSC) or the members’ council (in an LLC) is unable to convene a meeting and/or pass a resolution with respect to a matter or transaction due to insufficient quorum. To tackle this operating matter in a JV, the parties will negotiate and establish in the JV agreement (i) the definition of deadlock and (ii) solutions of the parties for deadlocks.

When the deadlock occurs, the JV parties can first try to resolve it through discussion and negotiations in the following ways:

• escalating the matter to the management persons of each party as designated under the JV agreement;
• referring the matter to an independent third party with relevant industry knowledge (and who is not a competitor) to decide on the solutions for the deadlock; or
• giving the chairperson of the meeting with a casting vote to pass the resolution. The chairperson’s casting vote mechanism is provided for under Article 157.12 of the Law on Enterprises 2020, according to which the option that is voted for by the chairperson in a meeting of the board of a JSC shall prevail if there is an equal number of votes from the board members. Meanwhile, there is no similar provision with respect to matters of the GMS (in JSC) or the members’ council (in an LLC) to be voted at the respective meetings.

If a deadlock remains unresolved, the JV parties may choose one of the following mechanisms for a party to exit the JV or for the JV to terminate, including:

• compulsory sale at fair value;
• offer to buy or sell;
• auctions (so called “Russian roulette” and “Texas shoot-out”);
• multi–choice;
• winding-up; or
• staying silent on deadlock.

Ancillary Documentations and Side Agreements

Subject to the commercial arrangements among the JV parties, there could be a number of ancillary documentations and/or side agreements/letters dealing with separate matters of the JV, such as an IP licence or technical support agreement, pre-funding costs agreement or sponsorship agreement.

Company’s Charter (or Articles of Association) to be Mirrored with the JV Agreement

As the company’s charter is a constitutional document which governs the governance, operation and management of the company, in practice, the parties would usually try to reflect the provisions of the JV agreement in the charter to the maximum extent (and, in particular, any agreed corporate information of the JV company and parties’ rights in relation to share/capital transfer) to avoid discrepancy and conflict between two documents and undesired disputes during the implementation phase of the JV.

If the JV agreement is governed by foreign laws and, as a matter of Vietnamese laws, the charter is governed by Vietnamese law, the parties would have two mechanisms under separate governing laws to resolve conflicts and disputes arising from provisions which have been included in both the JV agreement and the charter.

Only the JV company operated in a JSC has the board in its corporate governance structure in Vietnam. The board comprises of three to 11 members and each member has one vote. Unless the company’s charter provides a higher voting threshold, the board’s resolutions would be passed if they are approved by the majority of members attending the board’s meeting.

Meetings of the board shall be held at least once every quarter and may be held on an extraordinary basis. It would be convened if attended by at least three quarters of the total members of the board. If the quorum for the board’s first meeting is not met, the second meeting would be reconvened within seven days from the intended date of the first meeting, except where the JSC’s charter provides a shorter time-limit. In this case, the second meeting could be convened if it is attended by more than half of the total members of the board.

Since the weighted voting rights of board members are not entirely recognised under Vietnamese law, depending on the parties’ positions in and contributions to the JV, the parties would usually negotiate and agree in the JV agreement the following matters in relation to the board:

• the number of board members nominated by each party (eg, whether it would be an equal number of board members, which party has the right to recommend the independent board member);
• the quorum for meetings (eg, whether each meeting requires at least one board member nominated by each JV party attended); and/or
• the quorum for approving matters of the board (eg, resolutions of the board would be passed at the meeting if it is approved by the majority of the members attending the board’s meeting or two-thirds of the members attending the board’s meeting with respect to certain (important) matters of the board like the appointment of the general director.

The board has full authority, in the name of the company, to make decisions and exercise the rights and perform the obligations of the company, except for those within the authority of the GMS.

The board has a number of rights and obligations including, but not limited to:

• deciding on medium-term development strategies and plans, and annual business plans of the company;
• recommending the classes of shares and total number of shares of each class which may be offered; deciding on the selling price of shares and the sale of unsold shares within the number of shares of each class; deciding on the redemption of shares;
• deciding on raising additional funds for the company in other forms, solutions for market expansion, marketing and technology;
• deciding on investment, purchase, sale, borrowing, lending and other contracts and transactions valued at 35% or more of the company’s total value of assets recorded in the most recent financial statements, except where the company’s charter provides another threshold or value;

• electing, appointing, removing or dismissing the chairperson of the board, the (general) director and other key managers of the company; deciding salaries, remuneration, bonuses and other benefits of such managers; appointing authorised representatives to participate in the members’ council or general meeting of shareholders of other companies, and deciding the remuneration and other benefits of such persons;

• supervising and directing the (general) director and other managers in managing day-to-day business of the company;
• deciding the organisational structure and the internal regulations of the company, deciding the establishment of subsidiary companies, branches and representative offices; and capital contribution to or purchase of shares of other enterprises;
• convening meetings of the GMS and approving agenda and materials for such meetings;
• recommending the dividend amount to be paid and payment procedure; recommending method and procedure to settle losses of the company; and
• recommending the re-organisation or dissolution of the company, or requesting bankruptcy of the company.

Subject to the commercial intentions of the parties and corporate governance structure of the JV company, the board may delegate its duties to relevant sub-committee and such delegation will be specified in the operation regulation of the board approved by the GMS.

Disclosure of Related Interests

According to Article 164 of the Law on Enterprises 2020, unless the company’s charter provides stricter requirements, the company is required to prepare a list of related parties as defined in the laws and corresponding contracts and transactions between such parties and the company. The board members, (general) director and other managers of the company must declare their relevant interests in the company within seven business days from the date of having the relevant interest, including:

• details of companies in which they are owners or hold shares/capital contribution portions; their shareholding ratio in the companies and date on which they became owners, shareholders or capital contributing members; and
• details of companies in which their related persons are owners, jointly or separately hold shares/capital contribution portions of more than 10% of charter capital of such companies.

Any amendment and addition to the information shall be notified to the company within seven business days from the date of amendment or addition.

The list and disclosed information can be reviewed, extracted or copied by the relevant parties (including the shareholders, board members, (general) director and other managers of the company) in accordance with the laws.

Related Party Transactions of the JV Company

When voting for any transaction, agreement, contract entered into between the company and its related parties, the board members having interests related to the contracting parties will not have the right to vote.

Subject to the commercial intention and nature of business operations of the JV company, when a board member of a JV company no longer holds a position in a JV party which nominates such board member, the board member may, with the mutual agreement of the company and JV party, resign from their position on the board of the JV company. Their withdrawal from the JV company is particularly important in terms of business competition, for example, the board member moves to work for the direct or indirect competitor of the JV parties and/or the company.

The use of IP by the JV company is mainly subject to the commercial intentions of the JV parties. The main factors for parties’ consideration include, among others, the type of IP to be licensed to the JV company, the scope of use (eg, whether the licensed intellectual property could be used in discussion, documents or materials, including for the purpose of marketing, advertising, promotion, financing or any other purposes of the JV company) and time period of use (whether the JV company could use the IP licensed by the JV parties for the entire operation period or only for an initial period. Based on the aforementioned consideration, the parties may agree to relevant provisions under the JV agreement.

Subject to the commercial intention of the JV parties, the parties may agree, in the JV agreement, to grant the right of use or licence to the JV company relevant IP in connection with the intended business of JV in Vietnam and solely for the benefit of the JV company within the scope of the intended business. Since the IP mainly serves the business of the JV company, the JV parties may impose certain restrictions on the use by the JV company (eg, no sub-licence is permitted without prior consent of the licensing party) or by other JV parties. Besides, for the purposes of setting out specific licensing terms and arrangements for royalties/fee payments (including related tax matters), the JV party holding the IP right may also enter into a separate IP licence agreement with the JV company upon its establishment.

ESG  in Vietnam has gained momentum in recent years, driven by both global trends and internal pressures. As Vietnam’s economy continues to expand, the importance of integrating sustainable practices into business operations has become increasingly recognised by both the public and private sectors. While there is no comprehensive regulation in Vietnam on ESG, ESG has been considered and factored into a number of laws and pieces of legislation, particularly those that have been issued and adopted since 2020.

Notably, at the 26th session of the Conference of the Parties (COP26) United Nations Climate Change Conference in 2021, the Vietnamese government set certain targets to tackle climate change including:

• reducing greenhouse gas (GHG) emissions by up to 27% with international support by 2030;
• stopping deforestation by 2030;
• phasing out coal-fuelled power generation by 2040; and
• aiming for net-zero carbon emission target in 2050.

In line with such commitments, several laws and regulations have been issued by the competent Vietnamese authorities, including:

• Decision No 2157/QD-TTg of the Prime Minister on establishment of National Steering Committee for implementing Vietnam’s commitments at the 26th session of COP26;
• the new Environment Law No 72/2020/QH14 in 2020;
• Decree No 06/2022/ND-CP of the government on mitigation of GHG emissions and protection of ozone layer in 2022;
• Decision No 500/QD-TTg of the Prime Minister approving the national power development plan for the period 2021-2030 with a vision to 2050 (PDPVIII);
• Decision No 896/QD-TTG of the Prime Minister approving the national strategy for climate change until 2050; and
• Decision No 1658/QD-TTG of the Prime Minister approving the national green growth strategy for the period 2021-2030 with a vision to 2050.

Accordingly, based on the intended business of the JV, the parties may consider ESG factors in the medium and long-term business plan of the JV company in line with the ongoing development of relevant policies and regulations in Vietnam.

The JV agreement normally terminates in the following circumstances:

• all parties agree in writing to terminate the agreement;
• only one party owns shares/capital contribution in the JV company as a result of a transfer of shares/capital contribution;
• the parties decide to wind up the JV company or the company is put into liquidation, dissolution; or
• shares in the JV company are listed on a stock exchange.

In the case of winding-up, liquidation or dissolution of the JV company, the JV company would need to carry out relevant procedures at the Vietnamese competent authorities, including registration for the company’s dissolution, termination of the company’s investment project under the IRC and settlement of financial obligations at relevant tax authorities. The whole process  takes time since the authorities, in particular the tax authorities, would normally conduct a throughout check of the operations of the company prior to issuing confirmation on the settlement of financial obligations and closure of the company’s tax code.

The assets contributed by the JV investors to the JV shall form the assets owned by the JV company itself. The JV investors’ obligations shall be limited to their assets/capital contributed to the JV company. Upon the liquidation of the JV company, the residual assets/capital shall be distributed to the investors in proportion to their shareholding ratios in the JV company.