I. Establishing a new business entity
Some main corporate forms of doing business in Vietnam include: (i) Limited – liability
company with one or more members; (ii) Joint-stock company; (iii) Partnership, (iv)
Business cooperation contract and (v) Public-Private Partnership contract.
(i). Limited – liability company with one or more members
A limited liability company is a legal entity established by capital contribution which is treated as equity (or charter capital) from its members. A limited liability company is not allowed to issue shares. The total number of members in a limited liability company is restricted to 50 (applied to form of a limited liability company with more than two members). Members of a limited liability company
the limited liability company within the capital contributed – or undertaken to be contributed - to the company.
A limited liability company may be established by foreign investors either in one of the two following forms:
- A 100% foreign-owned enterprise (where all members are foreign investors); or
- A joint-venture enterprise with at least one Vietnamese investor
(ii). Joint-stock company
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A joint stock company is a legal entity established by its fouding shareholders on the basis of their subscriptionof shares of the joint stock company. The charter capital of a joint stock company is divided into shares and each founding shareholder holds a number of shares corresponding to their subscribed and paid-up shares in the joint stock company.
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A joint stock company is required to have at least three shareholders (with no maximum number of shareholders). A joint stock company may take the form of either (i) 100% foreign-owned; or (ii) a joint venture between foreign and domestic investors.
(iii). Partnership
A partnership may be established between two individual managing partners. The managing partners have unlimited liability for all obligations of the partnership. Besides managing partners, a partnership may have contributing obligations of the partnership up to the value of their contributed capital.
(iv). Business cooperation contract
Business Cooperation Contract (BCC) is normally signed between foreign investors and Vietnamese investors in order to carry out certain business activities.
BCC is executed without the creation of a new legal entity. Instead, parties to a BCC shall establish a co-ordination board to implement and oversee the BCC. The investors to a BCC mutually agree on allocation of responsibilities and sharing of profits/losses arising from a BCC. BCC’s parties hold unlimited liability for the financial obligations of the BCC
(v). Public-Private Partnership contract
Public-Private Partnership (PPP) contract is an investment form set up on the basis of a contract between relevant government authorities and project companies to perform certain regulated infrastructure works and public services, e.g. transportation system, water supply system, power plants, educational and healthcare-related infrastructure, etc.
PPP Contracts comprise Build-Operate-Transfer (BOT), Build-Transfer (BT), Build-Transfer- Operate (BTO), Build-Own-Operate (BOO), Build-Transfer-Lease (BTL), Build–Lease- Transfer (BLT) and Operate-Manage (O&M) Contracts
After signing PPP contracts with an authorized state agency, foreign investors must establish a project company in the form of a limited liability company or a joint stock company. PPP contracts clearly set out the rights and obligations of foreign investors to such contracts.
II. Investment via M&A
The legal framework for M&A is set out under the Law on Enterprise and Law on Investment and their guiding documents, which cover conditions, procedures and tax consequences of such activities.
The Competition Law also has an effect on M&A activities. Where a merger or acquisition may result in a legal entity with a market share accounting for 30% to 50% of the relevant market, the legal representative of such entity must notify the competition management body before the merger/acquisition is implemented, unless the law provides otherwise. A merger or acquisition that results in a new entity with its market share accounting for more than 50% of the relevant market is prohibited, unless otherwise stipulated in the Competition Law.
III. Other forms of investment
All indirect investment activities of foreign investors in Vietnam must be conducted in Vietnamese Dong via an indirectly-invested capital account opened at a permitted bank. Balances in indirectly-invested capital accounts of foreign investors cannot be converted into time deposits, or saving deposits at credit institutions and foreign bank branches.
Below are examples of frequently-conducted indirect investment activities in Vietnam:
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Capital contribution, sale/purchase of share or contributed capital in Vietnamese enterprise without directly participating in the enterprise management and administration;
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Capital contribution, transfer of contributed capital in securitites investment funds and fudn management enterprise in accordance with the laws on securities.
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Sale/purchase of other valuable papers in Vietnam dong permitted to issues within Vietnam’s territory by orgianizational residents.
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Sale/purchase of bonds and other types of stocks in the Vietnamese securities market.
