Some notes regarding cooperation agreements for establishing a business by Vietnamese investors in abroad

In recent years, outward investment has become a growing trend for Vietnamese investors. This reflects the integration of the Vietnamese economy in the context of globalization, making a significant contribution to enhancing the position and competitiveness of domestic enterprises. According to statistics from the Ministry of Planning and Investment, as of the first nine months of 2024, Vietnam had 1,772 valid outward investment projects with a total Vietnamese investment capital of nearly US$22.11 billion in various sectors (mining, wholesale and retail, electricity production and distribution, etc.). 

One of the popular forms of outward investment currently undertaken by Vietnamese enterprises is cooperating with organizations and individuals with experience and understanding of the market to establish economic organizations in accordance with the laws of the host country. In this article, the author will provide some notes regarding cooperation agreements for establishing a business by Vietnamese investors abroad. 

(i) Regarding Outward Investment Sectors: 

• Compliance with business sector regulations: Adhere to the regulations on business sectors under the laws of the host country. 

• No prohibited sectors: The sector must not fall under the prohibited outward investment sectors as stipulated in Article 53 of the Law on Investment of Vietnam. 

• Specific sectors requiring further compliance: If Vietnamese investors invest in banking, insurance, securities, journalism, broadcasting, television, and real estate businesses, they must meet the conditions for outward investment as prescribed by the law of Vietnam. 

(ii) Regarding the types of business entities: Depending on the laws of the host country, the parties will select a business entity suitable for their business objectives, business sectors, and the purposes of the Vietnamese investor. The business entity can be a limited liability company (LLC), a joint-stock company (JSC), etc. 

(iii) Regarding Investment Capital: Outward investment capital includes money and other lawful assets of the investor, including equity, loans from Vietnam transferred abroad, and profits earned from outward investment projects retained for reinvestment abroad. However, investors should note: 

• Agreement on contributed assets: Specific agreements with the remaining parties regarding permitted contributed assets under the laws of the host country. 

• Currency for capital contribution: If the investor contributes capital in a foreign currency other than USD or the legal currency of the host country, a clear agreement is needed on the conversion currency and the conversion basis to minimize disputes during capital contribution. 

• Agreement on valuation methods for contributed assets: An agreement on the methods for determining the value of contributed assets other than money, such as machinery, equipment, materials, raw materials, fuel, finished goods, and semi-finished goods; the value of intellectual property rights, technology, trademarks, rights to assets, etc., to comply with the laws of the host country and mitigate disputes between the parties. 

(iv) Capital contribution ratio and contribution obligations: 

• Investors need to determine a capital contribution ratio suitable for their business objectives and capable of significantly impacting the company’s operations while ensuring compliance with the host country’s regulations and relevant international treaties, such as maximum ownership ratios, technology transfer requirements, or local labor utilization obligations (if any). 

• Resolution mechanisms and sanctions in case any party fails to contribute the full committed capital in time, in accordance with the laws of the host country. 

(v) Provisions regarding investor rights in business management and operation: 

• Board of Directors/Management Board: The establishment and composition of management bodies such as the Board of Directors, Management Board, and key positions within the enterprise affect the investor’s rights and interests in the enterprise’s operations. 

• Investor’s right to appoint board members: The investor’s right to appoint members to the Board of Directors and Management Board and define their powers and responsibilities in managing and operating the enterprise. 

• Pre-emptive rights: The pre-emptive right of existing shareholders when a shareholder intends to transfer their shares. 

• Voting rights: Determining the voting rights of the contributing parties to ensure the investor retains control over major decisions in the business’s operation and development, such as increasing/decreasing charter capital, changing business strategies, issuing new shares, or major investment decisions, changes in the Management Board/Board of Directors, profit distribution, financial and investment issues, etc. 

• Buy-back rights: The right to request the company to buy back shares or sell shares to a third party in specific cases, such as changes in management structure or ineffective business operations. 

(vi) Other Agreements: 

• The entity responsible for carrying out the business establishment procedures at the competent authorities of the host country. 

• Termination of the agreement and the consequences of termination, including the handling of assets, settlement of financial obligations, and distribution of remaining profits. 

• The responsibilities of the contributing parties in case of breach of obligations stipulated in the agreement. 

• The applicable law is the law of the host country. 

• The dispute resolution body chosen by the parties. 

See more:

1/ Establishment of a representative office of a foreign trade promotion organization in Vietnam

2/ Outbound investment activities of foreign-invested enterprises in Vietnam

3/ Compliance with food safety regulations when establishing a manufacturing projects in Vietnam

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