Investing In Vietnam - Setting Up A Business

Forms of Business

Limited-Liability Company

A limited-liability company is a legal entity established by its “members” (i.e. owners) through capital contributions to the company. The capital contribution of each member is treated as equity (charter capital). The members of a limited-liability company are liable for the financial obligations of the limited-liability company to the extent of their capital contributions.

The management structure of a limited-liability company would normally consist of the “members” council”, the chairman of the members” council, the general director and a controller (or board of supervisors where the limited-liability company has more than 11 members).

A limited-liability company established by foreign investors may take the form of either:

• A 100% foreign-owned enterprise (where all members are foreign investors); or

• A foreign-invested joint-venture enterprise between foreign investors and at least one domestic investor

Joint-Stock Company

A joint-stock company is a limited liability legal entity established through a subscription for shares in the company.

Under Vietnamese law, this is the only type of company that can issue shares. The charter capital of a joint-stock company is divided into shares and each founding shareholder holds shares corresponding to the amount of capital the shareholder has contributed to the company.

A joint-stock company is required to have at least three shareholders. There is no limit on the maximum number of shareholders in such companies.

The governance of a joint-stock company includes the general meeting of shareholders, the board of directors, the chairman of the board of directors, the general director and a board of supervisors (where the joint stock company has at least 11 shareholders, or if a corporate shareholders holds more than 50% of the shares of the joint-stock company).

A joint-stock company may either be 100% foreign-owned or may take the form of a joint venture between both foreign and domestic investors.

Partnership Company

A partnership is a very rare form of business. It may be established between two individual general partners. The general partner has unlimited liability for the operations of the partnership.

Branch

Technically speaking, a branch of a foreign business entity in Vietnam is a dependent unit of the foreign business entity, established and conducting commercial activities in Vietnam in accordance with the laws of Vietnam or an international treaty to which Vietnam is a member.

However, this is not a common form of foreign direct investment and is only permitted in a few sectors. A branch is not an independent legal entity. Branches of foreign companies are different from representative offices in that a branch is permitted to conduct commercial activities in Vietnam.

Representative Office

Representative office is a common form of early or initial establishment for foreign organizations looking to invest or to do business in Vietnam. Foreign companies with business relations or investment projects in Vietnam may apply to open representative offices in Vietnam.

A representative office may not conduct commercial or revenue-generating activities (i.e. the execution of contracts, receipt of funds, sale or purchase of goods, or provision of services).

A representative office is only permitted to:

• Act as a liaison office

• Conduct market research

• Promote its parent company’s business and investment opportunities

The key limitation of the scope of activities of representative office is that it’s not allowed to engage in any “direct profit-making” activities.

Thus representative offices can provide a wide range of ancillary support to their foreign-based parent companies. This is a very common form of registered legal presence in Vietnam, particularly those in the first stage of a market entry strategy.

Business Cooperation Contract (BCC)

A BCC is a cooperation agreement between foreign investors and at least one Vietnamese partner in order to carry out specific business activities.

This form of investment does not constitute the creation of a new legal entity. The investors in a BCC generally share the revenues and/or products arising from a BCC and have unlimited liability for the debts of the BCC.

Public and Private Partnership Contract

A Public and Private Partnership (“PPP”) contract is an investment form carried out based on a contract between the government authorities and project companies for infrastructure projects and public services.

PPP contracts include 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.

Both public and private investors are encouraged to participate in PPP contracts. The rights and obligations of the foreign investor will be regulated by the signed PPP contracts and the applicable regulations governing such contracts. Investment sectors include:

• Transportation infrastructure and relevant services

• Lighting systems, clean water supply systems, water drainage systems, water/waste collection and treatment systems, social/resettlement houses, cemeteries

• Power plants and power transmission lines

• Infrastructure for healthcare, educational and training, cultural, sport and relevant services, offices for government authorities

• Infrastructure for commerce, science and technology, hydro meteorology, economic zone, industrial zone, high- tech zone, centralized information technology zone,

information technology application

• Infrastructure for agriculture and rural development, services for enhancing the correlation of agricultural production with processing and consumption of

agricultural products

• Other sectors according to the Prime Minister’s decisions

Legal Entity Selection

Depending on the business industry, the number of investors, and whether there is any intention to list the entity, a foreign entity may establish its presence in Vietnam as a limited-liability company, a joint-stock company, or a partnership.

Liquidation and Bankruptcy

A company can only be voluntarily liquidated if it is solvent and all creditors can be paid. The process generally takes 12 months or more and requires a final tax audit.

For insolvent companies, a new Bankruptcy Law came into effect on 1 January 2015. The new law sets out, inter alia, which parties can instigate bankruptcy proceeding, procedures for the appointment of a liquidator, organization of creditors meetings and priority of creditor payments.

Setting Up a Business

• Limited-liability company/ Joint stock company/Partnership

• Branch

• Representative office

• Public-Private Partnership (PPP) project (such as BOT/BTO/BT project)

Source RSM Vietnam

(AGBT search)