Joint Ventures in Vietnam: Legal Structure, Governance, and Exit
Introduction
Joint ventures (JVs) remain a popular entry strategy for foreign investors in Vietnam, particularly in sectors with foreign ownership restrictions. While Vietnam's Investment Law 2020 has liberalized many sectors, JVs continue to offer strategic advantages. Attorney Vo Thien Hien provides this practical guide based on extensive JV advisory experience.
Why Joint Ventures?
When a JV makes sense
- Sectors with foreign ownership caps (banking, telecom, media)
- Need for local market knowledge and relationships
- Government contracts requiring local participation
- Distribution networks in consumer sectors
- Real estate development partnerships
When to consider alternatives
- Full foreign ownership is permitted in your sector
- You want complete operational control
- The local partner lacks genuine capability
- Cultural or governance differences are too significant
Legal Structures
Two-Member LLC (Most Common)
- Minimum 2, maximum 50 members
- Members' Council is the highest decision-making body
- Each member's voting rights proportional to capital contribution
- 75% supermajority required for major decisions
Joint Stock Company
- Minimum 3 shareholders
- More complex governance (Board of Directors + General Meeting)
- Easier to add/remove shareholders
- Can list on stock exchange
Business Cooperation Contract (BCC)
- No new legal entity created
- Each party operates under their own name
- Profit/loss sharing per contract
- Suitable for short-term projects
Key JV Agreement Terms
1. Capital Contributions
- Type: cash, assets, intellectual property, technology
- Valuation methodology for non-cash contributions
- Timeline for capital contribution (must complete within 90 days)
- Consequences of failure to contribute
2. Governance
- Composition of Members' Council/Board
- Chairman appointment and rotation
- Supermajority vs. simple majority decisions
- Day-to-day management (General Director appointment)
- Reporting requirements and information access
3. Profit Distribution
- Proportional to capital contribution (default rule)
- Alternative: performance-based distribution
- Timing and conditions for distribution
- Reinvestment vs. dividend policy
4. Deadlock Resolution
Critical for 50/50 JVs:
- Escalation to senior management
- Mediation by agreed third party
- Expert determination for specific issues
- Put/call options as last resort
- Dissolution mechanism if deadlock persists
5. Non-Compete and Exclusivity
- Geographic scope of non-compete
- Duration (typically life of JV + 2-3 years)
- Carve-outs for existing businesses
- Consequences of breach
Exit Strategies
1. Transfer of Interest
- Right of first refusal for remaining partner
- Third-party transfer restrictions
- Valuation methodology (fair market value, formula-based, independent valuation)
- Approval requirements (may need government approval)
2. Put/Call Options
- Put option: right to sell your interest to the partner
- Call option: right to buy the partner's interest
- Trigger events: deadlock, change of control, material breach
- Pricing mechanism: fixed formula or independent valuation
3. Dissolution
- Voluntary dissolution by mutual agreement
- Asset distribution and liability settlement
- Employee obligations
- Tax clearance requirements
- Government deregistration
Common Pitfalls
- Insufficient due diligence on local partner
- Vague governance provisions leading to deadlock
- No exit mechanism — trapped in a bad partnership
- Underestimating cultural differences in decision-making
- Ignoring related-party transactions — transfer pricing risk
Conclusion
A well-structured JV agreement is the foundation for successful partnership in Vietnam. Invest time upfront in governance design, deadlock resolution, and exit planning.
Contact Attorney Vo Thien Hien at Apolo Lawyers for expert joint venture advisory in Vietnam.
