Joint Ventures in Vietnam: Legal Structure, Governance, and Exit Strategies

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 relationshipsGovernment contracts requiring local participationDistribution networks in consumer sectorsReal estate development partnerships

When to consider alternatives

Full foreign ownership is permitted in your sectorYou want complete operational controlThe local partner lacks genuine capabilityCultural or governance differences are too significant

Legal Structures

Two-Member LLC (Most Common)

Minimum 2, maximum 50 membersMembers' Council is the highest decision-making bodyEach member's voting rights proportional to capital contribution75% supermajority required for major decisions

Joint Stock Company

Minimum 3 shareholdersMore complex governance (Board of Directors + General Meeting)Easier to add/remove shareholdersCan list on stock exchange

Business Cooperation Contract (BCC)

No new legal entity createdEach party operates under their own nameProfit/loss sharing per contractSuitable for short-term projects

Key JV Agreement Terms

1. Capital Contributions

Type: cash, assets, intellectual property, technologyValuation methodology for non-cash contributionsTimeline for capital contribution (must complete within 90 days)Consequences of failure to contribute

2. Governance

Composition of Members' Council/BoardChairman appointment and rotationSupermajority vs. simple majority decisionsDay-to-day management (General Director appointment)Reporting requirements and information access

3. Profit Distribution

Proportional to capital contribution (default rule)Alternative: performance-based distributionTiming and conditions for distributionReinvestment vs. dividend policy

4. Deadlock Resolution

Critical for 50/50 JVs:

Escalation to senior managementMediation by agreed third partyExpert determination for specific issuesPut/call options as last resortDissolution mechanism if deadlock persists

5. Non-Compete and Exclusivity

Geographic scope of non-competeDuration (typically life of JV + 2-3 years)Carve-outs for existing businessesConsequences of breach

Exit Strategies

1. Transfer of Interest

Right of first refusal for remaining partnerThird-party transfer restrictionsValuation 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 partnerCall option: right to buy the partner's interestTrigger events: deadlock, change of control, material breachPricing mechanism: fixed formula or independent valuation

3. Dissolution

Voluntary dissolution by mutual agreementAsset distribution and liability settlementEmployee obligationsTax clearance requirementsGovernment deregistration

Common Pitfalls

Insufficient due diligence on local partnerVague governance provisions leading to deadlockNo exit mechanism — trapped in a bad partnershipUnderestimating cultural differences in decision-makingIgnoring 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.