In Vietnam, a signed contract is not always an enforceable one. Many foreign investors are surprised to learn that a fully negotiated and executed contract can be declared invalid by a court, simply because it failed to meet specific, overlooked, legal formalities. This critical gap between a contract’s formation (the moment of signing) and its […]
Joint venture company in Vietnamis one of type of business that foreign entities go for to seek entry into Vietnam market. Let's find out what is a joint venture? Requirements for a joint venture as well as pros and cons of this investment form.
What is a joint venture?
Joint venture is a cooperation of multiple companies or individuals for a specific business purpose. Joint venture is not the only option for a company model. Normally, contributing parties establish one member limited liability company for standard joint ventures, or joint stock company (JSC) if they wish to be listed on Vietnam’s stock exchanges. Investors who buy shares from state-owned enterprises that are being equitized on Vietnam’s exchanges typically go for Joint Stock Companies. To make their way into Vietnam market, foreign investors can head for joint ventures where they will act as a majority shareholder (holding > 50%) or minority shareholder (holding <50%).
Requirements for a joint venture company in Vietnam
The capital requirements for a joint venture are the same for a 100% foreign owned enterprise (FOE). Enterprises engaged in unconditional business sectors are not subject to specific capital requirements. However, Vietnam’s Ministry of Planning and Investment provides industry-specific capital requirements for several circumstances.
Ownership ratio, which is calculated based on the contributed capital, is an important index for reassessment of capital requirements for a joint venture in Vietnam. At the present, the foreign ownership ratio in joint ventures is statutorily required to be 30%. This is also the cap ratio applicable to conditional business sectors. In addition, the Government stipulates regulations on the minimum ownership ratio of domestic investors on a sector-specific basis.
There is no recognized legal form for a joint venture, hence the absence of special requirements for this business model. However, investors can follow those requirements as applicable to Limited Liability Companies or Joint Stock Companies, depending on the type of joint name required.
Time frame for joint venture establishment
It takes from 2 to 4 months to establish a joint venture, and the establishment procedure is similar to that for 100% foreign-owned enterprises (FOEs). Such time frame excludes the time for parties to negotiate and reach agreements. Negotiations in respect to share, leadership and obligations of stakeholders probably lengthen the process of joint venture formation. While it is well known that these negotiations can delay the establishment, they are indispensable for the success of a joint venture. Therefore, parties should not make haste to negotiate.
Benefits of joint venture company in Vietnam
The main benefit of a joint venture is attributed to the empowerment of investors to access the market. Investors will be exposed to conditional business investments, which are often limited in ownership. The investor's level of access to conditional business sectors depends on his/her line of business.
The second potential benefit of a joint venture comes from the local understanding of domestic companies. For the first entrants in a new market, their local partners may bring better access to suppliers and customers; sometimes even enhance their foreign brand’s credibility in the domestic market.
Shortcomings of joint venture model
Foreign investors engaged in joint ventures cannot act independently like those in other business models. Decision-making on such matters as business expansion, profit transfer or operation downsizing may lead to great disharmony between foreign and local partners. Although these matters can be resolved through initial negotiation, the viewpoint differences and cultural barriers will likely delay the establishment and result in an impaired manoeuvrability of business after establishment.
To gain a profound insight into a joint venture company in Vietnam or other forms, enterprises should reach out to consultants who can help them to choose the most suitable and optimal model. Viettonkin is a leading strategic consulting firm for foreign enterprises to rely when they are about to enter Vietnam market. Viettonkin's consultants, who are knowledgeable about local legislation and markets, will provide the most inclusive and accurate information on various forms of investment in Vietnam as well as A-to-Z procedure supports.
