In the process of improving the legal framework and attracting investment capital, Vietnamese law allows enterprises to choose from various forms of implementation, among which the more favored are the establishment of an economic organization and the Business Cooperation Contract (BCC). Each form comes with its own distinctive characteristics, and depending on the specific context, enterprises may make strategic investment decisions accordingly.
Legal Definitions
Investment in the establishment of an economic organization refers to an investment form in which investors contribute capital to establish a new economic organization that operates under Vietnamese law, including enterprises, cooperatives, unions of cooperatives, and other organizations conducting investment and business activities (Clause 21, Article 4 of the Law on Investment 2020).
Comparison between Forms of Investment: Establishment of Economic Organization vs. BCC Contract
Similarities
- Legal investment forms: Both involve capital contribution to jointly conduct business activities or implement investment projects (Article 21).
- Regulatory framework: Governed by the Law on Investment 2020 (Chapter IV) and relevant legal instruments.
- Eligible participants: All types of investors, including domestic and foreign individuals and organizations, are permitted to participate, provided they comply with market access conditions, conditional business lines, and sectoral legal provisions.
- Basis for formation: Respect for the freedom of contract; the parties freely negotiate cooperation terms, profit-sharing mechanisms, management structure, and dispute resolution (if any).
- Investment conditions compliance: For cases subject to investment registration (e.g., foreign investors, conditional business sectors), both forms must prepare and submit documentation for issuance of an Investment Registration Certificate by the competent state authority.
- Governance mechanism: Requires coordination among parties to assign roles and responsibilities clearly, make decisions, and handle tasks based on mutual agreements or internal bylaws.
- Profit and risk sharing: Profits and risks are allocated based on capital contribution ratios or mechanisms agreed upon in the company charter or the BCC contract.
Differences
| Criteria | Investment through Establishment of Economic Organization | Investment under a BCC Contract |
|---|---|---|
| Legal status | Establishes and operates a new legal entity such as an LLC, JSC, etc or joint venture. | Does not establish a new legal entity; purely a contractual cooperation between parties. |
| Legal basis | Law on Investment, Law on Enterprises, and relevant guiding instruments depending on company type. | Law on Investment 2020, Civil Code 2015, etc. |
| General procedure | Carry out procedures for investment policy approval (if applicable), apply for an Investment Registration Certificate (IRC), and follow procedures to establish an economic organization. | + BCC contract between domestic investors → no requirement for IRC. + BCC contract with foreign investors → must obtain IRC; foreign investor is entitled to establish a project management office in Vietnam. |
| Conditions | + Must meet conditions on capital, market access (for foreign investors), location, and legal compliance. + Foreign investors must have an investment project and obtain or amend the IRC prior to establishing a new economic organization, except for startups or venture capital funds under laws supporting SMEs. | + Only need to register the BCC contract. + The BCC contract must be in writing where the project is subject to investment registration or appraisal. |
| Eligible parties | Individual or institutional investors, domestic or foreign, depending on the investment form. | Must have two or more investors. |
| Term of operation | As stipulated in the IRC, generally up to 50 years, with possible extension. | Determined in the BCC contract. |
| Governance structure | Clear organizational structure required: Members’ Council/Board of Directors, Director/General Director, etc., depending on the type of enterprise. | As agreed by the parties; must establish a project coordination board to implement the contract. |
| Property rights | Owned by the legal entity; includes rights to own, use property, including land use rights, tangible and intangible assets, as per law. | Jointly owned or jointly managed; parties are entitled to proceeds and benefits in proportion to their respective contributions. |
| Legal liability | The legal entity is liable with its own assets. | Liability is based on the contract. If joint assets are insufficient to meet common obligations, each party is liable with its own assets in proportion to its contribution. |
| Financial and accounting obligations | Prepare independent financial statements, fulfill tax obligations in accordance with the law. | + Each party declares and pays tax on its share of profits (corporate income tax, VAT, and other taxes). + Each party bears direct responsibility to third parties. |
| Profit and risk allocation | As per the company’s charter based on ownership ratio. | Based on agreement in the BCC contract; not necessarily tied to capital contribution ratio. |
| Termination | Must follow procedures for dissolution, asset liquidation, tax code closure, or as per bankruptcy laws. | Terminates upon contract expiry; no dissolution of legal entity required. |
The decision between investing through the establishment of an economic organization or via a BCC contract not only reflects the strategic direction of the enterprise but also depends on the legal context and practical requirements of each specific project. Each model presents distinct advantages and limitations. Therefore, careful consideration and comprehensive evaluation of each option are essential to optimize investment effectiveness and ensure alignment with long-term business strategies.
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