The legal nature of business capital contribution and business cooperation under Vietnamese law
Foreign or domestic investors wishing to cooperate in investment and business with individuals or economic organizations in Vietnam can choose investment forms such as capital contribution or business cooperation. Each form of investment brings its own advantages and disadvantages to the investor. Therefore, depending on their specific needs, investors can select the most appropriate form of investment.
Index
An overview and comparison of the differences between business capital contribution and business cooperation under Vietnamese law are as follows:
| Comparison criteria | Business capital contribution Law on Enterprises 2020 – Article 34 | Business cooperation under Business Cooperation Contract (BCC) Law on Investment 2025 – Clause 14 Article 3 |
|---|---|---|
| I. NATURE AND LEGAL FOUNDATION | ||
| Definition | The contribution of assets to form the charter capital of a company — contributing capital to establish or increase the charter capital of an existing enterprise. Legal basis: Article 34 Law on Enterprises 2020 | A contract signed between investors for business cooperation, profit or product sharing without establishing an economic organization. Legal basis: Clause 14, Article 3 Law on Investment 2025 |
| Main governing laws | Civil Code 2015 + Law on Enterprises 2020 | Civil Code 2015 + Law on Investment 2025 |
| Nature of the contract | It is a standardized contract, an agreement between parties bound by the company's charter and subject to the provisions of the Law on Enterprises 2020. | The Business Cooperation Contract (BCC) is a pure civil contract, respecting and upholding the agreement between the parties, and is not bound by the company's charter. |
| II. SUBJECTS AND LEGAL ENTITIES | ||
| Formation of a new legal entity | Yes or no. Capital contribution is the contribution of assets to form the company's charter capital, including capital contribution to establish a company or additional contribution to the charter capital of an already established company. Legal basis: Clause 18, Article 4 Law on Enterprises 2020 | No. In business cooperation, the parties do not need to establish a new legal entity. Legal basis: Clause 14 Article 3 Law on Investment 2025. |
| Legal status after signing | The capital contributor becomes a capital-contributing member/shareholder of the company | The parties remain completely independent regarding legal liability; each party is responsible within the agreed scope |
| Participating subjects | Foreign investors or organizations and individuals with full civil act capacity and not falling under the cases specified in Articles 17 and 18 of the Law on Enterprises 2020 | Foreign investors or domestic investors |
| Charter capital | Recorded in the company's charter capital, the capital contribution/shares owned by each party can be accurately quantified | Does not establish a new legal entity but operates under the existing legal entity of one of the cooperating parties, thus there is no common charter capital source |
| Suitable subjects for application | - When domestic individuals and economic organizations want to jointly contribute business capital, they choose this form of business capital contribution. - When foreign economic organizations want to invest and do business in unconditional business lines in Vietnam to implement multiple large-scale and long-term projects. | When foreign investors want to invest in small-scale, short-term projects in Vietnam, they can cooperate in business with an active domestic economic organization. |
| III. RIGHTS, PROFITS, AND RISKS | ||
| Basis for determining rights and profits | - Rights and profits are distributed based on the capital contribution/share ownership ratio of each contributing member/shareholder according to the company's charter and the Law on Enterprises 2020. - Voting rights in the company's business activities correspond to the capital contribution/share ownership ratio of each contributing member/shareholder in the company. | - The rights and profits of the parties are specifically stipulated in the Business Cooperation Contract based on the cooperation agreement and are not bound by the Law on Enterprises 2020. - Voting rights are equal, regardless of whether the contribution of the parties is less or more than the others. |
| Risk allocation | After capital contribution, arising risks will be borne by the company (legal entity) using the existing charter capital; contributing members/shareholders only bear risks within the scope of their contributed capital. | The parties jointly bear risks as agreed in the business cooperation contract. Usually, the parties accept to bear risks in proportion to their contribution (similar to business capital contribution); |
| Operation management | The corporate governance apparatus (Board of Members/Board of Directors/General Meeting of Shareholders, etc.) is specified in the company's charter. | The parties agree to establish a Coordination Board with functions and powers determined by the parties themselves. Legal basis: Article 27 Law on Investment 2025; |
| IV. ADVANTAGES AND LIMITATIONS | ||
| Outstanding advantages | - Creates a sustainable legal entity, transparent ownership rights; - Increases prestige for the economic organization when there is a need to raise capital, transfer shares/capital contributions; - Reduces risks when the contributed asset is an asset requiring registration of ownership and use rights when investors want to withdraw capital; - Voting rights correspond to the capital contribution/share ownership ratio of each member/shareholder of the company. | - Flexible, no need to establish a legal entity; the cooperating parties can still have independent legal status when exercising their rights and obligations. - Not bound by regulations on conditional market access business lines, restricted market access business lines, or prohibited business lines for foreign investors because no new legal entity is established. Foreign investors can still participate in business activities in the above lines without restrictions. - The parties can stipulate the cooperation term without having to carry out other cumbersome legal procedures such as transfer, donation, etc., like in business capital contribution activities. - Can contribute in various types of assets, including contribution by effort, and the parties will agree to convert the contributed effort into a value figure to determine the contribution ratio of the parties. |
| Limitations | - Doing business in many conditional business lines will cause difficulties for foreign investors wanting to access them; many business lines have development potential, but foreign investors cannot contribute capital, purchase shares or capital contributions, nor directly invest in business. - It is very difficult for investors to withdraw capital when they no longer want to do business, especially foreign investors. Withdrawing capital forces investors to transfer all their existing capital. However, foreign investors often own a very large amount of capital, making it very difficult to find other potential investors to buy it back. - Mandatory to contribute capital in kind or assets (registered or unregistered, intellectual property rights, industrial property rights, etc.) within 90 days from the date of registration. Therefore, if the capital is not fully contributed within the above time limit, the contributing member/shareholder who failed to contribute sufficiently must be expelled from the company. Otherwise, the enterprise will be administratively penalized. | (IRC); failure to register poses a risk of the business cooperation contract becoming invalid. - In addition, other risks include: business cooperation in conditional business lines requiring an operating license but not yet licensed can lead to the contract being partially or wholly invalid. - Inadequacy regarding voting rights not being proportional to the capital contribution ratio. Clause 2, Article 507 of the Civil Code 2015 only generally stipulates that cooperating members have the right to "participate in deciding issues related to the implementation of the cooperation contract, supervise cooperation activities." This regulation leads to many inconsistent interpretations, and one widely accepted view is that even though a member contributes more, they only enjoy equal voting rights with the remaining members. This is unreasonable because they have contributed a lot, meaning the execution of the contract will bring them more risks to their assets. |
In terms of legal nature, business capital contribution is associated with the formation of the charter capital of a legal entity with full civil act capacity, creating a link and binding regarding assets and asset ownership rights under the comprehensive protective legal framework of the Law on Enterprises 2020 and the Civil Code 2015. Conversely, business cooperation under a BCC contract is an association between investors in the spirit of voluntariness, equality, and mutual benefit. The consequence is that no new legal entity is created, but it requires trust and smooth cooperation between the parties throughout the implementation process.
Practice shows that no investment form is perfect and absolutely suitable for all situations. The choice between business capital contribution and business cooperation under a BCC contract depends on many factors such as project scale, cooperation term, business line, nationality of investors, and especially the long-term strategic goals that the parties aim for.
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