Issue 031123 – Investment form according to business cooperation contract

Dear Valued Clients,

A business cooperation contract (“BCC Contract”) is one of the forms of direct investment and commercial presence of foreign investors in Vietnam. However, the characteristic of this model is that the parties cooperate and carry out joint business investment activities based only on a contract without establishing an enterprise. So what are the benefits and risks of investors in this contractual relationship and this form of investment?

Let’s learn about our regulations and notes on business cooperation contracts under Vietnamese law in the article below.

1. Concept of BCC Contract and investment form according to BCC Contract

The concept of BCC Contract is stipulated in Article 3.14 of the Investment Law 2020: “Business cooperation contract (hereinafter referred to as BCC contract) means a contract between investors for business cooperation and distribution of profits or products without establishment of a business organization.”

In essence, a BCC contract is a civil contract and is an agreement between the parties to jointly invest capital or effort to carry out a common investment or business, sharing risks, and benefits for that investment. All investment and business activities of the parties are carried out through contractual mechanisms without creating a legal entity (enterprise).

According to the provisions of Article 21 of the Investment Law 2020, investment according to the BCC Contract is one of the forms of foreign direct investment in Vietnam besides the most common form of investment which is establishing an economic organization. With this form, foreign investors can invest capital, hire personnel, manage projects, and provide services in Vietnam. Because it is a form of foreign direct investment, investors must apply for an Investment Registration Certificate (“IRC”) and sign a BCC Contract to implement their project in Vietnam.

2. Form and content of BCC Contract

2.1 Investment in the form of BCC Contract

According to the provisions of Article 27 of the Investment Law 2020, the BCC Contract will be implemented in the following forms:

• BCC contracts are signed between domestic investors in accordance with the provisions of civil law. In particular, domestic investors are individuals with Vietnamese nationality and economic organizations that do not have foreign investors as members or shareholders[1].
• BCC contract is signed between domestic investors and foreign investors or between foreign investors. A foreign investor is an individual with foreign nationality, or an organization established under foreign law that carries out business investment activities with foreign investment capital[2]. In this case, investment activities will need to carry out procedures for granting an Investment Registration Certificate according to the provisions of the Investment Law as follows:
• Investors will need to consider whether the project belongs to a project requiring investment policy approval according to the provisions of the Investment Law. If the project needs to apply for an investment policy, the procedure for applying for an Investment Certificate will be carried out as follows:
• 05 working days from the receipt of the written approval for investment guidelines and the written approval for investor with respect to the investment project that is subject to the issuance of an investment registration certificate;
• 15 days from the receipt of the investor’s application for investment registration certificate with respect to the investment project other than that specified in item (i) above.
• If the project is not subject to investment policy approval specified in the above section, the investor will be granted an Investment Registration Certificate if the following conditions are met:
• The investment project does not involve any banned business line;
• There is a location for the execution of the investment project;
• The investment project is conformable with the planning according to the provisions of the Investment Law;
• The investment per m2 (or investment per employee) is not smaller than the minimum requirement (if any);
• Market access conditions applied to foreign investors are satisfied.

The parties participating in the BCC Contract must establish a coordination committee to implement the BCC Contract. The functions, tasks, and powers of the coordination board are agreed upon by the parties[3].

2.2 Content of BCC contract

The BCC contract includes the following main contents[4]:

(1)       Names, addresses, and authorized representatives of parties to the contract; business address or project address;

(2)       Objectives and scope of business;

(3)       Contributions by the parties to the contract, and distribution of business investment results between the parties;

(4)       Schedule and duration of the contract.

(5)       Rights and obligations of parties to the contract.

(6)       Adjustment, transfer, and termination of the contract.

(7)      Responsibilities for breaches of contract; method of dispute settlement.

During the implementation of the BCC Contract, the parties to the contract may agree to use assets formed from business cooperation to establish an enterprise according to the provisions of law on enterprises. In addition, the parties participating in the BCC Contract have the right to agree on other contents that are not contrary to the provisions of law.

3. Advantages and restricts of BCC Contract

3.1 Advantage

Firstly, the investment form according to BCC Contract can help investors save a lot of time, effort and finance in establishing a new legal entity as well as business operating costs after establishment. When the project ends, investors do not have to carry out business dissolution procedures. Therefore, this form is always prioritized for investment projects in apartment buildings in big cities because when the project ends, the parties dividing profits do not need to go through business dissolution procedures like other forms of investment.

Second, with this form of investment, the parties can support each other’s shortcomings and weaknesses in the production and business process. For example, for new investment markets, foreign investors will have easy access through domestic partners who understand the market. As for domestic investors, they can receive support from foreign partners in terms of capital, human resources, and modern technology.

Third, during the contract implementation process, the investor uses his independent legal status to proactively exercise his rights and obligations. Therefore, investors will be flexible, independent, and less dependent on partners when deciding on investment project issues. If for forms of investment that require the establishment of a new legal entity, investors base on the capital that each party spends to select one or a group of heads and leaders of the company. The negotiation mechanism to share benefits and obligations in investment activities of this form also helps investors be flexible in exercising their rights and obligations as in a contract without organizational binding by a common judgment of organizations and individuals that have investment relationships with each other.

3.2. Restrict

Firstly, not establishing a new legal entity as analyzed above is one of the outstanding advantages but also a limitation of this form of investment. Because there is no legal entity implementing the project, when implementing investment contracts, investors will have difficulty entering into contracts. Failure to establish a new legal entity in many cases, if investors do not research carefully and choose the wrong form of investment, will become a major limitation, causing many risks for investors. A typical example can be considered in a horse racing investment and business project between Thien Ma company and Phu Tho Club[5]. “Borrowing” a legal entity in this investment project has caused many problems for investors, especially in foreign affairs, profit distribution as well as company management rights. Thien Ma Company, who directly spent money, felt constrained and not proactive because everything had to go through the partner’s seal. On the contrary, the Phu Ho Club is worried about the responsibility of the person directly stamping the seal.

Second, the law does not have specific regulations on the responsibilities of parties and third parties when a party enters into a contract with a third party during the implementation of a BCC contract.

Thus, it can be seen that the investment form according to BCC Contracts is now becoming popular due to its flexible and effective nature. However, depending on each specific project, investors need to find out more about both the advantages and limitations of each form of investment to choose the most suitable form to minimize risks that can occur with any investment project.

As always, we hope you find this Legal Article useful and look forward to working with you in the future.

Kind regards,

ENT LAW LLC

The full version of this Legal Article can be found here.

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[1] Clause 20, Article 3 of the Investment Law 2020

[2] Clause 19 Article 3 of Investment Law 2020

[3] Article 27 of Investment Law 2020

[4] Article 28 of Investment Law 2020

[5] According to the article at VN Express: Risks from business cooperation contracts (https://vnexpress.net/rui-ro-tu-hop-dong-hop-tac-lanh-doanh-2685787.html)