4 must-sign agreements for foreign investors in Vietnam

Foreign investment in Vietnam often involves navigating complex regulations and procedures for receiving investment capital from aboard. To ensure a seamless and lawful capital or share transfer process, investor must carefully execute necessary agreements and documentation. 

The following are some of the most common documents that investors must sign when investing in Vietnam:

1. Memorandum of Understanding

A Memorandum of Understanding (MOU) is a document used to record and identify the basic terms and commitments associated with the purchase of shares or capital contributions in a company or organization. An MOU may be used during negotiations before signing a specific sales contract or shareholder agreement.

This MOU is usually a temporary document that does not have the same legal force as a sales contract. Instead, it represents the parties’ initial commitment in a common spirit, as well as basic information about the expected transaction, such as transaction value, number of shares or capital contribution, implementation time, and other important conditions.

2. Non-disclosure Agreement

A non-disclosure agreement (“NDA”) outlines the obligation of the receiving party (particularly the buyer) to keep confidential information related to the transaction and information about: the target company that the information disclosing party (particularly the seller) provides when researching, negotiating, and implementing of the transaction.

2.1 What is the purpose of a non-disclosure agreement?

A non-disclosure agreement’s primary objective is to keep an organization’s or individual’s sensitive information from unauthorized use or disclosure. The main purposes of this agreement are to:

• protect sensitive information,
• allocate responsibilities,
• limit the use of information, and
• establish control.

2.2 Things that need to be addressed

Parties should sign the NDA promptly to protect confidentiality before any disclosure by the seller to the buyer. If negotiations fail to produce preliminary agreement, the parties should convert the NDA into a separate contract to safeguard information.

It is important to define confidential information in an NDA, including details of deal negotiations and agreements, commercial, financial, technical, legal, and other information. This information can be exchanged in many different forms.

Finally, the agreement outlines procedures for disposing of information upon termination, such as the return of documents and confidential information to the disclosing party and the destruction of information.

NDAs play an essential role in protecting companies’ and individuals’ information and intellectual property. Following the terms of this agreement ensures the security and protects sensitive information from unwanted access. All parties accessing the information must understand and strictly adhere to an NDA to protect data integrity and security.

3. Share purchase agreement (SPA) 

A Share Purchase Agreement (SPA) or “Capital contribution transfer agreement for limited liability companies” is an important legal agreement that is frequently used in the process of trading a company’s shares. The SPA has terms and conditions that assure the protection and preservation of both purchasers’ and sellers’ rights while engaging in share transactions. It commonly uses in stock purchase and sale transactions and business restructuring decisions.

Investors must understand that when parties get into a SPA, the parties want to be in a safe position, minimizing risks as much as possible for their foreign investment in Vietnam.

The buyer and seller have the following goals:

• The buyer seeks assurance of secure share ownership, comprehensive business information and protection from potential risks.
• Meanwhile, the seller wishes to receive the profits of the share sale, reduce financial obligation, and avoid non-contractual liability.

One may argue that SPA is the most crucial document to have when receiving funds from overseas investors. The SPA’s result will reflect the comprehensive procedure outcome of thorough discussion, legal analysis and negotiation. For all share trading activities and obtaining foreign investment capital, SPA is a comprehensive framework. This agreement clearly defines the rights and responsibilities of all the parties, ensuring transparent, secure and safe transaction.

4. Shareholder agreement

A shareholder agreement is an agreement entered into by some or all the shareholders in a company, or between one and other shareholders. This is a legal agreement between the shareholders or key shareholders of a company, setting the rules and conditions of how they will participate in the management and decision-making within the company. It also defines issues related to shares, shareholder rights, and how to resolve any disagreements between the parties involved.

Shareholder agreements often go beyond the company’s charter and the legal provisions regarding the rights that shareholders have in the agreement. Accordingly, shareholders can also voluntarily waive their rights under the law or the company’s charter.

4.1 Purpose of a shareholder agreement

A shareholder agreement’s primary goal is to establish a legal foundation for the company’s effective management and operations. This is an important tool for ensuring stability and harmony in shareholder relationships, avoiding unnecessary conflicts, and laying a foundation for long-term development. The main objects of the shareholder agreement include rights and obligations, profit division, dispute resolution, and share transactions.

4.2 Shareholder agreement provision

Shareholder agreement can vary depending on the will of the shareholders in the transactions. The shareholder agreement typically includes the following key elements:

• share division,
• rights related to voting,
• division profits,
• resolving disagreements,
• trading shares.

The shareholder agreement is an important instrument for successful foreign investment in Vietnam. This indispensable document fosters stability and harmony within company management, safeguarding shareholder rights and interest while prompting long-term growth for foreign investment ventures. All shareholders must participate in the development and implementation of the shareholder agreement responsibly to ensure the success and growth of the company.

Conclusion

In summary, the following are among some of the documents foreign investors encounter when navigating the intricate landscape of foreign investment in Vietnam. The parties will sign different agreements and documents based on the company’s structure. For comprehensive insights into foreign investment and doing business in Vietnam, please refer to our other related articles.

Contact PLF Law Firm today via email at inquiry@plf.vn or +84913 902 906  to receive a Free 30-Initial Minute Consultation.