Investment Under Business Cooperation Contract

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After terminating a labor contract, the binding responsibilities between employers and workers also end. Former employees working for other enterprises raise the employer’s concern over information confidentiality.

There is a variety of investments in the form of contracts in Vietnam including investment under the Business Cooperation Contract, which offers many benefits as well as certain disadvantages.

As regulated by Law on Investment (2005) and guided by Circular No. 108/2006/ND-CP, Business Cooperation Contract (hereinafter referred to as “BCC”) is a form of cooperation contract signed between investors, including at least one domestic partner. A BCC stipulates rights, profit sharing and joint responsibility for risks to each business cooperation party during the investment process without establishing a legal entity. Agreement between investors under the BCC is one of the direct investment forms.

The fact that a BCC does not require a legal entity is considered an outstanding advantage for all investors as well as foreign ones. Investors and their partners may agree upon their rights and obligations under a contract as independent investors without being bound by a joint legal entity.

Investors will be able to save time and cost of establishing and operating a new legal entity; they need not depend on their partners’ decision to transfer or sell their part under certain circumstances. In addition, investors do not need to worry about dissolution when a project finishes.

Investing under the BCC is one of the optimal choices that allows foreign investors planning to invest in a new market to be able to quickly approach information of such market through the understanding of domestic partners. Simultaneously, domestic investors also receive from foreign partners support on capital and modern technology for business production activities or development of investment project. This form of investment is suitable for short-term investment projects with rapid implementation progress.

However, on the other hand, not establishing a legal entity also has a downside to this form of investment. The implementation of sideline contracts and transactions serving the BCC may confuse the third party when there is not any representative – a joint venture between investors. Meanwhile, Vietnam’s laws have not yet had any detailed regulation on specific obligations of business cooperation parties when entering into contract with a third party. Moreover, investors also have to agree upon which company seal shall be used when entering into contract with a third party. In case where any risk happens, specifically when the parties disagree on which seal to use, such investment project will be stopped for settlement.

PLF Law Firm

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