The determination of the value of a business cooperation contract plays a crucial role in the process of contract formation. The following article outlines the legal regulations governing the determination of the value of business cooperation contracts and addresses several related issues to assist individuals and organizations in protecting their lawful rights and interests.
The determination of the value of a business cooperation contract plays a crucial role in the process of contract formation. The following article outlines the legal regulations governing the determination of the value of business cooperation contracts and addresses several related issues to assist individuals and organizations in protecting their lawful rights and interests.
I. Common mistakes in determining the value of business cooperation contracts
When determining the value of a business cooperation contract, the contracting parties often make the following mistakes, which may lead to serious consequences:
- Unclear cooperation objectives and contributed assets: The parties fail to clearly define the objectives of cooperation and do not record in detail the contributed assets (real estate, movable property, intellectual property) as well as each party’s contributions in terms of effort (ownership rights over contributed assets are not clearly defined).
- Lack of detailed provisions on the rights and obligations of each party regarding asset contribution: The parties do not stipulate specific and detailed terms on each party’s responsibilities in contributing assets for business cooperation, such as timelines, liability for breach, or other obligations related to contributed assets.
- Inaccurate valuation and recording of contributed assets: Failure to properly verify ownership of contributed assets (land, mortgaged assets, or assets under dispute). Assets are not valued at their actual market value or the valuation method is not clearly defined.
Accordingly, the above are common mistakes that parties often encounter when determining the value of business cooperation contracts.
II. Understanding the determination of the value of business cooperation contracts
1. What is the determination of the value of a business cooperation contract and why is it important?
Pursuant to Article 504 of the Civil Code 2015, a cooperation contract is defined as an agreement between individuals or legal entities to jointly contribute assets and efforts to conduct certain activities, share benefits, and assume joint responsibility.
According to Clause 14, Article 3 of the Law on Investment 2020, a business cooperation contract (BCC) is a contract entered into between investors for the purpose of business cooperation and sharing profits or economic products.
Accordingly, the determination of the value of a business cooperation contract can be understood as a legal agreement between individuals or legal entities to contribute assets and efforts to implement a project, share profits, and take joint responsibility without establishing a new economic organization.
The determination of the value of a business cooperation contract is of great importance, as it establishes a solid legal foundation, clearly defines the rights and obligations of each party, and minimizes the risk of disputes. It also facilitates the efficient implementation of projects, enhances trust and credibility in business cooperation, and serves as a tool for attracting partners.
2. What difficulties may enterprises face when determining the value of a business cooperation contract?
When determining the value of a business cooperation contract, enterprises often encounter difficulties in valuing contributed assets, allocating profits, and managing risks, including:
- Valuation of contributed assets: The valuation of assets such as land, intellectual property, or the experience and efforts of the parties is complex and may lead to disputes, particularly in the absence of an independent appraisal body.
- Allocation of profits and risks: In the absence of a standard formula or uniform regulations for profit distribution, disagreements may arise regarding allocation methods, especially in long-term projects or those subject to significant fluctuations.
- Financial transparency and management: A lack of financial transparency and effective control mechanisms leads to unclear determination of actual investment value and profits. In addition, unclear allocation of management and operational roles may result in conflicts, thereby affecting efficiency and the overall value of cooperation.
Thus, enterprises may encounter the above difficulties when determining the value of business cooperation contracts.
3. Are there differences in determining the value of business cooperation contracts across different sectors?
There are significant differences in determining the value of business cooperation contracts across sectors due to the nature of assets, contract types, and industries, for example:
- In processing or manufacturing sectors: The contract value is based on processing fees, raw material costs (provided by the ordering party), and the quality of the final product. The value is determined based on production costs, labor, machinery, service fees, and other expenses incurred during contract performance.
- In technology or software sectors: The contract value is typically based on intellectual property assets such as copyrights, proprietary technologies, trade secrets, and the commercialization potential of products or services. The valuation of intellectual property is often more complex and costly, particularly in relation to revenue allocation from licensing and usage rights.
Accordingly, there are notable differences in determining the value of business cooperation contracts across various sectors.
4. What common errors do enterprises make when determining the value of business cooperation contracts?
During the process of entering into a business cooperation contract, determining its value is essential; however, enterprises frequently make the following common errors:
- Errors in identifying contributed assets:
- Failure to verify contributed assets: Inadequate verification of ownership and actual value of assets (especially assets formed in the future).
- Incomplete legal information of the parties: Missing legal details such as tax identification numbers, business addresses, or authorized representatives.
- Non-compliance with formal requirements: Confusion between notarization and certification, or failure to notarize contracts where required (e.g., capital contribution using land use rights).
- Unclear objectives and scope: The contract fails to clearly define cooperation objectives, roles, responsibilities, and entitlements of each party.
- Failure to agree on sanctions and remedies: The contract does not provide for sanctions or remedies in cases of delayed performance or failure to contribute assets on time, thereby affecting project progress.
In summary, the above are common errors that enterprises often encounter when determining the value of business cooperation contracts.
III. Legal regulations on the determination of the value of business cooperation contracts
1. Which laws govern the determination of the value of business cooperation contracts in Vietnam?
The determination of the value of business cooperation contracts in Vietnam is primarily governed by the following laws:
- Law on Investment 2020: Providing that a business cooperation contract is a form of investment whereby investors cooperate in business and share profits or products without establishing a new economic organization.
- Civil Code 2015: Regulating cooperation contracts, their contents, rights and obligations of participating members, and related matters.
- Civil Procedure Code 2015: Governing the settlement of disputes arising from business cooperation contracts through court proceedings.
Thus, the above laws form the legal basis for determining the value of business cooperation contracts in Vietnam.
2. What procedures must be followed to determine the value of a business cooperation contract in compliance with legal regulations?
Pursuant to Article 504 of the Civil Code 2015, a cooperation contract is based on the agreement of the parties; therefore, the determination of contract value is primarily subject to mutual agreement.
- According to Article 28 of the Law on Investment 2020 and Article 505 of the Civil Code 2015, a business cooperation contract must include the following main contents:
- Names, addresses, and authorized representatives of the contracting parties; transaction address or project implementation location;
- Objectives and scope of investment or cooperation term;
- Contributions of assets or labor by the parties and allocation of business results;
- Schedule and duration of contract performance;
- Rights and obligations of the parties and cooperating members;
- Amendment, assignment, and termination of the contract;
- Liability for breach and dispute resolution mechanisms;
- Methods of distribution of yields and profits;
- Rights and obligations of the representative, if any;
- Conditions for participation in and withdrawal from the contract.
Accordingly, the process for determining the value of a business cooperation contract includes:
- Negotiation and agreement:
- Defining objectives: The parties clarify cooperation objectives, project scope, and business model.
- Assessing contributions: Valuation of capital contributions in cash, assets, land use rights, and intellectual property (if any).
- Agreeing on profit allocation: Agreement on the distribution ratio of profits/products based on contribution levels and risk exposure, which may be based on revenue or pre-/post-tax profits.
- Execution and implementation of the contract: Drafting a detailed contract specifying capital contributions, management and operation rights, allocation of benefits and risks, responsibilities, and dispute resolution mechanisms in accordance with legal regulations.
Thus, the above steps are required to determine the value of a business cooperation contract in compliance with the law.
3. What legal consequences may arise if the determination of contract value does not comply with regulations?
Failure to comply with legal requirements in determining the value of a business cooperation contract may result in the following consequences:
- Invalid contract: The contract may be declared invalid under Clause 1, Article 407 of the Civil Code 2015 if valuation violates legal provisions (e.g., due to fraud, mistake, or violation of prohibitions). In such cases, the parties must restore the original state and return what has been received according to Clause 2, Article 131.
- Unilateral termination: The injured party may unilaterally terminate the contract and claim damages if improper valuation significantly affects cooperation objectives under Article 428.
- Compensation for damages and contractual penalties: The breaching party may be liable for actual damages or contractual sanctions if agreed. Pursuant to Articles 13, 360, and 419, injured parties are entitled to full compensation unless otherwise agreed or provided by law. Contractual sanctions are governed by Article 418.
Thus, non-compliance may lead to the above legal consequences.
IV. Questions on the determination of the value of business cooperation contracts
1. Is it necessary to use legal advisory services when determining the value of a business cooperation contract?
The use of legal advisory services in determining the value of a contract, particularly a business cooperation contract (BCC) involving foreign elements with complex procedural requirements, is highly necessary and important.
Legal advisory services provided by lawyers and experts with in-depth knowledge of relevant industries and legal fields help minimize legal risks, ensure fairness and legality, and protect the rights and interests of the parties, thereby avoiding unnecessary disputes, especially where the legal framework governing BCCs remains inconsistent or incomplete.
2. If the counterparty fails to perform its contractual obligations, can an adjustment of the contract value be requested?
- A request to adjust the contract value may only be made where there is mutual agreement between the parties or in exceptional circumstances requiring adjustment due to a fundamental change of circumstances in accordance with Articles 420 and 421 of the Civil Code 2015, such as:
- The change arises from objective causes occurring after the conclusion of the contract;
- At the time of contract formation, the parties could not have reasonably foreseen such change;
- The change is so substantial that, had it been foreseen, the contract would not have been concluded or would have been concluded with entirely different terms;
- Continued performance of the contract without modification would cause serious damage to one party;
- The affected party has taken all necessary and reasonable measures within its capacity, consistent with the nature of the contract, to prevent or mitigate the adverse impact on its interests.
- Any amendment to the contract must comply with the form of the original contract.
Accordingly, where the counterparty fails to perform its contractual obligations, the remaining party may request an adjustment of the contract value in accordance with the above provisions.
3. Can disputes arise in relation to the determination of the value of a business cooperation contract?
Disputes relating to the determination of the value of a business cooperation contract commonly arise in connection with the following issues:
- Disputes over contributed assets: Conflicts regarding the valuation of assets contributed by each party, as well as the actual capital contribution ratio compared to the initial agreement.
- Disputes over profit distribution: Disagreements concerning calculation methods, timing of profit allocation, or the handling of losses, particularly where there are significant disparities in contributions or business outcomes.
- Disputes over costs and financial obligations: Differences in the calculation of shared costs, management expenses, or liabilities arising during the course of cooperation.
- Disputes due to unclear contractual terms: Provisions relating to value, contributions, and profit allocation are not clearly stipulated, leading to misunderstandings and disputes.
Accordingly, disputes relating to the determination of the value of a business cooperation contract may arise from the above issues.
4. If one party refuses to cooperate in determining the value of the business cooperation contract, can the other party initiate legal proceedings?
Pursuant to Clause 3, Article 3 of the Civil Code 2015, one of the fundamental principles of civil law is that individuals and legal entities must establish, perform, and terminate their civil rights and obligations in good faith and honesty.
Additionally, under Article 186 of the Civil Procedure Code 2015, agencies, organizations, and individuals have the right to initiate a lawsuit, either on their own behalf or through lawful representatives, before a competent court to protect their lawful rights and interests.
Accordingly, a party’s refusal to cooperate in determining the value of a business cooperation contract constitutes a breach of the duty of cooperation and good faith in contract performance. The other party may initiate legal proceedings if its lawful rights and interests are infringed.
V. Are you looking for a reputable legal expert?
The above provides general guidance on determining the value of business cooperation contracts. NPLaw, with a team of experienced lawyers and legal professionals, offers reliable and professional legal services to protect clients’ lawful rights and interests.
