Legal regulations for business investment cooperation for hotels

A Business Cooperation Contract (BBC) is an agreement executed between investors for the purpose of conducting business operations and sharing profits or products without establishing a new economic organization. It is one of the investment methods stipulated under the Law on Investment and is widely chosen by investors, especially in the hotel business sector. 

What are the legal regulations governing business investment cooperation for hotels, and what should the parties pay attention to? Below, NPLAW provides detailed clarifications for our Clients. 

I. Overview of business investment cooperation for hotels

1. What is business investment cooperation for hotels?

Pursuant to Clause 9 Article 3 of the Law on Investment 2014, a Business Cooperation Contract is a contract executed between investors for the purpose of conducting business operations and sharing profits or products without establishing a new economic organization.

From the above definition, business investment cooperation for hotels refers to an agreement entered into between individuals or organizations (investors) to cooperate in operating a hotel business and share profits without the need to establish an economic organization.

2. Forms of executing business investment cooperation contracts for hotels 

The parties to the Business Cooperation Contract may comprise domestic or foreign investors; hence, Business Cooperation Contracts for hotel business take two principal forms: 

• A contract executed between domestic investors (individuals or organizations);
• A contract executed between domestic investors and foreign investors, or between foreign investors.

The law does not mandate a specific form for Business Cooperation Contracts; however, a hotel business investment cooperation contract should be made in writing.

Note: When entering into Business Cooperation Contracts, investors may establish a coordinating board to implement the contract. The investors shall mutually agree on the functions, duties, and powers of such a coordinating board. Foreign investors engaging in an investment project must obtain an Investment Registration Certificate in accordance with the Law on Investment.

II. Legal regulations on business investment cooperation for hotels 

1. Essential contents of business investment cooperation contracts for hotels 

Business Cooperation Contracts for hotel business investment include various terms agreed upon by the parties. Essential contents generally include:

• Names and addresses of the parties; legal representative (for organizations); transaction address or the location of the investment project;
• Objectives and scope of business operations;
• Capital contributions and profit-sharing arrangements;
• Rights and obligations of each party, as well as regulations on the responsibilities and powers of the coordinating board;
• Amendment, transfer, termination of the contract, sanctions for breach, and exemptions from liability;
• Other agreements (if any), provided such terms are mutually agreed upon and do not violate prohibitions of the law.

2. Which provision is the most important in business investment cooperation contracts for hotels and why?

The objectives and scope of business operations constitute the most important content of business investment cooperation contracts for hotels.

Accordingly, the essence of business investment cooperation contracts is to collaborate in hotel business operations for profit-sharing; thus, the parties must expressly define the cooperation objectives and the scope of activities, including:

• The purpose of cooperating, managing, and sharing profits derived from hotel business operations;
• The scope of commercial activities, management, and operation necessary to generate profits;
• Each party’s responsibilities to ensure effective execution of the contract.

III. Questions on business investment cooperation for hotels

1. Main issues to note when drafting business investment cooperation contracts for hotels:

• Determining the business lines and choose suitable partners;
• Clearly specifying capital contributions in Vietnamese dong and the corresponding profit-sharing ratios;
• Including detailed information on business purposes, business scope, geographical scope, and duration;
• Reviewing all contractual provisions; notarization or certification may be conducted where appropriate.

2. Can foreign investors enter into hotel business investment cooperation under Business Cooperation Contracts (BBC)? 

According to Article 27 of the Law on Investment 2020:

• A Business Cooperation Contract between domestic investors is governed by civil law;
• A Business Cooperation Contract involving foreign investors requires the investors to obtain an Investment Registration Certificate in accordance with Article 38 of the Law on Investment 2020.

Thus, foreign investors may cooperate in hotel business investment under a Business Cooperation Contract, provided that the required investment registration procedures are completed prior to implementation.

3. Cases in which business investment cooperation for hotels cannot be conducted

Cooperation is not permitted in the following cases:

• The parties cannot reach agreement on objectives or scope of business;
• Foreign investors do not satisfy market entry conditions for Vietnam;
• The hotel business activities fall within sectors prohibited by competent authorities.

4. What conditions apply when the parties wish to terminate business investment cooperation for hotels?

Upon termination of a Business Cooperation Contract:

• All debts arising under the contract must be settled. If the common assets are insufficient, the parties must use their own personal assets to pay outstanding debts (Article 509 of the Civil Code 2015);
• After all liabilities are handled, any remaining common assets shall be distributed among the parties proportionate to their respective capital contributions, unless otherwise agreed.

IV. Legal consultancy and drafting services for business investment cooperation for hotels

The foregoing are the main legal points concerning hotel business investment cooperation contracts. NPLAW provides legal consultancy and drafting services for documents relating to hotel business BCCs. If you require advice concerning hotel business investment cooperation, please contact NPLAW for comprehensive support.