Investment through contracts is a flexible investment method that allows parties to cooperate in business without having to establish a new legal entity (enterprise). However, to ensure investors’ rights and capital safety, drafting and implementing investment contracts requires in-depth knowledge of legal regulations. This article by NPLaw provides an overview of the role of investment by contract, helping investors make informed decisions, navigate their investment journey confidently, mitigate risks, maximize the protection of lawful interests, and ensure capital security.
I. The role of investments through contracts
In the context of an increasingly dynamic market economy, investment through contracts has become a common business cooperation method, especially for projects with short-term nature, specific goals, and high flexibility. According to Article 27 and Article 28 of the Law on Investment 2020 on forms of investment by contract, and Article 504 of the Civil Code 2015 on cooperation contracts, investment through contracts plays an important role in:
- Creating flexible cooperation opportunities: This form allows investors to combine their resources and strengths without necessarily having to establish a new legal entity, thus minimizing complicated administrative procedures.
- Optimizing resources: Through investment contracts, the parties can use available capital, technology, management experience, and business networks, creating greater synergy compared to operating individually.
- Effectively sharing risks: Risks and profits are fairly distributed, reducing the burden on each investor and encouraging long-term cooperation.
- Saving costs and time: Compared to establishing and operating an independent legal entity, investment through contracts often involves simpler procedures, quicker implementation, and lower costs.
II. Legal regulations on investments through contracts
1. What is investment through a business cooperation contract (BCC)?
The form of business cooperation investment is defined in Clause 14, Article 3 of the Law on Investment 2020:
- A business cooperation contract (hereinafter referred to as a BCC) is a contract signed between investors to conduct business cooperation, share profits or divide products according to the provisions of law without establishing an economic organization.
Thus, a business cooperation contract is a legal agreement under which investors (individuals or organizations with domestic or foreign) commit to cooperate to implement one or more specific business activities, share profits or products from such activities, without having to establish a new legal entity such as a limited liability company or joint stock company.
At the same time, Clause 4, Article 21 of the Law on Investment 2020 affirms that investment through business cooperation contracts is one of the five forms of investment recognized by Vietnamese law, showing its legality and protection.
2. What contents does the business cooperation contract include?
To ensure legality and protect the parties’ rights, a business cooperation contract must contain essential contents. These are stipulated in Article 505 of the Civil Code 2015 (general provisions on cooperation contracts) and Article 28 of the Law on Investment 2020 (specific provisions on BCCs). Specifically, the contract should include:
- Full and accurate information about the parties to the contract, including names, addresses, contact information, and authorized representatives.
+ Clearly defined objectives and scope of activities, including the specific goals of the cooperation and the scope of work the parties will jointly undertake.
- Provisions on contributions and distribution, specifying each party’s capital or asset contributions (if any) and methods for fairly and transparently sharing profits, products, or revenues.
- A clearly determined duration of the contract, serving as a basis for exercising rights and obligations.
- Specific rights and obligations of each party during contract performance, including rights to oversight and confidentiality obligations.
- Provisions on amendment, assignment, and termination, specifying conditions and procedures to ensure flexibility and adaptability when circumstances change.
- A dispute resolution mechanism (negotiation, mediation, arbitration, or court) clearly defined to minimize risks and legal costs in case disputes arise.
3. What additional contents make it an investment contract?
To clearly identify it as an investment contract, a business cooperation contract needs to add the following contents (in addition to those mentioned in section 2), referencing Article 28 of the Law on Investment 2020:
- Detailed description of the project or business activities (investment object): Specific, clear, and detailed provisions on what the parties are cooperating to invest in.
- Total investment capital and methods of capital mobilization: Clearly identifying the required total capital and how the parties contribute (in cash, assets, or intellectual property rights).
- Project implementation progress: Specifying start and end times and important project milestones.
- Project management and administration: Provisions on organizational structure, authorities, and responsibilities of the parties in managing and operating the project.
- Agreements on sharing risks and responsibilities: In cases where the project encounters difficulties or fails (risk allocation).
- Force majeure: Anticipating circumstances (natural disasters, epidemics, policy changes, etc.) affecting contract performance and providing handling provisions.
III. Some questions about investment by contract
1. Can an investor withdraw from the cooperation contract and reclaim contributed assets?
The right to reclaim contributed assets when withdrawing from a cooperation contract depends on the contract agreement and legal provisions. Specifically, under Article 510 of the Civil Code 2015 (on withdrawal from cooperation contracts), a member has the right to request the return of contributed assets, receive a share of common assets, and must also fulfill agreed obligations.
If division of assets in kind affects cooperation activities, assets may be valued and divided in cash. Thus, investors should carefully consider provisions related to capital withdrawal and asset liquidation in the contract.
2. In what cases does the cooperation contract terminate?
Cases of contract termination are stipulated in Article 512 of the Civil Code 2015 and may be supplemented or specified in the contract. Accordingly, a cooperation contract terminates when:
- By agreement of the cooperating members.
- Upon expiry of the contract term.
- Achieved cooperation objectives.
- By decision of a competent state agency.
- Other cases under the Civil Code 2015 or relevant laws (e.g., a party seriously violates contractual obligations).
3. Why should an investment cooperation contract be signed?
Signing an investment contract, especially a business cooperation contract, brings many benefits to investors. According to Articles 27 and 28 of the Law on Investment 2020:
- Flexible legal form: A business cooperation contract does not require the signing parties to be legal entities, opening opportunities for various subjects.
- Save of costs and time: It does not need to establish an economic organization, helping investors save time, effort, and administrative costs.
- Mutual support: Investors support each other during business, leveraging each other’s experience and resources.
- Equality in performance: Investors participate in their independent legal capacity to perform rights and obligations, ensuring equality.
- Support from a coordination board: A business cooperation contract may include support from a coordination board, enhancing parties’ responsibilities and contract performance efficiency.
- Opportunities for long-term cooperation: Investors may agree to use assets formed from business cooperation to establish a company, laying a foundation for sustainable relationships.
- Clear profit sharing: A business cooperation contract clearly regulates how to distribute investment results, enabling proactive financial management and investment forecasting.
4. What is investment through contracts and what common types exist in Vietnam?
According to Article 27 of the Law on Investment 2020, investment through contracts means investment under a contract signed between investors to cooperate in business, share profits, divide products under the law without establishing an economic organization. This contract may be signed between domestic and foreign investors, or between foreign investors themselves, and must follow investment registration procedures.
Accordingly, common types in Vietnam include:
- Business Cooperation Contract (BCC) under Article 28 of the Law on Investment 2020.
- Public-Private Partnership (PPP) contracts in infrastructure development, including Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO), Build-Own-Operate (BOO) under the 2020 Law on Public-Private Partnership Investment 2020.
- Asset lease contracts, allowing investors to use another party’s assets for business under the Civil Code 2015.
- Entrusted investment contracts, where investors entrust a professional entity to manage and invest capital under the Civil Code 2015 and the Law on Securities 2019.
5. What legal clauses should investors note to avoid risks?
According to Article 28 of the Law on Investment 2020 and Article 505 of the Civil Code 2015 on cooperation contract content, to minimize risks, investors should pay special attention to these clauses:
- Clear provisions on capital contribution and profit sharing: Including value, form and time of contributions; profit sharing ratio, and plans for handling risks.
- Specific allocation of responsibilities and obligations: Especially in managing, operating the project, and complying with the law.
- Clear conditions and processes for contract termination and capital withdrawal: Including early termination cases and handling of remaining assets and obligations.
- Agreements on dispute resolution methods (negotiation, mediation, arbitration, or court) and jurisdiction.
- Confidentiality of business information: Ensuring no disclosure to third parties.
- Force majeure provisions: To minimize damage to the parties.
6. Does investment through contracts in construction fall under any specialized laws?
Investments through contracts in construction (such as BOT, BT projects) is governed by many specialized laws, specifically:
- The Law on Investment 2020: General regulation on investment activities in Vietnam.
- The amended Law on Construction 2020: Regulations on construction planning, permitting, and quality management.
- The Law on Bidding 2023: Governs investor selection for project implementation.
- Decree 35/2021/ND-CP: Detailed regulations guiding the Law on Public-Private Partnership Investment.
- Decree 15/2021/ND-CP: Detailed regulations on some provisions and measures to implement the Law on Construction on construction activity management.
- In addition, regulations on construction permits, technical standards, quality management, payments, and dispute settlement in construction must be strictly observed to ensure legality and project efficiency.
IV. Legal consulting services for investment in contracts
NPLaw provides professional and comprehensive legal consulting services on investment through contracts, assisting investors in:
- Advising on selecting appropriate investment contract forms for business goals.
- Drafting and reviewing business cooperation contracts, BOT, BTO, BOO, and other investment contracts.
- Advising on legal regulations related to the investment sector.
- Representing clients in contract negotiations.
- Consulting on resolving disputes arising during contract execution.
- Updating the latest legal regulations on investment and business.
Contact NPLaw today for professional legal support on investment by contract. We are committed to accompanying you to achieve the highest investment efficiency and minimize all legal risks.
