Request to terminate business cooperation: legal regulations and important considerations

In a business environment with constant fluctuations, cooperative relationships have difficulty in maintaining as originally expected. When business objectives change, contractual obligations are not fully performed, or legal risks arise, a request for termination of business cooperation becomes a matter of increasing concern for enterprises and investors. A clear understanding of the nature, legal grounds, and procedures for requesting the termination of business cooperation is an essential factor in helping the parties protect their lawful rights and minimize potential disputes.

I. The growing need to request termination of business cooperation in the current context

At present, market volatility, changes in legal policies, financial difficulties, and conflicts of interest have caused many business cooperation relationships to become inconsistent with their original objectives.

When one party fails to execute its commitments, when the effectiveness of the cooperation does not meet expectations, or when legal risks arise, the need to request termination of business cooperation becomes inevitable. Proactively reviewing and implementing a request to terminate cooperation at an appropriate time helps the parties minimize losses, manage risks, and safeguard their lawful rights and interests.

II. Understanding the request to terminate business cooperation

1. What is a request to terminate business cooperation?

Business cooperation refers to collaboration between entities in order to exploit each other's advantages, thereby achieving higher efficiency and sustainable competitive advantages.

On that basis, a request for termination of business cooperation refers to the act whereby one party or multiple parties in a cooperative relationship propose the termination or suspension of continued cooperation under the agreed arrangement, when the cooperation objectives can no longer be achieved, operational efficiency cannot be ensured, or violations or risks arise that affect the lawful rights and interests of the parties.

2. What reasons may lead to a request to terminate business cooperation?

During the course of implementing business cooperation, a request to terminate cooperation may arise from various causes stemming from both subjective factors of the parties and objective impacts from the external environment. Common reasons include:

• Breach of contractual obligations: One party fails to perform, or performs incompletely or improperly, its agreed obligations, such as delayed or non-payment, failure to contribute sufficient capital, or failure to provide goods or services in accordance with agreed quality, time, or conditions. 
• Changes in objectives or cooperation orientation: Changes in business strategies, operational models, or development goals of one or more parties that render continued cooperation ineffective or inconsistent with initial expectations.
• Conflicts regarding benefits and management: Disputes concerning profit distribution, cost allocation, management authority, decision-making authority over significant matters, or the method of managing cooperative activities.
• Increased legal or financial risks: One party shows signs of insolvency, incurs significant debts, becomes involved in disputes, is subject to administrative sanctions, or faces potential legal liability that directly affects the cooperative project and its reputation.
• Loss of capacity to execute cooperation obligations: A cooperating party is dissolved, declared bankrupt, suspends operations, changes its organizational structure, or lacks sufficient financial or human resources to continue fulfilling its obligations.
• Occurrence of force majeure or fundamental change of circumstances: Objective factors such as natural disasters, epidemics, changes in policies or laws, or events beyond the control of the parties that make continued cooperation impossible or unreasonable.

These circumstances commonly serve as grounds for the parties to consider negotiating the termination of cooperation or unilaterally requesting the termination of business cooperation, and they also form an important basis for determining the rights, obligations, and legal liabilities that arise after the cooperation relationship ends.

3. Who has the authority to decide on a request for termination of business cooperation under a contract?

The authority to decide on a request for termination of business cooperation under a contract belongs to the parties participating in the contract, based on the contents and conditions agreed in the business cooperation agreement.

• If the contract provides for unilateral termination rights: The party designated in the contract may request termination of the cooperation.
• If the contract requires mutual consent: Termination must be agreed upon by all parties through written confirmation or meeting minutes.
• Where the cooperation is conducted through a company or an organization with a management structure: The authority to propose termination may belong to the Board of Directors, the Chairperson of the company, or the General Meeting of Shareholders, depending on the company charter and the form of cooperation.

The authority to decide on termination of cooperation always depends on the contractual agreement and the nature of the cooperative structure, while also complying with applicable laws. Proper exercise of such an authority helps protect the legal interests of the parties and minimizes the risk of disputes after termination.

4. In what forms can a request for termination of business cooperation be made?

A request for termination of business cooperation may be implemented through the following forms:

Written agreement

• The parties prepare a written document requesting termination of cooperation, signed and confirmed by all parties.
• It is the most common form, having clear legal validity and serving as reliable evidence in the cases of disputes.

Formal notice

• The notice may be sent via letter, email, or other communication methods agreed upon in the contract.
• The notice must clearly state the intention to terminate cooperation, the reasons, and the effective time.

Meeting minutes

• Such a method applies where the business cooperation operates in the form of a company or an organization with a management structure.
• The request for termination may be recorded in the minutes of meetings of the Board of Directors, the General Meeting of Shareholders, or a cooperation committee.

The form of requesting termination must ensure clear and verifiable evidence and comply with contractual agreements as well as legal regulations. Proper implementation of the form helps safeguard the rights of the parties and minimize potential disputes in the future.

III. Legal regulations relating to requests for termination of business cooperation

During business cooperation, a request by one or more parties to terminate cooperation is a significant legal issue that directly affects the rights and obligations of the contracting parties. The request for termination is not only governed by contractual agreements but must also comply with applicable legal regulations in order to protect lawful interests and limit risks of disputes, financial losses, or reputational damage.

1. Which laws regulate requests to terminate business cooperation in Vietnam?

Requests to terminate business cooperation in Vietnam are primarily governed by the Civil Code 2015, the Law on Investment 2020, and regulations relating to Business Cooperation Contracts (BCC).

- Civil Code 2015

• Article 428 regulates unilateral termination of contract: 
• A party has the right to terminate a contract where the other party seriously breaches its obligations or where such termination is permitted by agreement or by law.
• The terminating party must promptly notify the other party; failure to give notice that results in damage shall lead to compensation liability.
• The contract terminates from the time the other party receives the notice.
• The party that has performed obligations has the right to request payment for the portion already performed.
• If termination is conducted without valid grounds, the terminating party shall be deemed to have breached the contract and must take civil liability.
• Article 512 regulates termination of cooperation contracts: A cooperation contract shall terminate in the following circumstances:
• According to agreement among the members;
• Upon expiry of the contractual term;
• When the cooperation objective has been achieved;
• Under a decision of a competent State authority;
• Other cases as prescribed by law.

Upon termination of the contract, outstanding debts must be settled and remaining assets distributed according to the contribution ratio of the parties, unless otherwise agreed.

- Law on Investment 2020

• Clause 14 Article 3 defines a Business Cooperation Contract (BCC) as a contract between investors for the purpose of business cooperation and profit or product sharing without establishing a new economic organization. This provision forms the basis for applying regulations relating to termination of cooperation, profit distribution, and settlement of obligations upon termination of a BCC.
• Article 48 also regulates the right to terminate investment activities and requires notification and compliance with contractual agreements and investment laws.

These legal provisions establish the legal basis for parties to lawfully and transparently request termination of business cooperation, thereby protecting their rights, ensuring financial obligations, and minimizing disputes.

2. What is the legal procedure for implementing a request to terminate business cooperation?

The procedure for terminating business cooperation is implemented in accordance with Article 57 of Decree No. 31/2021/ND-CP guiding the Law on Investment 2020, together with the provisions of the Civil Code 2015, and generally includes the following steps:

Step 1: Agreement or decision to terminate cooperation

• The parties reach an agreement or make a decision to terminate cooperation and prepare a written notice clearly stating:
• The reason for termination;
• The effective date of termination;
• The contractual conditions or legal grounds.
• The notice must be promptly sent to the other party in accordance with Article 428 of the Civil Code 2015 in order to avoid compensation liability.
• Responsible authority: Department of Finance or the Management Board of economic zones or industrial parks, depending on the project location.
• Timeframe: Typically within 15 days from the date of the termination decision.

Step 2: Submission of the termination dossier

• The dossier includes the termination notice, the Investment Registration Certificate (if any), and related documents.
• The dossier is submitted to the investment registration authority.
• The authority will verify and notify relevant agencies such as tax authorities and customs authorities.
• Processing time does not exceed 15 working days, although it may be extended if additional verification is required.

Step 3: Asset liquidation and settlement of financial obligations

• Joint assets are liquidated and profits or losses are distributed according to the contribution ratio.
• Outstanding debts are settled in accordance with Clause 2 Article 512 of the Civil Code 2015.
• If disputes arise, they may be resolved through negotiation, mediation, or by court or commercial arbitration.

Step 4: Completion of administrative procedures

• The parties obtain confirmation of termination from the competent State authority.
• In cases of unilateral termination, the terminating party must demonstrate that the other party committed a serious breach to avoid being deemed in breach of contract.
• Overall timeframe is approximately one to three months depending on the complexity of the project.

Proper compliance with such procedures enables the parties to terminate cooperation transparently and lawfully, protect their rights, ensure financial obligations, and minimize legal dispute risks.

3. What common violations arise in connection with requests to terminate business cooperation?

In practice, termination of business cooperation often involves several common violations:

• Unilateral termination without legal grounds: Termination conducted without relying on contractual provisions, applicable law, or mutual agreement may result in the terminating party being deemed in breach of contract and liable for damages.
• Failure to notify or improper notification: Failure to provide notice in accordance with contractual or legal requirements, or issuing a notice that does not clearly specify reasons, timing, or legal grounds.
• Failure to perform remaining obligations upon termination: Failure to settle debts, return shared assets, or comply with confidentiality, non-competition, or other agreed obligations.
• Termination contrary to agreement or causing damage to the other party: Abrupt suspension or termination of joint business activities that causes loss of benefits for the other parties, or violations of agreements relating to profit sharing, product distribution, or exploitation rights.

Such violations frequently lead to legal disputes, compensation claims, or reputational damage to enterprises. Therefore, compliance with legal grounds, contractual provisions, and notification procedures is essential to ensure lawful and transparent termination of cooperation.

IV. Questions regarding requests to terminate business cooperation

During the course of business cooperation, a request by one or more parties to terminate cooperation often leads to numerous legal questions and concerns. These questions may relate not only to decision-making authority, forms of implementation, and procedural documents, but also to risks, financial obligations, and dispute resolution.

1. Is it necessary to prepare a written document when requesting termination of business cooperation?

Preparing a written document is mandatory when requesting termination of business cooperation. Such a document may take the form of an official letter, notice, decision, or formal email and must clearly specify:

• The reason for termination of cooperation;
• The effective date of termination;
• The contractual or legal basis;
• Requests for the parties to coordinate in handling remaining obligations.

The parties must prepare a written notice clearly stating the reasons and effective date of termination and ensure prompt notification to the other party in accordance with Clause 2 Article 428 of the Civil Code 2015 to avoid compensation liability.

2. What issues may arise if a party fails to provide timely notice of a request to terminate business cooperation?

Timely notification to the relevant parties is a crucial factor in protecting rights, preventing disputes, and ensuring transparency in the termination process. If a party fails to fulfill such an obligation, several legal and practical risks may arise, including:

• Compensation liability: Under Clause 2 Article 428 of the Civil Code 2015, if a party unilaterally terminates a contract without timely notice and causes damage to the other party, the violating party must compensate for such damages.
• Legal disputes: The affected party may initiate legal proceedings or request dispute resolution through court or arbitration.
• Disruption of business operations: Lack of timely notice may interrupt production, supply of goods or services, and related financial and contractual obligations.
• Loss of reputation and future cooperation risks: Failure to provide timely notice may damage trust and negatively affect relationships with partners, investors, and regulatory authorities.

Preparing and delivering a timely and complete written notice is essential to ensure lawful and transparent termination of cooperation and to protect the reputation and long-term business relationships of the parties.

3. What can the other party do if one party fails to comply with the request to terminate business cooperation?

During the termination process, if one party fails to perform its agreed obligations (such as failing to cease operations, settle debts, or transfer assets), the other party may face risks relating to assets, profits, and reputation.

Under Article 317 of the Commercial Law 2005, such disputes may be resolved through negotiation, mediation, or by submitting the dispute to arbitration or court.

• Direct negotiation between the parties: The parties may engage in meetings and negotiation to require the breaching party to fulfill its obligations or remedy the consequences.
• Mediation through an agreed intermediary: If negotiation fails, the parties may request mediation through an agreed organization, institution, or individual acting as an intermediary.
• Resolution through arbitration or court: 
• If negotiation and mediation are unsuccessful, the dispute may be resolved by commercial arbitration or by a competent court in accordance with procedural law.
• The affected party may request enforcement of contractual obligations, settlement of outstanding debts, or compensation for damages.

4. What are the consequences of failing to comply with a request to terminate business cooperation?

Failure by a party to comply with a request to terminate cooperation may result in significant legal and practical consequences affecting both the violating party and the entire cooperative relationship. These consequences may include:

• Compensation liability: Under Clause 2 Article 428 of the Civil Code 2015, if the violating party fails to provide notice or fails to perform obligations causing damage, it must compensate for the entire actual damage suffered by the other party.
• Legal disputes: Pursuant to Article 317 of the Commercial Law 2005, the affected party may initiate dispute resolution through negotiation, mediation, commercial arbitration, or court proceedings.
• Disruption of business and financial activities: Non-compliance may disrupt production and supply activities, delay debt settlement, and adversely affect profits and corporate reputation.
• Loss of reputation and future cooperation risks: Non-compliance may undermine the trust of partners, investors, and regulators, making future cooperation or investment projects more difficult.

Accordingly, failure to comply with a request to terminate cooperation may result in serious legal consequences and practical damages. The parties should therefore follow the proper termination procedures, provide timely notice, and settle remaining obligations to protect their rights and avoid disputes.

5. What can parties do to minimize risks related to requests to terminate business cooperation?

Termination of business cooperation is a sensitive stage that may lead to disputes, financial losses, and reputational risks. To minimize such risks, the parties should adopt proactive and transparent measures, including:

• Establishing and complying with clear contractual provisions: 
• Clearly stipulating termination conditions, rights and obligations of the parties, and mechanisms for profit and asset distribution.
• Agreeing on notification procedures, timelines, and dispute resolution methods.
• Providing timely and proper notification: 
• Issuing written notices or decisions specifying the reasons and timing of termination.
• Ensuring immediate notification to the other party as required under Article 428 of the Civil Code 2015 to avoid compensation liability.
• Settling financial obligations and joint assets: 
• Settling debts, profits, and shared assets in accordance with contractual agreements or legal regulations (Article 512 of the Civil Code 2015).
• Maintaining full records and documentation to serve as legal evidence.
• Agreeing on dispute resolution mechanisms: 
• Predetermining dispute resolution methods such as negotiation, mediation, arbitration, or court proceedings (Article 317 of the Commercial Law 2005).
• Preparing relevant legal documents to ensure prompt resolution if disputes arise.
• Seeking professional legal advice
• Consulting lawyers or legal experts to assess risks and determine rights and obligations.
• Obtaining guidance on how to lawfully, transparently, and safely implement termination of cooperation.

By clearly stipulating contractual provisions, providing timely notice, settling obligations fully, preparing dispute resolution mechanisms, and seeking professional legal advice, the parties can significantly reduce risks when terminating business cooperation.

V. Are you looking for a reputable legal expert to assist with issues relating to requests to terminate business cooperation?

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The above information is provided for reference purposes only. For detailed advice regarding your specific case, please contact NPLaw Law Firm for immediate consultation.