In Vietnam, joint ventures are a common entry strategy for foreign investors looking to leverage local market knowledge, licenses, or distribution networks. But while the Enterprise Law provides a basic corporate framework, it does not fully regulate the rights and obligations of shareholders in a joint venture. That’s where a well-drafted Shareholders Agreement (Shareholders Agreement) becomes essential.

An Shareholders Agreement is a private contract between shareholders that governs their relationship beyond what is included in the charter or law. In the context of Vietnamese joint ventures, it can protect minority rights, outline profit distribution, clarify exit strategies, and prevent deadlocks that could otherwise stall operations.

This article explores the key elements of an effective Shareholders Agreement for joint ventures in Vietnam and highlights legal considerations for foreign partners.

Why a Shareholders Agreement Matters in Vietnamese Joint Ventures

A Shareholders Agreement is one of the most important tools for creating clarity and balance in a Vietnamese joint venture. While the Law on Enterprises requires every company to have a charter, the charter is often general and cannot cover the more detailed, practical issues that arise between shareholders. This is especially true when foreign and local partners come from different legal and business cultures.

Here are some of the most important reasons to have a Shareholders Agreement:

  • Defining clear capital contribution obligations, including timing and penalties for delays
  • Establishing board and management control, so decision-making is efficient and fair
  • Setting out profit sharing and dividend policies that reflect the commercial goals of the partners
  • Protecting minority shareholder rights with veto rights or enhanced information access
  • Preventing or resolving deadlock situations with clear dispute resolution steps
  • Clarifying exit options for partners who want to sell or reduce their stake

Without a Shareholders Agreement, shareholders are left to rely on general legal protections, which may not be suitable for the unique risks and expectations of a cross-border joint venture.

Essential Provisions to Include in a Vietnamese Shareholders Agreement

A Shareholders Agreement for a joint venture in Vietnam should address the following key areas:

  • Capital Contributions & Equity Structure: Define the amount, timing, and form of contributions from each party, and consequences of non-performance.
  • Governance & Voting Rights: Outline board composition, appointment rights, quorum, and voting thresholds. Include reserved matters that require unanimous or supermajority approval.
  • Profit Distribution & Financing: Specify how profits will be distributed and when. Include provisions on reinvestment, debt funding, or capital calls.
  • Transfer of Shares & Exit Rights: Include pre-emptive rights, tag-along and drag-along rights, and permitted transfer conditions.
  • Deadlock Resolution: Set out procedures for resolving impasses, such as escalation to senior management, third-party mediation, or buy-sell mechanisms.
  • Non-Compete & Confidentiality: Prevent shareholders from engaging in competing activities and protect sensitive business information.
  • Governing Law & Dispute Resolution: Choose a governing law and arbitration mechanism that offers neutrality and enforceability.

Tailoring these provisions to the specific nature of the venture and Vietnamese law is critical for enforceability and alignment.

Legal Considerations for Foreign Investors

Foreign shareholders in Vietnamese joint ventures should be aware of the following legal nuances:

  • Licensing & Sector Restrictions: Certain sectors in Vietnam are restricted or conditional for foreign ownership. Shareholders Agreement terms must align with Investment Registration Certificate (IRC) and Business License (ERC) conditions.
  • Regulatory Filings: While the Shareholders Agreement itself is not usually disclosed, any provisions affecting company governance (e.g. voting rights) must be reflected in the company charter and may require notification or registration.
  • Dispute Enforcement: While Vietnam recognizes arbitration, enforcement of foreign awards requires adherence to local procedures. Selecting a Vietnam-seated arbitration under a reputable institution may improve enforceability.
  • Language & Execution: For enforceability in Vietnam, bilingual execution (English and Vietnamese) is often recommended. Ensure that both versions are legally consistent.

Foreign parties should always conduct legal due diligence and involve local counsel to ensure compliance and alignment with Vietnamese corporate law.

Common Shareholders Agreement Mistakes in Vietnamese Joint Ventures

While Shareholders Agreements are designed to prevent conflict, poorly drafted ones can create more problems than they solve. Common mistakes include:

  • Using foreign templates without local adaptation: Agreements copied from other jurisdictions often fail to align with Vietnam’s Enterprise Law or regulatory requirements.
  • Ignoring enforcement realities: Including clauses that are difficult or impossible to enforce under Vietnamese law (such as certain non-compete provisions).
  • Vague or missing deadlock clauses: Without clear resolution mechanisms, joint ventures can become paralyzed during disputes.
  • Failure to align with the company charter: If key Shareholders Agreement provisions conflict with or are not reflected in the company charter, they may not be honored in practice.
  • Inconsistent bilingual versions: Mismatches between English and Vietnamese versions can lead to disputes about interpretation.

Avoiding these errors requires careful legal drafting and a clear understanding of how Vietnamese law will treat each clause.

How Shareholders Agreements Interact with the Company Charter and Local Regulations

In Vietnam, the company charter is the official governing document recognized by the authorities. While a Shareholders Agreement offers flexibility, its enforceability often depends on how well it aligns with the charter and complies with local law.

  • Legal hierarchy: In disputes, Vietnamese courts and regulators typically give priority to the company charter over private contracts between shareholders.
  • Corporate governance alignment: Provisions like voting thresholds, board composition, or dividend policies must be mirrored in the charter to be effective.
  • Licensing implications: Any Shareholders Agreement terms affecting business lines, foreign ownership ratios, or management control may trigger the need for regulatory filings or updates to the Investment Registration Certificate or Business License.

The best practice is to draft the Shareholders Agreement and the charter in tandem, ensuring consistency and compliance from the outset.

What Happens When Joint Venture Partners in Vietnam Disagree: A Case Study

Consider a hypothetical joint venture between a foreign investor and a Vietnamese distribution partner. Initially profitable, the venture stalls after disagreements emerge over funding a new facility.

The Shareholders Agreement lacks a clear buy-sell or exit clause and requires unanimous board approval for key decisions. The Vietnamese partner refuses to approve further investment, effectively freezing expansion plans.

Without a structured dispute resolution mechanism, the foreign investor faces limited options:

  • Litigation or arbitration becomes costly and time-consuming.
  • The company cannot raise additional capital or change strategy.
  • Valuable business momentum is lost due to governance paralysis.

This scenario highlights the importance of well-drafted exit clauses, deadlock provisions, and escalation paths in any Shareholders Agreement involving a Vietnamese partner.

Conclusion

A well-drafted Shareholders Agreement is not just a formality, it is a strategic document that defines control, safeguards investments, and prevents future disputes in Vietnamese joint ventures. It ensures that all parties have clarity on rights, responsibilities, and remedies, and that the venture can operate efficiently even when partners hold different expectations or come from different legal backgrounds.

By addressing issues like governance, capital contributions, profit allocation, and dispute resolution in advance, foreign investors can avoid costly misunderstandings and legal conflicts. A strong Shareholders Agreement also reflects the commercial goals of the joint venture, builds trust between partners, and strengthens enforceability in Vietnamese law.

At Corporate Counsels, we assist foreign investors with structuring joint ventures and drafting Shareholders Agreements that align with Vietnamese law and practical business needs. If you are exploring a new partnership or reviewing an existing arrangement, our Corporate Lawyers can help you move forward with clarity and legal confidence. Contact us at letran@corporatecounsels.vn for guidance tailored to your venture.