Key factors to consider in business cooperation contracts 

Business cooperation contracts (BCCs) are widely used in Vietnam, particularly in sectors where foreign investors and local businesses collaborate without forming a joint venture or separate legal entity. These contracts outline the terms under which the parties cooperate and share profits, risks, and responsibilities. To ensure that these agreements are legally binding and protect all parties’ interests, it’s essential to carefully draft and negotiate the terms of the contract. 

In this post, we’ll explore key factors to consider when drafting and negotiating business cooperation contracts in Vietnam, with insights on compliance, risk allocation, and dispute resolution.

1. Legal Framework and Compliance with Vietnamese Law

In Vietnam, business cooperation contracts are governed by the Law on Investment 2020 and the Civil Code 2015. It’s essential to ensure that the contract complies with all relevant laws, including sector-specific regulations that may apply to the business activities in question. 

Key Considerations: 

• Contract Validity: Ensure that the BCC meets the formal requirements under Vietnamese law, including clearly identifying the parties, specifying the objectives of the cooperation, and outlining the scope of activities. 

• Sector-Specific Regulations: Depending on the sector (e.g., real estate, energy, technology), the contract may need to adhere to specific laws and licensing requirements. For example, BCCs in the real estate sector must comply with the Law on Real Estate Business 2014. 

Example: 

A foreign investor entering into a BCC with a Vietnamese company to develop a solar energy project must ensure that the contract complies with Vietnam’s regulations on renewable energy projects and foreign investment. LTS LAW assists in ensuring compliance with both the Law on Investment 2020 and sector-specific rules. 

For more information on compliance, visit our legal services page.  

2. Defining Roles, Responsibilities, and Contributions

A well-drafted BCC must clearly define each party’s roles and responsibilities, including their contributions to the business, be it capital, assets, technology, or labor. Clarity in these areas helps prevent misunderstandings and disputes as the cooperation progresses. 

Key Elements to Define: 

• Capital Contributions: Detail the financial and non-financial contributions made by each party, such as cash investments, intellectual property, equipment, or expertise. 

• Operational Responsibilities: Clearly outline who is responsible for specific operational tasks, such as management, decision-making, and day-to-day operations. 

Example: 

In a BCC between a Vietnamese construction company and a foreign investor for a property development project, LTS LAW ensures that the contract specifies which party is responsible for securing land use rights, managing construction, and handling sales and marketing. 

Learn more about defining roles in BCCs by visiting our contract services page.  

3. Profit and Risk Sharing

One of the primary purposes of a BCC is to define how profits and risks will be shared between the parties. The contract must specify the percentage of profits allocated to each party, as well as how losses or liabilities will be managed. 

Key Considerations: 

• Profit Distribution: Clearly outline how profits will be calculated and distributed. This may be based on each party’s contribution or a pre-agreed ratio. 

• Risk Allocation: Define how risks—such as financial losses, operational risks, or regulatory issues—will be managed and which party bears responsibility in the event of a loss. 

Example: 

A foreign technology company entering a BCC with a Vietnamese firm for a software development project may agree to a profit-sharing arrangement based on project milestones. LTS LAW ensures that the profit-sharing mechanism is clearly defined and includes provisions for managing risks such as project delays or market fluctuations. 

For more details on profit and risk sharing, visit our legal services page.  

4. Intellectual Property Protection

When entering into a BCC, especially in industries such as technology, research, or manufacturing, it’s critical to protect intellectual property (IP). The contract must define who owns the IP created during the cooperation and how it can be used by each party. 

How to Manage IP Risks: 

• Ownership of IP: Specify which party will own any IP developed during the cooperation, and how existing IP will be protected. 

• Licensing Rights: If one party grants the other the right to use its IP, the contract must include clear licensing terms, including the duration, scope, and geographical limitations. 

Example: 

A Vietnamese company collaborating with a foreign partner to develop a new medical device would need to include clauses that protect both parties’ intellectual property rights. LTS LAW ensures that the contract defines who owns the patents and how any new IP generated during the cooperation will be shared. 

For more details on IP protection, visit our contract services page.  

5. Dispute Resolution Mechanisms

Disputes can arise over various issues, such as performance, profit distribution, or breaches of contract. Including a clear dispute resolution mechanism in the BCC is essential to avoid lengthy litigation and ensure that conflicts are resolved efficiently. 

Key Strategies: 

• Arbitration Clauses: Many BCCs include arbitration as the preferred method of dispute resolution. This allows for a faster and more confidential resolution process, especially in cross-border agreements. 

• Governing Law and Jurisdiction: Specify which country’s laws will govern the contract and where disputes will be resolved. In Vietnam, arbitration at the Vietnam International Arbitration Centre (VIAC) is commonly used for BCC disputes. 

Example: 

A BCC between a Vietnamese manufacturer and a foreign distributor may include an arbitration clause that requires disputes to be resolved through arbitration at the Vietnam International Arbitration Centre (VIAC), ensuring a neutral forum for conflict resolution. 

For more information on dispute resolution, visit the Vietnam International Arbitration Centre (VIAC). 

Conclusion 

Business cooperation contracts are an essential tool for structuring collaborations between local and foreign businesses in Vietnam. By ensuring compliance with Vietnamese laws, clearly defining roles and contributions, and including strong provisions for profit-sharing, intellectual property protection, and dispute resolution, businesses can protect their interests and create successful partnerships. LTS LAW provides expert legal support for drafting, reviewing, and negotiating BCCs that align with your business goals. 

For expert assistance with business cooperation contracts in Vietnam, visit LTS LAW’s services page or contact us directly for personalized support.