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Types of Business entities
The principal law regulating companies is the Enterprise Law 2005 (EL). The EL governs all domestic and foreign-invested companies.

Types of enterprises
The EL provides for three types of enterprise, being:
  • limited liability companies
  • partnerships
  • private enterprises.
Limited liability companies
For foreign investment purposes, the main types of investment vehicles are the following:
  • one member limited liability company. These are commonly known as “One Member LLCs”
  • two members or more limited liability company. The number of members must not exceed fifty. These are commonly known as “Two Member LLCs”
  • shareholding company. These are known as “Joint Stock Companies”, or “JSCs”. The minimum number of shareholders is three and there are no restrictions on the maximum number of shareholders. Shareholding companies may issue securities to the public to attract capital in accordance with Vietnam’s legislation on securities.
In general, the first two types of limited liability companies are more common for foreign investors, although companies that are considering listing on the stock exchange will want to be a JSC as only JSCs can be listed. JSCs also provide more flexibility for transferring equity.

One major difference between an LLC and a JSC is that although shares are issued in a JSC, shares are not issued in an LLC. Equity is subscribed, and although it can be assigned, it is subject to pre-emptive rights in favor of the other shareholders.

Partnerships
A partnership is an enterprise in which there must be at least two unlimited liability partners who jointly own the partnership. In addition to these, there may be limited liability partners. Unlimited liability partners are liable for the liabilities and obligations of the partnership to the extent of all their assets, while limited liability partners are only liable for the debts of the partnership to the extent of the amount of capital they have contributed to the partnership.

Private enterprises
A private enterprise is an enterprise owned by one individual who is liable for all activities of the enterprise to the extent of all their assets. An individual is entitled to establish one private enterprise only.

Lines of business
When registering a company in Vietnam, the applicant must state the scope of business. If the Vietnamese company wants to undertake business outside the stated scope, it must apply for approval. The application must state precisely the proposed scope.

Investment Law 2005 (IL)
The IL governs the investment activities in Vietnam of foreign and local individuals and legal entities. The WTO Schedule (considered below) is also important for foreign investment. Under the IL, investors can invest directly or indirectly in all types of business that are not specifically prohibited or restricted. The IL provides for the following types of direct investment:

Establishment of a company
Investors can establish companies in accordance with the EL. These may be wholly owned or jointly owned subject to any WTO restrictions. In some industries, investors must also comply with the conditions laid down in the relevant laws (such as Law on Credit Institutions for banking and financial services, Law on Petroleum for petroleum businesses, Law on Civil Aviation of Vietnam for aviation business, Law on Education for schools, Law on Securities for securities business, and Law on Insurance Business for insurance business).

Investment under contracts
Investors are permitted to sign contracts in the forms of business cooperation contracts (BCC), build, operate, transfer (BOT), build, transfer, operate (BTO) and build, transfer (BT) for cooperation in production, sharing profits and sharing products and other forms of cooperation.

Investment for business expansion
- Investors are permitted to invest in the expansion of existing businesses through the:
  • expansion of the scale of business or increase of production capacity
  • renovation of technology, increase of product quality or measures for reduction of environmental pollution.
Purchase of shares or contribution of capital Investors are permitted to purchase shares or contribute capital to an economic entity operating in Vietnam at the rates stipulated by the Government.

Merger and acquisition
Investors are permitted to carry out mergers or acquisitions of a company operating in Vietnam, subject to any restrictions on foreign ownership. In addition, investors are permitted to invest indirectly by way of the purchase of bonds, investment fund certificates and other securities, and by way of the establishment of investment funds.

Conditional investment
Sectors in which investment is conditional include:
  • radio and television broadcasting
  • production, publishing and distribution of cultural products
  • exploration and mining of minerals
  • establishment of infrastructure for telecommunication networks, transmission and the provision of internet and telecommunication services
  • establishment of a public postal network and provision of postal services and express services
  • construction and operation of river ports, sea ports, terminals and airports
  • transportation of goods and passengers by railway, roadway and sea and inland waterways
  • fisheries
  • production of tobacco
  • real estate business
  • import, export and distribution business
  • education and training
  • hospitals and clinics
  • other investment sectors related to international treaties to which Vietnam is a member and which restrict the opening of the market to foreign investors.
Prohibited projects
The following projects are prohibited to foreign investment:
  • projects which are prejudicial to national security, defense or the public interest
  • projects which are detrimental to historical and cultural relics or the customs and traditions of Vietnam
  • projects that may adversely affect people’s health, spoil resources or destroy the environment
  • projects which deal with the provision of harmful waste into Vietnam, projects for the production of toxic chemicals or which utilize toxic agents prohibited under an international treaty
  • other investment projects prohibited in accordance with the provision of laws.
Recognized forms of doing business in Vietnam The most common business structures used by foreign investors in Vietnam include:
  • wholly owned subsidiaries
  • joint venture companies
  • business co-operation contracts
  • foreign contractors.
Alternatively, foreign investors may also operate by establishing:
  • representative offices
  • branches.
Foreign investors may also invest indirectly in Vietnam, in the following ways:
  • purchase of shareholding, shares, bonds and other valuable papers
  • by way of securities investment funds
  • by way of other intermediary financial institutions.
However, there are restrictions on the level of foreign ownership of shares in Vietnamese companies in various sectors including the following:
  • listed shares
  • banking
  • petroleum
  • aviation
  • general insurance
  • publishing
  • education
  • media
  • telecommunications
  • mining.
WTO Schedule
The WTO Schedule sets out the timing for when foreign investors may invest in a wide range of services as well as the percentage ownership that may be held. Since 2007, many restrictions have been lifted.

Although many restrictions on foreign investment were lifted on 1 January 2009, in practice major problems remain (and can be noted in the retail, wholesale and franchising sectors). Applications for approval are dealt with extremely slowly and are subject to extremely detailed analysis. As an example of these restrictions in practice, Vietnam is one of the few countries in which there are no McDonalds or Starbucks stores.
Even if a foreign investor is allowed to open one retail outlet, any other outlet will be subject to an economic needs test which gives the authorities very wide scope to reject any application.

Establishment of an entity
Foreign investors are permitted to establish enterprises in accordance with the EL through the following types of entities:
  • limited liability enterprises
  • joint stock enterprises
  • partnership enterprises
  • private enterprises.
Foreign investors directly investing in Vietnam must have an approved investment project and are not permitted to simply establish a company. Approval is given for investment in a project, and the company is merely the vehicle for the project. Typically, approval is obtained from the Department of Planning and Investment of the local provincial or city People’s Committee. If the application is successful, the People’s Committee issues an investment certificate for the project. The investment certificate also serves as the Business Registration Certificate. Domestic companies with no foreign investment are issued with a Business Registration Certificate.

Business Co-operation Contract (BCC)
A Business Co-operation Contract is a contract signed by two or more parties to carry out investment without establishing a legal entity. A BCC operates on the basis of mutual allocation of responsibilities and sharing of profits, production and losses. As defined under the IL, a BCC does not create a separate legal entity under Vietnamese law but the parties to the BCC are issued with an investment licence. To the extent that a BCC is not a legal entity distinct from its constituent partners, it is similar to a partnership. It is often known as a joint operating company (JOC), and is a structure that is commonly used in the petroleum industry.

The IL does not stipulate in detail the rights and obligations of the parties to a BCC. It is important that the rights and responsibilities of the parties be comprehensively set out in the BCC.

Foreign contractors
There are certain businesses, especially in the service sector, where foreign investors may do business in Vietnam as foreign contractors without engaging in any form of investment prescribed under the IL. The following types of activities undertaken by a foreign entity are recognised and subject to tax on income that they generate in Vietnam (foreign contractor’s tax):
  • commerce, including distribution or supply of goods, material, machinery and equipment
  • services
  • construction and installation, other production and transportation
  • lending
  • licensing.
Foreign contractors in the fields of investment and construction, provision of material, equipment and technology together with technical services in respect of construction and the provision of construction services are required to be licensed by the Ministry of Construction or the Department of Construction of the provincial People’s Committee, depending on the value of the project concerned. This licensing regime is project specific.

Representative offices
If a foreign company wishes to have a presence in Vietnam before actually investing, it may set up a representative office. The company must have operated for at least one year in its country of establishment.

A foreign representative office is not permitted to carry on any production or sales activities, nor is it permitted to earn income in Vietnam. Its main functions are to coordinate trade and transactions between the head office of the foreign company and Vietnamese businesses, to study the feasibility of investment in Vietnam and to undertake business development activities. A license for the establishment of a representative office of a foreign business entity in Vietnam has a duration of five years.

Branches of foreign companies
A license for establishment of a branch of a foreign business entity in Vietnam conducting the purchase and sale of goods, and activities directly related to the purchase and sale of goods, has a duration of five years. In some specific areas, including banking, branches are permitted under the relevant law.

Investment in Vietnamese companies
With limited exceptions (e.g., the banking and insurance sectors), foreign individuals and organizations are allowed to purchase up to a maximum of 49 percent of the issued shares of a listed Vietnamese enterprise. Further, with certain exceptions, foreign investors may invest in or acquire the whole or a part of the equity interest in unlisted Vietnamese companies, subject to the business scope of the Vietnamese company concerned.