Joint ventures, deadlock and exit rights: structuring a Vietnamese joint venture, reserved matters, deadlock mechanisms and their enforceability, put and call options, drag and tag, statutory pre-emption and buy-back rights, valuation, non-competes, exit by trade sale, buy-out or IPO, and disputes

Structuring the joint venture

Most joint ventures between foreign and Vietnamese partners take the form of a multi-member LLC or a joint stock company. An LLC suits a small number of partners who want a closed company with statutory pre-emption and capital-weighted voting; a JSC suits a venture that may raise new investors, issue preference shares or list, and gives a board and general meeting structure. The governance rules, statutory voting thresholds and the reasons why protections must be in the charter as well as the shareholders' agreement are set out in Legal representative and governance and are not repeated here.

Three structuring points are specific to joint ventures with a foreign partner. First, the 50% line under Article 20 of Law No. 143/2025/QH15: a venture more than 50% foreign-owned is itself a foreign investor for its later projects, needs IRCs, must keep an investment capital account and must meet market access conditions in its own right, while a venture at or below 50% invests as a domestic company. Partners in a conditional sector sometimes set the foreign stake at 49% or 50% for that reason, and an exit that moves the line changes the venture's status. Second, the formation of a new joint venture by two or more enterprises is an economic concentration that must be notified if a threshold is met (Merger control and competition law). Third, where the foreign partner buys into an existing Vietnamese company rather than forming a new one, the Article 21 registration applies in the usual cases (Acquiring a Vietnamese company).

Reserved matters and how deadlock arises

Joint ventures are governed through reserved matters: decisions that require a higher threshold or the consent of a named partner, such as the business plan and budget, borrowing, related-party contracts, new projects, appointment of the director and legal representative, dividend policy, charter amendments and dissolution. A list of the matters commonly reserved is in Legal representative and governance. The statutory thresholds already give blocking rights: in a multi-member LLC, resolutions need 65% of the capital of members attending and 75% for the most important matters unless the charter provides otherwise, so a 30% partner blocks the 75% matters; in a JSC, the general meeting decides by more than 50% and 65% for the reserved list. A partner that holds a veto over a matter the business needs, such as the annual budget or the reappointment of the director, can bring the company to a standstill.

Deadlock is therefore a design question, not an accident. The joint venture documents should define what counts as a deadlock (typically a reserved matter failing at two consecutive duly convened meetings), what happens in the meantime (the last approved budget rolls forward, the incumbent director stays in office, the company keeps trading in the ordinary course), and how the deadlock ends. In a JSC, the chairman of the board has a casting vote where board votes are equal unless the charter provides otherwise, which the partners should decide on expressly; there is no equivalent default for an LLC members' council.

Deadlock mechanisms and their enforceability

The usual mechanisms are escalation to senior executives of each partner, then mediation, then a buy-sell mechanism or a right to require the venture's dissolution. Mediation can be conducted under Decree No. 22/2017/ND-CP, for example at the Vietnam Mediation Centre attached to VIAC (FAQ 78). Buy-sell mechanisms take several forms: a Russian roulette clause, in which one partner names a price at which the other must either buy or sell; a Texas shoot-out, in which each submits a sealed bid and the higher bidder buys; and options at a valuation-based price triggered by the deadlock.

Under Vietnamese law these clauses are valid contracts under the Civil Code, and an arbitral tribunal will generally give effect to them between the parties. The difficulty is implementation. A transfer of capital or shares needs the transferor to sign the transfer documents, the company to pass the resolutions and update its register, the business registration office to record the change within ten days, any Article 21 registration if the buyer is foreign and foreign ownership rises across a threshold, and payment through the correct account. A partner that refuses to cooperate after losing a shoot-out can delay every step. The registration office will not act on a tribunal's view of who should own the capital; it acts on signed documents or on a court judgment or recognised arbitral award. Practitioners therefore combine the clause with: a power of attorney in favour of the other partner or a third party, given in the shareholders' agreement and repeated in a stand-alone notarised instrument; a requirement that the charter reflect the transfer obligation; agreed forms of the transfer documents annexed to the agreement; a pledge over the defaulting partner's stake as security for its performance; and an arbitration clause with a seat whose awards can be recognised in Vietnam.

Put and call options, drag and tag

A call option lets one partner buy the other's stake on defined triggers (a change of control of the other partner, a breach, deadlock, expiry of a period); a put option lets a partner require the other to buy. Both are enforceable as contracts, but three Vietnamese rules attach at exercise rather than at signing: the Article 21 registration, which depends on the foreign ownership position at the time of exercise and the target's lines at that time; the seller's tax, assessed on the price actually paid, with the tax authority able to reassess a price it considers below market; and the foreign exchange route for payment. Put options that guarantee a foreign investor a fixed return regardless of performance may be challenged as disguised lending and should be priced by reference to value rather than to a fixed yield.

A drag-along right lets a majority selling to a third party require the minority to sell on the same terms; a tag-along right lets the minority require the buyer to buy its stake too. Vietnamese company law has no statutory squeeze-out for private companies, so a drag-along operates only as a contractual obligation of each minority holder to sign and deliver, with the same enforcement devices as a buy-sell clause, and a dragged minority in an LLC still holds the statutory pre-emption right unless it is waived in advance in terms that the registration office will accept. Tag rights are simpler to enforce because the protected party is the one who will sign.

The statutory rights underneath: pre-emption and buy-back

Two sets of statutory rights sit beneath any contractual scheme. The first is pre-emption. In a multi-member LLC, Article 52 of the Law on Enterprises requires a member who wishes to sell to offer the capital first to the other members pro rata, with 30 days to accept; in a JSC, shares are freely transferable unless the charter restricts them and the restriction appears on the share certificates (Article 127), founders' shares are locked for three years (Article 120), and existing shareholders have a pro rata right to new shares unless the general meeting decides otherwise. Exit clauses must work with these rules, typically by waivers given in the shareholders' agreement and repeated in the charter, and by obtaining fresh written waivers at the time of each transfer.

The second is the statutory buy-back right. Under Article 51, a member of a multi-member LLC who voted against a resolution on amending the charter provisions on members' rights, a reorganisation of the company or other matters the charter specifies may require the company to buy back its capital at market price or a price fixed under the charter; under Article 132, a shareholder of a JSC who voted against a reorganisation or a change to the rights of shareholders may require the company to buy back its shares. The company may pay only if it can still meet its debts after the payment. These rights give a dissenting minority partner a floor exit that the majority cannot remove, and they should be priced into the venture's capital planning.

Valuation, transfer restrictions and non-competes

Option and buy-sell prices are usually set by formula (a multiple of EBITDA or of net assets) or by an independent valuer, with a mechanism for disagreement. In Vietnam three further considerations apply: the financial statements of a foreign-invested venture are audited under Vietnamese Accounting Standards (FAQ 97), so a formula keyed to IFRS figures needs a reconciliation; the price should be stated in dong or with a fixed conversion mechanism where a resident pays; and a price materially below market may be reassessed by the tax authority for the seller's tax. Lock-up periods, rights of first offer or refusal, change-of-control clauses for corporate partners and prohibitions on transfers to competitors are common transfer restrictions; to bind the company they must appear in the charter.

Non-compete undertakings between joint venture partners are enforceable as contracts, but where the partners are competitors they are agreements between competitors that may fall within Articles 11 and 12 of the Competition Law if they cause a significant competition-restraining effect; they should be limited to what the venture needs in scope, territory and duration. Non-competes given by individual founders in their capacity as employees are treated under the labour rules, which are restrictive, so founders' covenants are better given as shareholders and supported by the share price.

Exit routes: buy-out, trade sale and IPO

A buy-out by the other partner is the most common exit. Where a foreign partner buys a Vietnamese partner's stake, an Article 21 registration is needed if foreign ownership rises in a conditional line or crosses or rises above 50%. Where a Vietnamese partner buys a foreign partner's stake, no Article 21 registration is needed, but the foreign corporate seller pays CIT at 2% of the gross proceeds under Decree No. 320/2025/ND-CP, declared by the venture on Form 05/TNDN within ten days of the transfer agreement taking effect (Tax on share transfers and dividends), and the price, paid by a resident to a non-resident, is settled in dong through the venture's investment capital account or the foreign seller's indirect investment account, then converted and remitted (Profit remittance and repatriation of capital). If the venture falls to 50% or below foreign ownership, it ceases to be a foreign investor for new projects and generally closes its investment capital account.

A trade sale to a third party follows the acquisition process in this chapter, with tag and drag rights, pre-emption waivers and the buyer's own registration. An IPO requires conversion to a JSC if the venture is an LLC, compliance with the public offering and listing conditions under the Law on Securities as amended, and acceptance that major shareholders must together keep at least 20% of the charter capital for at least one year after the offering; the shareholders' agreement generally falls away on listing, and protections that survive must be in the public company charter within the limits of the public company rules (Public companies, securities and foreign ownership limits).

Disputes

Where at least one party is a foreign investor, or a company more than 50% foreign-owned, Article 13(3) of the Law on Investment allows joint venture disputes to go to Vietnamese courts, Vietnamese arbitration or foreign or international arbitration (FAQ 72). Joint venture agreements commonly choose VIAC or SIAC arbitration with the seat in Vietnam or Singapore. Interim measures, such as an order preventing the transfer of a disputed stake or freezing assets, are available from Vietnamese courts and arbitral tribunals (FAQ 79), and a foreign award is enforced in Vietnam after recognition under the New York Convention, which can be refused on grounds that include conflict with the basic principles of Vietnamese law (FAQ 74). A dispute about the validity of a resolution or of the company's registration may also involve the business registration office and the administrative courts. The dispute options are explained in Chapter 9.