Every exit right in an SHA — pre-emption, tag-along, drag-along, put, call — finally reduces to one question: at what price. If the price is only decided when the event occurs, the parties will bargain in a posture of confrontation and the deal dies in valuation arguments. A pre-set pricing formula moves the price dispute from the future to today’s negotiation table, while relations are still good.
Legal basis
Pricing a capital transfer between shareholders is a matter of contractual agreement under the Civil Code 2015 — the law imposes no mandatory formula. Three formula families dominate SHA practice in Vietnam: (1) net asset value (NAV) from the latest audited financial statements, adjusted by a pre-agreed asset schedule (land, revalued equipment); (2) an earnings multiple — enterprise value equals EBITDA of recent years times a fixed multiple, minus net debt, split by capital ratio; (3) independent valuation by a valuer qualified under the Law on Prices 16/2023 and the Vietnamese valuation standards. Sound design is always two-tiered: a self-executing primary formula, and a fallback tier — an independent valuer (from a pre-agreed panel or appointed by a named institution) where a party proves the primary formula yields an abnormal result, preventing a pricing mechanism from becoming a cheap-price trap over time.
Analysis: questions investors actually ask
Should the pricing formula be written into the SHA from the start?
Yes — it is among the highest benefit-to-negotiation-cost clauses in the entire SHA. The reason is not only avoiding later argument: a standing formula also disciplines behaviour throughout the JV’s life, because every side knows today’s operating decisions will reflect into tomorrow’s exit price through that very formula. A good formula needs four components: the data source (which audited statements, which period), standard adjustments (net debt, normalized working capital, excluded one-offs), the cut-off point (the trigger date or the nearest accounting period end), and the payment schedule after pricing. Missing any one component leaves a gap large enough for a dispute.
Should valuation follow EBITDA or net assets?
It depends on the business’s nature, and many SHAs use both, taking the higher value or a weighted average. EBITDA suits an operating business with real cash flow and light assets — it prices earning power. Net assets suit an asset-heavy business (land, plant) or one currently loss-making from investment — it prices what exists. The common mistake is choosing the formula by feel at formation without test-running it on numbers: always have the lawyer and accountant run the draft formula over two or three scenarios (a good year, a bad year, a year with one-offs) to see whether the output price is absurd in any scenario before signing.
If the two sides cannot agree the price, who decides?
The installed fallback mechanism does: an independent valuer. A tight design comprises: a short panel of valuation firms both sides pre-accept; if the panel fails, a named neutral institution (for example an arbitration centre or a professional association) appoints the valuer; mandatory standards (the Vietnamese valuation standards, with the method specified or left to the valuer with a duty to explain); the valuation result is final for the transaction save for manifest error; and valuation costs split by an agreed principle (half each, or the side whose proposed price deviates further from the result bears the larger share). The valuer decides the transaction price — not the court; courts and tribunals step in only when a party refuses to perform the result.
Practical recommendations
Our advice: never sign an SHA whose pricing formula has never been test-run on real numbers. One simulation session with the latest annual financial statements and two extreme scenarios will expose most design defects: a stale EBITDA multiple, a vague net-debt adjustment, a cut-off date that does not exist in the actual closing calendar. And add a clause to review the formula every three years or when the business model changes fundamentally — a pricing formula has a shelf life like every other clause.
Contact us
FLAT Law Firm advises foreign investors on company formation, capital structure, land and joint-venture governance in Vietnam. Contact us for advice on your specific case.
For general reference only; not a substitute for legal advice on your specific case.
This article has been quality-reviewed by the FLAW AI Legal Council