Exiting a Joint Venture in Vietnam

Re-read the “marriage contract” before parting

The first step — and also the most skipped — is re-reading the joint venture’s entire “original file”: the joint venture contract, the company charter, the shareholders’ agreement (if any), and amendments over the years. These documents decide most exit questions:

May the exiting party freely transfer? Many joint venture contracts impose a “lock-up” period — e.g., no transfers in the first 3–5 years, or transfers requiring the partner’s written consent. Breaching a lock-up clause may render the transfer void under the agreement.

Does the remaining partner have pre-emptive rights, and under what procedure? (see section 2 below).

Is there a post-exit non-compete? The withdrawing party may be barred from establishing or investing in competing businesses for a period and within a geographic scope — worth weighing if the exiting party plans to continue in the same industry in Vietnam.

Which financial commitments remain effective? Guarantees for the joint venture’s loans, technical support commitments, exclusive supply agreements — these obligations do not automatically end upon capital transfer.

Practical experience: joint ventures formed 10–15 years ago often have thin original files, many handwritten appendices or mere oral agreements. Before offering, systematize all documents and identify “gaps” the partner could exploit to delay or squeeze the price.

The joint venture partner’s pre-emptive rights

This legal point needs immediate clarity, as many investors misunderstand it:

Distinguish the company type, because the law differs. If the joint venture is organized as a multi-member limited liability company — the most common JV model in Vietnam — Clause 2, Article 52 of the Law on Enterprises 2020 (amended and supplemented by Law No. 76/2025/QH15) mandates that a member wishing to transfer must offer its capital contribution to the remaining members pro rata to their contributions, on the same terms (price, payment method) intended for the third party. Only when the remaining members do not buy or do not buy all within 30 days from the offer date may the member transfer to outsiders — and on the same terms offered. This is a statutory pre-emptive right, needing no separate agreement.

Conversely, for a joint venture organized as a joint stock company, shares are freely transferable (Article 127) — the law sets no default pre-emptive right for existing shareholders when a shareholder sells existing shares to a third party. The right of pre-emptive purchase of newly issued shares (Article 115) is a different matter: that is when the company issues new shares, not when an existing shareholder resells.

However, in joint ventures, pre-emptive rights (right of first refusal — ROFR, or right of first offer — ROFO) are almost always agreed in the joint venture contract or company charter, because no partner wants to “wake up to a stranger” at the meeting table. Common mechanisms:

ROFR (right of first refusal): the exiting party must notify the partner of the transfer terms agreed with the third party (price, payment method); the partner has a set period (usually 30–60 days) to decide to buy on the same terms. If the period lapses without reply or with refusal, the exiting party may sell to the third party — but not on more favorable terms than notified.

ROFO (right of first offer): the exiting party must first offer to the partner and negotiate for a period; only if no agreement is reached may it go outside.

Tag-along/drag-along: in a joint venture where one party is the majority, a drag-along clause lets the majority “pull” the minority along when a whole-company buyer appears; conversely tag-along lets the minority “ride along” when the majority exits.

The biggest risk: transferring to a third party while skipping the agreed pre-emptive procedure. The transaction may face the partner’s lawsuit seeking invalidity or damages — and in practice, this is grounds for the partner to delay signing documents needed for the name-transfer procedures.

Valuing the exiting stake — who decides what is fair

Price disputes are the number one reason exits drag on. Three valuation methods are commonly applied:

Negotiated price: the two parties negotiate themselves. Simplest but prone to deadlock when expectation gaps are large — especially when one side holds better inside information.

Pre-agreed formula: many joint venture contracts preset a formula (e.g., X times average 3-year after-tax profit, or book value plus asset revaluation surplus). Fast and transparent; the downside is a decade-old formula may lag business reality.

Independent valuation: engaging an independent valuer, or each side engaging one and averaging (a “two sides + price referee” mechanism when the gap exceeds a threshold). This is the fairest method when trust is gone — the valuation cost is a worthwhile investment against the dispute value.

One tax point not to miss: capital/share transfers trigger income tax obligations — the calculation differs for foreign organizations, foreign individuals, or Vietnamese organizations as transferors. Compute the tax obligation before locking the price, because the after-tax “net” price is the real receipt. See also tax advice for FDI companies.

Legal procedures: from transfer contract to the new IRC

After commercial agreement, the usual procedural sequence is:

Step 1 — Complete the internal pre-emptive procedure. Send the offer notice to the partner in the exact form and timeframe in the contract/charter; keep proof of notification (post, acknowledged email). If the partner refuses in writing or the period lapses, record minutes.

Step 2 — Sign the transfer contract. The contract should clearly state: transfer object, price and payment method, ownership transfer timing, transferor’s representations, handling when administrative procedures are rejected, and dispute resolution (prefer arbitration with foreign elements).

Step 3 — Register capital contribution/share purchase (if the transferee is a foreign investor). Where the transfer results in foreign investors holding 51% or more of charter capital (or other statutory thresholds), registration with the investment registration authority is required before changing enterprise registration.

Step 4 — Change enterprise registration content. Update member/shareholder information at the business registration authority under the Law on Enterprises.

Step 5 — Adjust the investment registration certificate (IRC). File the IRC adjustment dossier with the investment registration authority, including the adjustment request, project implementation report, transfer contract, and legal and financial documents of the new investor. The usual processing time is 10 working days from receiving a valid dossier.

Step 6 — Update sub-licenses and related obligations. New legal representative, bank accounts, digital signatures, specialized licenses (if tied to the exiting party’s personnel).

Note: the step order has tight logic — the IRC cannot be adjusted before completing the share purchase registration (where required), and the business registration authority may refuse if the investment dossier is inconsistent. Build an overall timeline from the start rather than doing steps discretely.

Handling remaining commitments after withdrawal

Completing the name transfer does not mean being “debt-free”. The exiting party should proactively terminate or transfer these commitments:

Guarantees and financial obligations: if the exiting party guaranteed the joint venture’s loans, negotiate release (usually requiring the remaining party or buyer to substitute a new guarantee — banks do not automatically agree).

Supply and technical support contracts: agreements between the exiting party (or its parent) and the joint venture — continue, terminate, or novate to the buyer — should be negotiated as part of the exit package, as they directly affect the JV’s value in the buyer’s eyes.

Non-compete and confidentiality obligations: check the remaining term and scope after exit; breaching a non-compete may lead to large damages claims.

Liability for obligations arising before exit: the general principle is the transferor remains responsible for obligations arising while it was a member/shareholder, unless the transfer contract agrees otherwise. Indemnity clauses for “residual” obligations should be specific with clear time limits and caps.

How FLAT LAW FIRM can help

FLAT LAW FIRM supports parties in joint venture exits: reviewing the joint venture contract, charter, and existing commitment systems; designing the exit roadmap and negotiating pre-emptive and valuation terms; drafting transfer contracts with full protection mechanisms; carrying out capital contribution/share purchase registration, enterprise registration changes, and IRC adjustments; handling guarantees, non-competes, and remaining commitments. We work in Vietnamese, Chinese, and English — especially suited to Vietnam–China joint ventures. To discuss a specific file, contact FLAT LAW FIRM.

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