Not every deal can settle on a single price on signing day. When the seller believes the business is about to grow strongly and the buyer only believes audited numbers, post-closing price adjustment and the earn-out bridge the two beliefs: part of the price is paid later, against the companys real trading results. For a foreign investor buying a Vietnamese company, that bridge is only solid if the metrics are defined so tightly that two readings are impossible, because earn-out disputes almost always begin with a loose definition.
The Legal Framework You Need
Vietnamese law has no dedicated earn-out rules; it is a purely contractual mechanism inside the share or capital purchase agreement, operating on civil and enterprise law foundations. Two variants must be distinguished: the purely technical completion adjustment, using net working capital, net debt and cash at closing to turn a provisional price into a final one; and the future-performance earn-out, paying the seller more if the company hits revenue or profit milestones over one to three years after the deal. Both share one requirement: the deciding figures must be determined under accounting standards and policies consistent with the base period, usually confirmed by an independent auditor.
Three accompanying legal issues must be handled inside the contract. First, deferred price is still part of the transfer price, so the sellers capital transfer income tax under the Law on Corporate Income Tax 67/2025/QH15 or the Law on Personal Income Tax 109/2025/QH15 must be computed and declared at the corresponding payment events, with an agreed payment and withholding mechanism for each tranche. Second, earn-out cash flows to a foreign seller or from a foreign buyer must travel the investment capital account channel under Circular 38/2026/TT-NHNN. Third, operating covenants during the earn-out period, such as maintaining the team, budgets and accounting policies, are contractual duties that must be written as monitorable commitments.
Applying the Rules to a Real Deal
Metric design decides whether an earn-out succeeds or becomes a dispute field. A revenue metric resists accounting manipulation but rewards selling at any cost, including at a loss; a profit metric reflects growth quality but is sensitive to cost allocation, especially parent management charges and related-party transactions. Good practice in Vietnam uses one primary metric with guardrails: a line-by-line definition of inclusions and exclusions, a locked list of accounting policies that cannot change during the earn-out, book access rights for both sides, and an independent audit firm appointed as the final figures determiner when the parties disagree.
The structural tension of an earn-out is control: after closing, the buyer runs the business and can, deliberately or not, depress the results the seller is counting on; conversely, a seller staying on can maximise the short-term metric by cutting long-term investment. The contract must police both directions: the buyer covenants to run the business consistently, not divert revenue or business opportunities away, and maintain agreed budgets; the seller or retained team commits to governance standards and limits on out-of-budget decisions. An acceleration clause paying out the earn-out if the buyer resells the company or changes control during the earn-out period should also be provided for.
Illustrative example: A Dutch investor bought a majority stake in a Vietnamese furniture maker with 25 percent of the price structured as a two-year earn-out on audited profit under locked accounting policies. In year one the buyer allocated a new regional marketing programme cost into the target, pulling profit below the threshold. The earn-out schedule expressly excluded unbudgeted parent-initiated programmes, and the appointed independent auditor issued a determination restoring the metric; the earn-out for year one was paid in full. Both sides later said the pre-agreed expert mechanism, not goodwill, is what saved the relationship.
Procedure and Documents to Prepare
First: choose the mechanism type: completion accounts adjustment, future performance earn-out, or a combination. Next: define the metric line by line: accounting standards, locked policies, inclusions and exclusions, related-party treatment. After that: agree two-way operating covenants for the earn-out period on budgets, key staff and business opportunities. Then: secure the deferred amount: escrow, retention or guarantee, with a payment schedule per tranche. Finally: appoint the dispute path for figures: an independent auditor decides numbers, arbitration handles the remaining legal issues.
- choose the mechanism type: completion accounts adjustment, future performance earn-out, or a combination.
- define the metric line by line: accounting standards, locked policies, inclusions and exclusions, related-party treatment.
- agree two-way operating covenants for the earn-out period on budgets, key staff and business opportunities.
- secure the deferred amount: escrow, retention or guarantee, with a payment schedule per tranche.
- appoint the dispute path for figures: an independent auditor decides numbers, arbitration handles the remaining legal issues.
Common Risks and How to Prevent Them
The first risk is a loose metric definition letting each side compute a different number from the same books. The second risk is unlocked accounting policies, so earn-out results are steered by changing recognition methods. The third risk is missing operating covenants, letting buyer or seller bend results in their own favour. The safeguard is a detailed metric schedule annex, a pre-appointed determining auditor, and tying the deferred amount to a specific security source.
Earn-out disputes rarely erupt over the amount; they erupt because the metric definitions were unclear and the party who calculates the numbers was never agreed in advance. Turn the metric definitions into a detailed annex, pre-appoint the audit firm that will determine the figures, and tie the deferred payment to a specific source of security.
Frequently Asked Questions
How is a post-closing price adjustment carried out?
Post-closing adjustment usually runs on two mechanisms. The first adjusts on closing-date figures: a provisional price based on the latest accounts is trued up or down by actual net working capital, net debt and cash determined after closing, producing the final price. The second is the earn-out: part of the price is held back and paid in steps if the company reaches defined revenue or profit milestones over the following one to three years. Both mechanisms must state the figure source, the applicable accounting standards and who certifies the final number, otherwise the adjustment becomes a second negotiation with no referee.
What benefit does an earn-out mechanism give a foreign investor?
An earn-out benefits a foreign investor in three ways. First, it pushes part of the valuation risk into the future: if the growth the seller promised never materialises, the matching price is never paid. Second, it keeps founders and the retained team motivated, because their economics tie directly to post-deal performance. Third, it narrows the negotiation gap when the sides disagree on forecasts, instead of forcing one number that one side believes is wrong. In exchange, the investor accepts monitoring cost and the possibility of figure disputes, so an earn-out should be used only where the metric can be defined and measured objectively.
How are price adjustment disputes handled?
Price adjustment disputes are resolved through the layers designed into the contract. First, the parties reconcile the figures and each others calculations to narrow the disagreement. If the disagreement is about accounting numbers, an independent audit firm or expert appointed under the contract issues a determination binding on the numbers, the fastest and cheapest route for earn-out disputes. What remains of a legal nature, such as clause interpretation or alleged breach of operating covenants, goes to arbitration or court under the dispute resolution clause. Designing these two layers into the contract decides whether a dispute lasts weeks or years.
This article has been quality-reviewed by the FLAW AI Legal Council