International investors commonly create Joint Ventures with local businesses to comply with foreign ownership requirements. We’ll discuss how to set up a Joint Venture in Vietnam in this post. Here is what you need to know.
Joint Venture – What Is It?
A Joint Venture (JV) is a business arrangement in which two or more parties agree to pool their resources, expertise, and assets to accomplish a specific business goal or project. The parties involved in a joint venture typically share the profits, risks, and control of the venture.
How Can A Joint Venture Be Started?
The JV agreement outlines the goals. Besides, the agreement details all of the rights and obligations of each member to the venture, regardless of setting up a JV structure. Hence, it is important to have a clear agreement.
The Features Of A Joint Venture
The important features of how to set up a joint venture are:
- Shared Ownership: The ownership may be divided equally or according to the contribution of each party.
- Shared Control: The parties must agree jointly on major decisions.
- Shared Risks and Rewards: All parties involved in a joint venture share the risks and rewards of the venture. This includes the financial risks as well as the benefits that accrue from the venture’s success.
- Limited Duration: Once the goal or project has been completed, the joint venture may be dissolved.
- Specific Objective: The objective may be to develop a new product, enter a new market or carry out research and development.
- Shared Resources: Joint ventures require the parties involved to pool their resources, to achieve the common goal.
Form Of Joint Venture Agreement
It is necessary to have a contract between parties. Similar to a partnership agreement, the contract should outline what each party will contribute, their obligations, and the amount of profit they will receive from the business. In general, without a written agreement, Joint Ventures might fail due to disagreements between the participants.
Examples Of Setting Up A Joint Venture
Here are few instances of how to set up a joint venture:
- Network sharing between two mobile phone providers is approved.
- To offer Wi-Fi on the transportation platform, a network provider and a transportation provider team together.
- Two vehicle firms collaborate to perform research on fuel efficiency. • A restaurant partners with a major distributor to get its products into supermarkets across the country.
For instance, in order to create a vehicle fueled by hydrogen fuel cells, BMW and Toyota established a joint venture in 2015. And in 2009, Vodafone and Telefónica collaborated to share their mobile network infrastructure across regions of Europe, resulting in cost savings for both businesses of millions of dollars.
Advantages And Disadvantages Of Creating A Joint Venture
A company enters into a joint venture because it lacks the required knowledge, human capital, technology, or access to a specific market that is necessary to be successful in pursuing the project on its own. Coming together with another business affords each party access to the resources of the other participating company without having to spend excessive amounts of capital to obtain it. A Joint Venture enables each partner to access the resources of the other participant(s) without expending a lot of funds. Once the Joint Venture is finished, each company can easily resume its regular business operations while still maintaining its unique identity. Joint ventures also provide the benefit of having exposure to problems spread among participating companies.
However, while the project is in process, JV contracts frequently place restrictions on the participant companies’ outside activities. JV participants may need to sign non-compete or exclusivity agreements that have an impact on their current connections with suppliers or other commercial contacts. In addition, even though the member companies in a JV share control, work tasks and resource usage aren’t usually distributed equally.
Five Steps To Establish A Joint Venture
If your business intends to expand in this field, you must first assess your needs, identify potential partners, and then carefully construct a joint venture agreement to establish a reliable collaboration. In this part, Cross will show you how to set up a Joint Venture in 5 steps below:
Define Clear Strategic Objectives
If you need resources to accomplish a goal in your daily business activities, forming a joint venture is a suitable solution. It is crucial to articulate your plan concisely and in a commercial context after developing an idea. State the intended objectives and the purpose of the joint venture clearly. The demand for the collaboration must be compelling and apparent to entice other businesses to engage.
Select The Right Partner(s)
The business community is a great place to network and locate possible business partners. Look around, network with other business executives, and concentrate on businesses that offer the services or possess the knowledge you need.
Choose The Type Of Joint Venture You Want
There are different types of Joint Ventures. How to start a firm Joint Venture depends on what your business is trying to achieve. There are two common types of partnership structure in a Joint Venture. Joint Ventures can be Incorporated – a company or a limited liability partnership (LLP) and Unincorporated – a partnership, a cooperation agreement or a strategic alliance.
Draft Your Joint Venture Agreement
You ought to think about including some of the following rules in your paper:
- The parties involved in the venture
- The business name of the Joint Venture
- A description of the project the venture is intended for
- Financing and accounting information
- How profits and losses will be shared
- An equipment and materials clause, if applicable
- A defined general manager and individual responsibilities
- The date of the establishment of your agreement.
- Described repercussions should a party be unable to complete specific commitments
- Described how licenses would be obtained
- Contract termination specifics
How To Pay Taxes Work In A Joint Venture?
The most frequent action that the two parties can take when creating a JV is to establish a new entity. The JV itself is not recognized by the Internal Revenue Service (IRS), therefore how taxes are paid depends on the business structure between the two parties. The JV will pay taxes like any other company or firm because it is a separate entity. However, if it decides to function as an LLC, its revenues and losses would pass through to the owners’ personal tax returns, as with any other LLC.
Follow Other Applicable Regulations
Finally, you must ensure that you abide by any additional local, state, or federal laws that may be relevant to your joint venture. Depending on which industry your joint venture belongs to, you might need a business license to operate. And if you’re considering a cross-border joint venture, a host of international regulations come into play that might limit your ability to operate in other countries.
Read more: Establish a joint venture
Register A Joint Venture In Vietnam
Vietnam permits foreign investors to establish joint ventures with both indigenous and international businesses. Investors form joint ventures in Vietnam for a variety of reasons. You may immediately increase your target audience while also spreading costs with your partner (s). A joint venture also gives you access to new markets, an advantage over rivals, and the legitimacy you need to win over your neighborhood. The following steps show you how to set up a joint venture in Vietnam:
- Obtain an Investment Registration Certificate (IRC)
- Obtain a certificate of enterprise registration (ERC)
- Register for Tax
- Add Money to the Capital
- Submit any further license applications
Conditions For Establishing A Joint Venture In Vietnam
Here, let Cross show you how to create a joint venture in Viet Nam. A Joint Venture in Vietnam must abide by the following requirements to incorporate and operate legally:
- Eligibility: Two corporate organizations are required to participate, and some industry lines, like advertising, require a partner that is 100 percent local.
- Minimum Capital In Vietnam
- There is no set minimum capital requirement for the majority of company sectors. However, you must recommend a sum that is both acceptable and realistic for your joint venture in Vietnam. Most companies suggest a minimum capital of US$10,000, although this figure may change depending on your company’s operations.
- There is a predetermined minimum capital requirement in place for specific business lines.
- Your suggested minimum capital must be adequate to fund your joint venture activities, including labor costs, office rent, bills and utilities, and investor visa fees.
- Restricted Business Sectors
In Vietnam, 100% foreign ownership of a joint venture is not permitted in some business areas. In other words, collaboration with a local business is necessary. Some of the restricted business categories that require a local partner are listed below:
- Entertainment services
- Advertising services
- Telecommunication services
- Electronic game businesses
- Agriculture, forestry, and hunting-related services
- Tour operator services and travel agencies
- Customs clearance services
- Container handling services
- Auxiliary transport services
- Road, rail, and internal waterways transport services
Let’s Grow Your Business In Vietnam With Cross
At Cross Technology & Communication, our qualified staff can assist investors in facilitating transactions, seizing opportunities, and guaranteeing the success of setting up a joint venture. The experience of our business specialists includes helping foreign investors in Vietnam who want to join a Vietnamese company, matching both capital and knowledge.
Cross has years of experience and expertise in establishing a wide range of entity forms, including joint venture partner, limited partnerships, local limited companies, international limited companies, representative offices, branches, franchises, and many others. This experience and understanding extend beyond joint ventures. Cross can also offer skilled solutions in accounting and tax to complement your joint venture operations. If you are still considering how to set up a joint venture, contact us now.
Cross Technology & Communication
Address: 399/41 Nguyen Dinh Chieu Street, Ward 5, District 3, HCMC, Vietnam