Role of Joint venture agreements

The documentation for a joint venture company in Vietnam must at least include a joint venture agreement and a joint venture charter. If there is difference between the joint venture charter and the joint venture agreement, then one needs to decide which document will take precedent. Usually, in such case, the joint venture parties tend to favour the joint venture agreement for two reasons. First, the joint venture agreement is usually regarded as a private agreement between the joint venture parties and therefore needs to be respected. Second, before 2005, under the old Foreign Investment Law, a joint venture agreement has a clear legal status and would take precedent over a joint venture charter.

However, under the current Investment Law, the legal status and role of a joint venture agreement is not clear. By contrast, the Charter has a clear legal status under the Enterprise Law and is considered to be the highest constitutional document of a company. Furthermore, an amendment to the Charter can occur with a 75% shareholder vote whereas an amendment to the Joint Venture Agreement requires agreement between the two parties. Accordingly, for a majority member in a joint venture, it may be better to make the joint venture charter to become the main “contractual” document between the parties rather than the joint venture agreement.