Finding profits through investment activities is always the top concern of investors. To help customers have more information about this investment, the Law Firm would like to introduce the popular forms of investment today.
First, let's find out with Apolo Lawyers what investment is.
1. What is investment?
Investment is an activity that uses current resources (such as finance, materials, labor, intelligence, time, etc.) to achieve greater profits and economic benefits in the future than the resources spent.
2. What is business investment?
Business investment is the act of an investor investing capital to carry out business activities through the establishment of an economic organization; investing in capital contribution, purchasing shares or capital contributions of an economic organization; investing in the form of a contract or implementing an investment project (Clause 5, Article 3 of the current Investment Law).
3. Popular forms of investment
According to Article 21 of the current Investment Law, domestic and foreign investors can make investments in the following 5 forms:
(1) Investment in establishing economic organizations;
(2) Investment in capital contribution, purchase of shares, purchase of capital contributions;
(3) Investment project implementation;
(4) Investment in the form of BCC contracts; and other forms of investment and new types of economic organizations as prescribed by the Government.
Let's analyze and learn about the characteristics of each type of investment.
3.1. Investment in establishing economic organizations
According to Clause 1, Article 22 of the Investment Law 2020, investors establish economic organizations as follows:
(i) Before establishing an economic organization, foreign investors must have an investment project and carry out procedures for granting and adjusting the Investment Registration Certificate, except for the establishment of innovative start-up small and medium enterprises and innovative start-up investment funds in accordance with the provisions of law on support for small and medium enterprises.
(ii) Foreign investors establishing economic organizations must satisfy the market access conditions for foreign investors as prescribed in Article 9 of the Investment Law. Specifically:
- Ratio of charter capital ownership of foreign investors in economic organizations;
- Investment form;
- Scope of investment activities;
- Capacity of investors; partners participating in investment activities;
- Other conditions as prescribed in laws, resolutions of the National Assembly, ordinances, resolutions of the National Assembly Standing Committee, decrees of the Government and international treaties to which the Socialist Republic of Vietnam is a member.
Before establishing an economic organization, foreign investors must have an investment project and carry out procedures for granting and adjusting the Investment Registration Certificate, except for the establishment of innovative start-up small and medium enterprises and innovative start-up investment funds in accordance with the provisions of law on support for small and medium enterprises.
From the date of being granted the Certificate of Enterprise Registration or other documents of equivalent legal value, the economic organization established by a foreign investor is the investor implementing the investment project according to the provisions of the Investment Registration Certificate.
The biggest advantage of this form of investment is that after establishing a new economic organization, the investor will have legal status in Vietnam. From there, it is legally independent from the investor and helps them exercise their rights more easily. Moreover, there is no limit on scale. The company's profits and legal responsibilities will be divided according to the capital contribution ratio of each party, thus ensuring fairness.
The disadvantage is that the procedures are complicated. In addition to having to comply with the procedures under the Investment Law, it is also necessary to comply with the provisions of the Enterprise Law.
3.2. Investment in the form of buying shares and buying capital contributions
Pursuant to Article 24 of the Investment Law 2020, the forms of investment in capital contribution, share purchase, and capital contribution purchase are as follows:
– Foreign investors are subject to the same market access conditions as those applicable to domestic investors, except for the cases specified in Clause 2, Article 9 of the Investment Law 2020.
– Pursuant to laws, resolutions of the National Assembly, ordinances, resolutions of the National Assembly Standing Committee, decrees of the Government and international treaties to which the Socialist Republic of Vietnam is a member, the Government promulgates the List of industries and occupations with restricted market access for foreign investors, including:
- Industries and occupations that have not been allowed to access the market as prescribed in Decree 31/2021/ND-CP
- Industries and occupations with conditional market access Decree 31/2021/ND-CP
– Market access conditions for foreign investors specified in the List of industries and occupations with restricted market access for foreign investors include:
- Ratio of charter capital ownership of foreign investors in economic organizations;
- Investment form;
- Scope of investment activities;
- Capacity of investors; partners participating in investment activities;
- Other conditions as prescribed in laws, resolutions of the National Assembly, ordinances, resolutions of the National Assembly Standing Committee, decrees of the Government and international treaties to which the Socialist Republic of Vietnam is a member.
– Ensure national defense and security according to the provisions of the Investment Law 2020;
– Ensure the provisions of land law on conditions for receiving land use rights, land use conditions in islands, border communes, wards and towns, coastal communes, wards and towns.
Contributing capital, purchasing shares, and capital contributions to economic organizations is a form of indirect investment by foreign investors. This form of investment is through the purchase of stocks, bonds, and other valuable papers in which the investor does not directly participate in the management of investment activities.
Compared to investing in establishing an economic organization, this form will help investors save a lot of time and money because they do not have to carry out many procedures.
3.3. Investment project implementation
Foreign investors can sign investment contracts under the public-private partnership (PPP) method. This is an investment method implemented on the basis of limited-term cooperation between the State and private investors through signing PPP contracts to attract private investors to participate in implementing PPP investment projects.
Pursuant to Section 2, Section 3, Chapter IV of the Investment Law 2020, the process for foreign investors to be allowed to carry out investment projects in Vietnam includes the following basic steps:
– Select investors to implement investment projects
– Submit application and appraisal content to request approval of investment policy
– If the investment project is approved, the foreign investor will be granted an Investment Registration Certificate by the competent authority.
– Implement investment projects.
3.4. Investment in the form of BCC contract
Pursuant to Article 27 of the Investment Law 2020, investment forms include:
– BCC contracts signed between domestic investors are implemented in accordance with the provisions of civil law.
– BCC contracts signed between domestic investors and foreign investors or between foreign investors carry out procedures for granting Investment Registration Certificates according to regulations in Article 38 of the Investment Law 2020.
– The parties to the BCC contract establish a coordinating board to implement the BCC contract. The functions, tasks and powers of the coordinating board are agreed upon by the parties.
Investment under the form of a BCC contract is a form of investment under a Business Cooperation Contract between investors to cooperate in business, share profits, and share products without establishing an economic organization. The parties participating in the BCC contract establish a coordination board to implement the BCC contract. The functions, tasks, and powers of the coordination board are agreed upon by the parties.
The advantage of the BCC contract form is that it saves time, implementation costs, and the amount of capital is also agreed upon by the parties. In addition, because it is not a legal entity, the investor will be more proactive, flexible, and less dependent on the partner when deciding on investment project issues. This helps the participating parties limit risks if the business cooperation is not as expected and when they do not want to continue the cooperation, they just need to liquidate the contract.
The disadvantage is that there is no tight coordination between the parties. It is unfair because when carrying out investment activities, legal liability will arise, requiring one party to be responsible, especially foreign investors are often more vulnerable.
In addition, investors will have to choose a seal from one of the two investors to serve the activities of the investment project, which may cause trouble and pose many risks for investors.
The above are the forms of investment according to the law, you can refer to the above forms of investment to choose the form of investment that suits your needs and desires. In case you need advice and support on issues related to the forms of investment.
