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Decree on re-registering and converting FIEs

06/08/2010 - 160 Lượt xem

Introduction

On 21 September 2006 the Vietnamese Government issued the long-awaited Decree No 101/2006/ND-CP (the Decree) guiding the re-registration and conversion of enterprises with foreign owned capital and registration for replacement with investment certificates by business co-operation contracts pursuant to the Law on Enterprises and the Law on Investment, which is one of the most important Decrees to be implemented in Vietnam’s new investment-enterprise regime introduced under the 2005 Law on Investment and the Law on Enterprises as of 1 July 2006.

The Decree provides separately for (i) re-registration; (ii) conversion; (iii) replacement with investment certificates with respect to joint venture companies, 100 per cent foreign owned companies and foreign invested shareholding companies - together referred to as foreign invested enterprises (FIEs) - as well as business co-operation contracts (BCCs) that were licenced under the previous Law on Foreign Investment. It also deals with existing FIEs and BCCs that choose not to make that transition. The Decree does not apply to FIEs licenced under other laws, such as joint venture banks and insurance companies.

The Decree does not make it compulsory for existing FIEs to conduct re-registration or conversion or for existing BCCs to conduct replacement with investment certificates. The time limit for registration is only two years from the effective date of the Law on Enterprises (1 July 2006).

Advantages and benefits of re-registration

Re-registration will bring considerable advantages and benefits with respect to existing FIEs. Below is a detailed comparison and analysis:

- Form of enterprise: Under the previous laws on foreign investment in Vietnam, FIEs only operate under the form of limited liability company. Although the Government issued Decree No 38/2003/ND-CP on the conversion of foreign invested companies into foreign invested shareholding companies, there are many obstacles in both legal and practical respects in exercising such conversion activities and there have been only a few enterprises permitted to transform under the regulation. After conducting re-registration under the Decree, FIEs will be entitled to freely convert into other desired forms as provided for by the new Law on enterprises regardless of the conditions imposed in Decree No 38/2003/ND-CP. Below is a table describing the change of corporate forms after re-registration.

Re-registration

Currnet form

New form

100 per cent foreign owned enterprise with one foreign investor

Limited liability company with one member

100 per cent foreign owned enterprise with two foreign investors or more

Limited liability company with one member or more

Joint venture enterprise

Limited liability company with one member or more

Foreign invested joint stock company

Joint Stock Company

Current form

New form

100 per cent foreign onwed enterprise with one foreign investor

Limited liability company with two members

100 per cent foreign onwed enterprise with one foreign investor or more

Limited liability company with two members

Joint venture enterprise

Limited liability company with one member

Any FIE in the form of limited liality company

Joint stock company

Any FIE in the form of joint stock company

Limited liability company

Conversion: The conversion option allows existing FIEs to adopt a new corporate form (which are set out in the table below). This will create more scope for existing foreign invested companies to conduct business activities in Vietnam, including operating as a joint stock company and listing on the stock exchange.

- Business scope and operational duration: There are apparent benefits in this respect. FIEs opting to conduct re-registration would acquire considerable advantages compared to those that do not opt to re-register. The latter will only be entitled to operate in accordance with the provision of “one enterprise, one project” and their business is limited to the scope of business/industry and within the operation term as allowed in the existing investment licence. They would be entitled to apply for change of their existing investment licences in case of necessity (this has not been clearly defined in the Decree) with the approval of competent authorities, but in any event shall not be entitled to apply for a change of scope of business and operation duration of the projects and the companies.

Meanwhile, under the Decree, if re-registration is conducted, FIEs may expand their operation in many fields other than their existing business scope and extensions to the duration of the projects would also be permitted. Moreover, the operational term of the re-registered FIEs shall be not limited. As such, one company may run different projects with different terms.

- Structure of organisation and operation: After re-registration, FIEs shall be entitled to operate and structure its organisation in accordance with the new Law on enterprises, while FIEs that do not re-register shall continue to operate according to provisions set out in their existing Investment Licences and Charter (documents made under the provisions of the old laws on foreign investment in Vietnam. It is not clear whether such FIEs shall have to comply with the new Law on enterprises, since there is the possibility that certain content in the existing Investment Licence and/or Charter of the FIEs will not be in line with the provisions of the new Law on enterprises (for e.g. voting principles). This uncertainty could be a potential obstacle for FIEs that do not conduct re-registration. By re-registering and operating under the Law on enterprises, re-registered FIEs shall have a better legal framework for dealing with the management of the company (shareholder meetings, share issues, profit distribution, etc.).

- Investment incentives after re-registration: Subject to the satisfying of conditions as required by the laws, the re-registered FIEs shall be entitled to enjoy all investment incentives applicable to their projects.

Given the foregoing, whether converting or not, existing FIEs would need to make an adequate assessment taking into account the particular circumstances of each investment project. For instance, in terms of the benefits of one party of a joint venture company, if the current joint venture charter and/or contract may contain more advantageous provisions than those available under the new laws, re-registration (which leads to a change in contents of the charter/contract towards provisions as required by the new laws) may, to some extent, create disadvantages to the party.

Conclusion

Although the new Law enterprises and the new Law on investment are in the spirit of ensuring the interests of foreign investors in accordance with the laws and international commitments of Vietnam regardless of whether FIEs conduct re-registration or not, there exists provisions and issued guiding regulations that constitute certain disadvantages for FIEs not re-registered. Considering all the positives and negatives, advantages and conveniences in re-registering FIEs as analysed above, it is advisable that existing FIEs conduct re-registration.

Source: VNEconomy