How to Fundraise for Startup Companies in Vietnam: A Legal Guide

If you are a startup company in Vietnam looking to raise funds from venture capital, private equity, or other funds, it’s important to understand the legal framework of Vietnam governing how to fundraise for startup companies in Vietnam. This guide will provide an overview of the relevant laws and regulations of Vietnam, as well as some tips for optimizing your fundraising efforts.

Legal Framework

In Vietnam, fundraising activities to fundraise for startup companies are typically governed by the Law on Investment, the Law on Enterprises, the Law on Securities, and specific guiding legislations. These legislations shall provide the legal framework of Vietnam for fundraising activities and set out the rules, conditions, and requirements with which startup companies must comply.

Under the Law on Investment, foreign investors are allowed to invest in Vietnamese companies through various forms, such as capital contribution, share acquisition or merger and acquisition, and business cooperation contracts. However, there are certain restrictions and conditions that must be met, such as obtaining necessary licenses and approvals from the relevant authorities (for example obtaining an M&A Approval to be granted by the provincial Department of Planning and Investment, removal of certain business lines limiting foreign investors’ whole ownership ratio.

The Law on Enterprises, in the other words, governs the establishment, management and operation, and internal approvals of companies in Vietnam. It provides the legal ground for companies to either issue additional shares by a means of private placement applicable to the form of a joint stock company, or issue additional capital contribution applicable to the form of a multi-member company limited, to transfer shares from existing shareholders of the company or to convert the company’s form for the purpose of deal structuring and to raise capital through various means, such as private placement, public offering or bond issuance, debt-to-equity conversion, convertible loans.

Transactional documentation for the closing of a fundraising transaction

When it comes to the fundraising transaction, legally speaking, it is typically referred to as a form of M&A and a startup company shall in its capacity produce themselves or engage a trusted and experienced legal advisor to produce certain must-have transaction documents and review them in compliance with the laws of Vietnam as well as protect the legitimate rights and interests of a contractual party specified in transactional documents, such as Term Sheet, Memorandum of Understanding, Shares Purchase Agreement, Shares Subscription Agreement, Shareholders Agreement from time to time.

Aside from the above contractual documents, the company can be subject to each specific deal structure proposed by foreign investors and target company/ selling shareholders, produce some of the necessary applications for closing proceedings of the fundraising transaction, such as registering of foreign loans, modifying foreign loans to convert to equity/ shares in the startup company, obtaining an M&A approval for the acquisition of shares/ equity by foreign investors, charter capital increase…

In addition, the process of conducting corporate due diligence to fundraise for startup companies is considered an optional process by the investors and startup companies, their involved legal, finance, and tax advisors shall together find out key findings as much as possible in relation to the target company in many various aspects to be aware of whether the implications of key findings on how fundraising transactions will effects and how the key issues will be tackled in the transactional documents and in the process of negotiation of terms and conditions contained in the transactional agreement to which it is a party.

Conclusion

To fundraise for startup companies in Vietnam can be a challenging but multiple-step process. By understanding the legal framework and optimizing your fundraising efforts, you can increase your chances of success and take your company to the next level.

I hope this article helps you with your fundraising efforts. Let me know if you have any further questions and reach out to us at finnnguyen@ivlf-lawyer.com