Reference situation:

Phuc Long is a joint-stock company established in Vietnam with 03 founding shareholders, namely Mr. Nguyen Van Hung (holding 20%), Ms. Nguyen Thi Xuan (holding 20%), and Shinichi Company (holding 60%). Shinichi Company is a company established in Japan and is wholly owned by Japanese investors. Phuc Long company would like to operate under a holding company model in order to only hold equity in its subsidiary operating in car production, dairy feeding, construction, etc. Phuc Long company would like to consult lawyers about the legal eligibility and procedures relating to the establishment of these subsidiaries.

Our legal advice:

1. Legal status for the investment of Phuc Long Company 

Shinichi Company – a foreign investor is the shareholder of Phuc Long Company. Therefore, Phuc Long company is considered a foreign-invested economic organization. under clause 17 Article 3 of Law on Investment 2014.

Since Shinichi Company is holding 60% of the equity of Phuc Long company, therefore, Phuc Long company is subject to point b, clause 1, Article 23 under Law on Investment 2014. Accordingly, when establishing a subsidiary, Phuc Long company must comply with investment conditions and procedures as a foreign investor.

2. Investment conditions and procedures 

As Phuc Long company must comply with investment conditions and procedures like a foreign investor, the company must establish an investment project and obtain an investment registration certificate for one subsidiary. By contrast, domestic investor and a foreign-invested company which is deemed to a domestic investor, are not subject to legal procedures for the establishment of a project and the issuance of an investment registration certificate.

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In order to overcome the legal problems, as shown above, Phuc Long company might consider the following solutions:

• Phuc Long company may decrease the ownership of Shinichi Company to less than 51% by transferring Shinichi's ownership interest to the current shareholders (Mr. Hung and Mr. Xuan) (i.e the company must change its form of the company into limited liability company ) or offer its shareholdings for other domestics investors. (i.e the company must perform the procedures for a private offer)
• Phuc Long company will establish only one its subsidiary as a holding company. This holding company will establish other subsidiaries operating in desired sectors. In this situation, the holding company (the subsidiary of Phuc Long company), subject to clause 1 Article 23 of Law on Investment 2014, will not be considered as foreign investor. However, this solution will expand the group of companies of Phuc Long company.

This is our preliminary legal advice. Please do not hesitate to contact us through the following address should you have the demand to use our service. We look forward to our cooperation. 

Bizlawyer & Partners Law Firm

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