THE COMPARISON BETWEEN WHOLLY FOREIGN-OWNED ENTERPRISE (WFOE) AND JOINT VENTURE COMPANY (JVC)
Primary legal basis:
- Law on Enterprises 2020, amended in 2025, No. 76/2025/QH15
- Competition Law 2018
Recently, Vietnam is known as the invested-attractive destination for the foreign investors as the economy develops significantly and the investment environment is more transparent. Nevertheless, for participating in the Vietnamese market, the investors are frequently confused whether to establish a wholly foreign-owned enterprise (WFOE) or a joint venture company (JCV).
At Hankuk Law Firm, we deeply understand that choosing the appropriate type of enterprise is the leading stage to decide the success of a project. With intensive experiences in the legal service field, we will analyse the advantages and disadvantages of each type of enterprise for accurate decisions.
Contents
I. What is wholly foreign-owned enterprise?
Pursuant to Article 3.22 Law on Investment 2020, “foreign-invested business organization means an organization whose members or shareholders are foreign investors.”
The wholly foreign-owned enterprise (WFOE) is an enterprise established by the foreign investors and holds the capital charter entirely. This reflects that all shares or contribution capital of the company are owned by foreign investors, without any Vietnamese shareholders or members as individuals or organizations.
This type of enterprise is known as a Wholly Foreign-Owned Enterprise or Foreign Direct Investment (FDI) company. These companies are operated only by the foreign investment capital, and the foreign investors are entitled to managerially control, govern and operate the business.
The business lines of WFOE are diverse, including manufacturing, service, commerce, property asset investment, and other business lines stipulated by Vietnam regulations. For establishing an enterprise under this type of enterprise, investors shall follow the procedures involving registration, ERC granting and other related licenses according to Vietnam regulations.
II. What is a Joint-venture Company?
According to Article 29.5 Competition Law 2018, “Joint venture between enterprises means an act whereby two or more enterprises jointly contribute part of their property, rights, obligations and legitimate interests to the establishment of a new enterprise.”
Accordingly, Joint Venture Company is the mutual or bilateral collaboration in which the parties jointly contribute capital, manage and share profits together. They can be an enterprise, organization, individual or the collaboration among domestic or international organizations and individual
In terms of legal perspective, the joint-venture companies are commonly established based on the joint-venture agreement or the treaties, in which the parties can contribute in currency, asset, or others to evolve and operate the company. Joint-venture companies are formed under Limited Liability Company (LLC) or other legal entities which are compatible with Vietnamese Law.
The fundamental characteristic of joint-venture companies including:
- The legality: the legal business form, safeguarded under the law.
- The cooperation: The parties cooperate based on the agreement, mutual respect.
- The joint manager: The parties jointly manage the operation of the joint-venture company.
Otherwise, in case of contributing by non-monetary assets such as land-use right, the accountant will record in accordance with the relevant accounting standards and laws, reflecting the accurate value of contributed assets
III. The characteristic of wholly foreign-owned enterprises and join-venture companies
| Wholly foreign-owned enterprises | Join-venture companies | |
| Sources | Wholly foreign capital | Comprising Vietnamese capital and foreign capital. The estimated 1-99% foreign contribution depends on business lines and the agreement (some business lines require the limitation of foreign contribution). |
| The managerial right | The foreign investors are fully entitled to decide all issues (investment, human resources, profits,…) | The managerial right is shared proportionally based on the contribution or Articles of Association (AoA) |
| Governance structure | The governance structure is regulated in detail of type of business | Shall have mutual agreement, the beneficial dispute or the governing culture differences. |
| Establishment procedure | More complex due to the obligation to illustrate finance ability demonstration, investment goal, experience, and comply with the foreign investment business lines regulations. | Shall have Vietnamese partners to support the procedures, legal aspect, land and property,… |
In respect of advantage and disadvantage of type of business, as follow:
Regarding Joint-venture company:
| Advantage | Disadvantage |
| – Understand the local market significantly | – Disputes between the parties are likely to arise. |
| – Vietnamese partners will support the legal aspect, procedures, relationships, and land. | – Prolonged decision due to benefit agreement |
| – Easy to approach the incentive policy | – Difficult to secure the technology or strategy |
Regarding wholly foreign-owned enterprise:
| Advantage | Disadvantage |
| – Solely governing the business activities | – Difficult to approach the market, culture, administrative procedures |
| – Be proactive in deciding strategy, technology, and human resources. | – Limited in some business lines |
| – High-quality business secure | – Difficult to secure the technology or strategy |
IV. Which Type of Business Entity Should You Choose for Investment in Vietnam?
- For foreign investors with strong international experience who want full control, you should consider establishing a 100% foreign-owned company.
- For those looking to enter restricted sectors, share costs and risks, and have local partners to support management and market development, you should consider establishing a joint venture company with Vietnamese partners.
V. About Us, Hankuk Law Firm
■ Hankuk Law Firm – Introduction
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To support the startup process, our lawyers and staff provide a wide range of services, including business law consulting, tax and immigration law consulting, real estate services, business consulting, marketing and communications, human resources, product distribution, franchise options, etc. We provide expert advice on every aspect of your business needs.
To protect the legitimate rights and interests of our clients and achieve the best results, we provide legal advice and participate in civil lawsuits related to business, labor, marriage, family, and inheritance.
■ Contact us now
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