Fourteen months after the new Law on Enterprises took effect, the Government has issued Decree No 139/2007/ND-CP to clear away some of the obstacles ecountered by enterprises seeking to set up shop in Vietnam.

The most welcome provision in the new decree is the wholesale elimination of permits and sub-licence requirements imposed by ministries, agencies or local authorities. Henceforward, permits and sub-licences can only be stipulated in legal documents issued at the level of the Prime Minister or Government. Those provided in all other regulations shall be eliminated as of September 1, 2008.

Such a clean sweep was a response to burgeoning numbers of new permits and licences despite Government efforts to curb their creation.

The move also helps build a fairer and more transparent business climate in which investors are able to comply with business conditions set forth in specific laws rather than conditions created willy-nilly by ministries or local authorities.

Decree No 139 also touches on the issue of professional practice certifications, rejecting those granted outside of Vietnam unless otherwise allowed by specific laws or international treaties to which Vietnam has signed or acceded.

This provision potentially impacts upon hundreds of foreign-invested enterprises currently operating for which professional practice certificates issued by foreign authorities have previously been accepted.

Potential investors planning to invest in Vietnam based on foreign professional status may now have to find a way around this rule.

The Government will also need to provide further guidance on this provision in term of conditions for domestic granting of professional certification or obtaining recognition for foreign-issued certificates.

A more favourable provision of Decree No 139 for enterprises is that waiving the need to prove satisfaction of legal capital requirements if the firm's balance sheet equity is equal to or higher than stated legal capital.

The new decree also sheds light on the establishment of an enterprise with less than 49% foreign capital in furtherance of Article 29.4 of the Law on Investment.

Of note, no investment project is required and the investors must only carry out business registration procedures like their domestic counterparts.

This is a much simpler process and highly appreciated by foreign investors, but concerns still remain regarding the authority to submit applications and the division of responsibility between the relevant authorities.

Foreign acquisitions clarified

Investors have been wondering about the possible effects of Prime Minister Decision No 36 on lines of business open to foreign acquisition. It is clear now under Decree 139 that the right to make capital contribution or purchase shares of companies in Vietnam is no longer limited, except in some cases listed in Article 10 of the decree.

One of the key differences between a limited liability company and a joint stock company is the pre-emptive right on assignments of capital. Decree No 139 provides for circumstances in which the transfer is waived from any restrictions, such as when the company does not redeem its share of capital contribution, fails to make payment or fails to reach agreement on the price of the transferred capital. This provision is purported to ease exit strategies, especially for minority members.

Last but not least, Decree No 139 gives investors more choices to re-structure investment by setting forth several forms of conversion between different types of company, especially conversions from private enterprises to limited liability companies.

Decree 139 also addresses cumulative voting in the general meeting of shareholders of a joint stock company, responsibility of legal representatives who are foreigners to reside in Vietnam during their term of office, meetings of boards of management and the use of the word "group" in naming companies.

Source: Viet Nam News.