Vietnam’s technology startup ecosystem has witnessed remarkable expansion. Thanks to a favorable business environment, availability of skilled professionals, and a thriving local market, Vietnam has become an appealing destination for both entrepreneurs and investors. It is essential for tech startups to prioritize compliance, safeguard their interests, and cultivate sustainable growth. While some entrepreneurs may postpone adhering to regulations until their business achieves commercial success, establishing a solid foundation that is both commercially and legally sound is crucial for preserving accomplishments.
Company Formation and Registration
a. Choosing the right legal entity
Selecting the Appropriate Legal Structure
A common approach is to establish an offshore entity that serves as the parent company for the Vietnamese entity. The most prevalent type of entity in Vietnam is the limited liability company (LLC), although a joint-stock company (JSC) can be considered as well. Each legal structure has its own advantages, disadvantages, and specific legal obligations. For instance, LLCs, being the preferred choice, offer flexibility and simpler governance structures, whereas JSCs are more suitable for larger-scale operations, employee stock ownership plans (ESOPs), public listing, and accessing capital markets. Startups should assess their business requirements and seek advice from professionals to determine the most suitable legal structure for their venture.
Process of Registration and Licensing
Registering a tech startup in Vietnam encompasses various procedures. This typically involves obtaining an enterprise registration certificate (ERC) and, if there is foreign ownership, an investment registration certificate (IRC). Additionally, tax registration and sector-specific licenses or permits may be necessary, depending on the nature of the startup’s activities. For example, obtaining a specialized license is mandatory for operating an e-commerce platform. Consulting with legal professionals can ensure that startups make informed decisions and comply with the required legal obligations.
b. Compliance with Intellectual Properties (IP)
Software often forms the core asset of a startup. In Vietnam, copyright protection is conferred automatically upon the creation of original works, including software. However, determining the rightful ownership of the software can sometimes be a point of contention. Opting for voluntary registration can provide additional evidence and advantages in case of disputes. It is advisable for startups to consider registering their software, digital content, and other creative works to further bolster their IP protection. In addition, implementing robust internal measures to safeguard copyright materials is essential. This includes employing properly drafted licensing agreements and enforcing data security protocols to ensure adequate protection.
c. Employment law and labor contract for startups business
Employee
As companies experience growth, the need for additional human resources becomes essential. However, the process of hiring employees carries various obligations and requirements according to the Labor Code. Tech startups are required to collaborate with local labor authorities, fulfill social insurance and labor tax obligations, and adhere to regulations governing employment contracts. Moreover, when hiring foreign nationals, there are specific visa and work permit requirements that must be met.
A common consideration in terms of employment is whether to establish an Employee Stock Ownership Plan (ESOP). ESOPs can be established either at the early stages of a startup or later on when the company has achieved a certain level of success and aims to retain or attract talented employees. ESOPs are subject to regulations, and when issued by a foreign parent company, they should be properly documented and registered with the State Bank.
Labor Contracts and Employee Rights
Labor contracts serve as legally binding agreements between employers and employees. It is crucial for startups to acquaint themselves with the fundamental elements of a labor contract in Vietnam. These elements include the terms of employment, job descriptions, salary and benefits, working hours, leave entitlements, and procedures for contract termination.
Best Practices for Data Protection
To ensure compliance with data protection laws, startups have the option to incorporate a variety of best practices. These practices involve implementing strong data security measures, such as encryption and access controls, conducting regular assessments to evaluate the privacy impact of data, obtaining individuals’ consent for data collection and processing, and establishing clear data retention policies. Startups can also create comprehensive data protection and privacy policies, educate employees on their roles and responsibilities, and provide training on proper data handling and security protocols. Additionally, performing a legal data audit can prove highly beneficial for startups engaged in the collection and processing of personal data from various sources, including users and employees.
Funding and investment for startups
a. Investment Regulations:
Securing funding is a major milestone for startups, and while there are a few restrictions, the rules for obtaining funding are generally permissive. Importantly, there are incentives available for certain sectors, such as high-tech manufacturing. Ensuring compliance with the relevant regulations can make it easier for startups to attract both domestic and international investors.
b. Support Organizations and Institutions:
Numerous organizations and institutions have been established to support the growth of startups. One such organization is the National Innovation Center (NIC), which was established through Decision 1269/QD-TTg. The NIC plays a central role in Vietnam’s efforts to cultivate the local startup ecosystem. It provides training and assistance to emerging enterprises, helping them form partnerships with major global technology companies like Amazon and Google.
c. Contracts and Agreements with Investors:
When entering into investment agreements, startups need to carefully review and negotiate the terms in order to protect their interests. Important aspects to consider include the valuation of the startup, the equity structure, the rights and obligations of the parties involved (including key employees), exit mechanisms, and dispute resolution methods. Seeking assistance from experienced professionals can be invaluable in this process.
Conclusion
In conclusion, navigating the legal landscape is crucial for tech startups in Vietnam from their formation to funding stages. Understanding the necessary legal requirements and compliance obligations is essential to ensure a smooth and successful journey. From registering the business entity and protecting intellectual property rights to securing funding and entering into investment agreements, startups must carefully consider and address each legal consideration. By seeking professional guidance and staying informed about the ever-evolving legal framework, tech startups in Vietnam can position themselves for growth, innovation, and long-term success in the competitive between tech startups industry.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn
