In Vietnam, there are some business lines are restricted that foreign investor cannot proceed or difficult to expedite or it causes complexity for investors due to legal barrier.
In actual practice, many foreign investors get troubles and headache and some of them cannot overcome or satisfy such legal requirements. Therefore, foreign investor choose nominee structure as a solution.
Nominee structure company means Company formed by a fiduciary organization to hold and administer securities or other assets as a custodian (registered owner) on behalf of an actual owner (beneficial owner) under a custodial agreement.
Accordingly, the foreign investor shall invest capital to set up a local company under the name of entrusted Vietnamese party.
The Vietnamese party shall borrow money from foreign investor through a loan agreement (In actual practice, there will be two agreements: Capital Financing Agreement and Indemnification Agreement).
Upon the local company is formed, its assets shall be mortgaged/pledged to beneficial owner via a mortgage/pledge agreement and this agreement should be registered at National Registration Agency for Secured Transactions.
This civil transaction is legal, fair for both parties and the rights of the true beneficiary (foreign investor) will also be ensured if any dispute happens.
We also would like to note that Vietnam Law does not officially recognize the Nominee Structure Company and therefore the Foreign Investor can be exposed to some potential risks.
For example, in case the Borrower or the Company repay all principal loan and related interest, then, Foreign Investor shall no longer secure its controlling right against the Company.
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