Things to Consider When Signing a Contract with a Foreign Company

With the current global economic market development, collaborating with foreign companies has become increasingly common. To avoid potential risks when entering into contracts, let's follow this article on how to sign a contract with a foreign company in compliance with regulations.

1. How to Legally Sign a Contract with a Foreign Company? 

When parties enter into contracts in general, and contracts with foreign companies in particular, they are free to negotiate terms and conditions of the contract, as long as they do not violate legal regulations and social ethical standards.

Article 11 of the Law on Commercial 2005 stipulates the principle of freedom and voluntary agreement in commercial activities as follows:

• Parties have the right to freely negotiate content that does not violate legal regulations, cultural customs, or social ethics to establish the rights and obligations of the parties in commercial activities. The state respects and protects the rights of parties participating in commercial activities.

• In commercial activities, parties are fully entitled to negotiate, and no party may impose, coerce, threaten, or obstruct the other party.

1. Is Using a Seal Mandatory When Signing a Contract with a Foreign Company? 

According to Article 43, Clause 3 of the Law on Enterprises 2020, regulations regarding enterprise seals are as follows:

“3. Management and preservation of seals shall be carried out according to the provisions of the company's charter or regulations issued by the enterprise, branch, representative office, or other unit of the enterprise that has seals. Enterprises use seals in transactions according to the provisions of the law.”

Thus, currently, Article 43, Clause 3 of the Law on Enterprises 2020 only stipulates that enterprises must use seals in transactions according to legal regulations.

This means that the current law allows enterprises to use their seals in transactions where the parties have agreed to use seals.

Therefore, enterprises are only required to use the enterprise seal for transactions as regulated by law.

For transactions where the parties may agree to use a seal or not, it is not mandatory to use a seal to conduct a contract with a foreign company.

Previously, Article 44 of the Law on Enterprises 2020 stipulated that enterprises must use a seal in the following cases:

• When the law requires the use of a seal.

• When the company's charter stipulates the use of a seal.

• When the parties agree to use a seal.

In practice, in many countries, enterprises do not use seals but only the signature of the legal representative/authorized person.

Therefore, in this case, when signing a contract with only the signature of the authorized person without a seal, it is still valid if the content of the transaction does not violate legal regulations.

1. Four Considerations When Drafting a Contract with a Foreign Company

• Check the legal entity signing: This check is crucial as it can determine the status and capacity of the foreign company to operate in compliance with the laws of its home country.

• Regarding contract language: Language discrepancies are inevitable, so it's necessary to agree on the contract language. If possible, drafting bilingual contracts in English-Vietnamese should specify which language prevails in case of discrepancies.

• On payment and payment methods: Choose appropriate payment methods for each specific case to minimize potential risks and provide a basis for payment execution.

• Applicable law: Choosing the applicable law to govern the contract and providing a basis for dispute resolution. This choice should be clearly stated in the contract.

1. Disputes in Commercial Contracts with Foreign Companies - Does Vietnamese Law Apply? 

In case of commercial disputes with foreign companies, the parties agree on which law to apply for dispute resolution. According to Article 5 of the Law on Commercial 2005, regarding the application of law to settle international commercial disputes:

• If an international treaty of which Vietnam is a member specifies the application of foreign law or international commercial customs or has other provisions different from those of the Law on Commercial 2005, the provisions of that international treaty shall apply to resolve the dispute.

• Parties to commercial transactions involving foreign elements have the right to agree to apply foreign law, and international commercial customs, if the foreign law or international commercial customs do not conflict with the fundamental principles under Vietnamese law.

Moreover, Article 14 of the Law on Commercial Arbitration 2010 stipulates the applicable law for resolving disputes as follows:

• In cases where there are no foreign elements, the Arbitration Council applies Vietnamese law to resolve disputes.

• In cases with foreign elements, the Arbitration Council applies the law chosen by the parties. If the parties do not agree on the applicable law, the Arbitration Council will decide the most appropriate law to apply.

• In cases where Vietnamese law and the law chosen by the parties do not have specific provisions on the content of the dispute, the Arbitration Council has the right to apply international customs to resolve the dispute if the application/consequences of applying do not conflict with the fundamental principles under Vietnamese law.

Thus, in the event of a commercial contract dispute with a foreign company, the law chosen by the parties applies. If the parties do not agree, the Arbitration Council will decide on the applicable law to resolve the dispute.

Contact W&A for detailed advice!