Resolving Profit-Sharing Disputes in Business Cooperation Contracts

Disputes over profit-sharing in Business Cooperation Contracts (BCCs) are becoming increasingly common in Vietnam, especially when parties fail to clearly define the terms of profit allocation. Such ambiguity often leads to loss of benefits, reputational damage, and costly legal consequences. So, what are the causes, how should these disputes be handled, and what legal solutions should businesses be aware of?

1. The Problem – When Profit-Sharing in Business Cooperation Turns into Conflict

1.1. Definition and Risks of Profit Allocation

According to Clause 14, Article 3 of the Law on Investment 2020, a Business Cooperation Contract (BCC) is an agreement between investors to jointly conduct business and share profits or products without establishing a legal entity. In practice, many BCCs in Vietnam contain vague or incomplete clauses regarding profit-sharing, leading to major disputes when business performance changes or when one party feels undercompensated.

Common risks include: failure to specify the profit-sharing ratio after deducting costs, unclear timing or conditions of distribution, or lack of transparency in financial management. In addition, market fluctuations or rising costs can distort the original agreement, yet the parties remain bound by fixed terms.

1.2. Common Causes of Profit-Sharing Disputes

These disputes often stem from two main categories of causes:

• Subjective causes: The BCC fails to define key obligations such as the exact profit-sharing ratio, deductible expenses, or management control rights. When contractual terms are ambiguous, the party in a stronger position may exploit them to reduce the other party’s share.

• Objective causes: External changes such as market instability, increased operational costs, or new investment regulations. When these contingencies aren’t accounted for, profit margins shrink, sparking disagreements.

Once a dispute arises—such as one party claiming a greater contribution but receiving a smaller share, or disagreement on how “profit” is calculated—the risk of litigation or business disruption becomes imminent. For instance, a 2022 court judgment in Ho Chi Minh City involving a BCC between two companies in the education sector declared the contract invalid due to a breach of premises lease terms, resulting in a prolonged profit-sharing dispute.

2. Solutions – Effective Approaches to Managing and Resolving Disputes

2.1. Control from the Contract Drafting and Operation Stages

Before entering into cooperation, it is crucial to structure a clear and detailed BCC, specifying:

• The exact profit-sharing ratio (after tax, after management and contribution costs)

• Timing and method of distribution

• Audit or verification mechanisms

• Each party’s contribution and responsibilities

• Adjustment clauses in case of market fluctuations

Legal experts in Vietnam consistently recommend clearly stating that “expenses shall be deducted before profit distribution,” and requiring transparent cost records to prevent later conflicts.

During the operation phase, partners should establish periodic reporting and financial transparency, with external audits or third-party verification if necessary. When all parties have access to verified financial data, the likelihood of disputes over profit-sharing decreases significantly.

2.2. Steps to Take When a Dispute Arises

If you believe you’ve been disadvantaged in profit allocation, consider the following steps:

• Negotiation and internal mediation: Both parties should review financial data and the contract to find a reasonable adjustment in light of changed circumstances. This approach saves time, cost, and preserves the business relationship.

• Arbitration (if agreed in the contract): If the BCC includes an arbitration clause, the parties may bring the dispute before an arbitral tribunal for a faster and more confidential resolution.

• Litigation at a competent court: If negotiation or arbitration fails—or no arbitration clause exists—one party may initiate a lawsuit under the Civil Procedure Code 2015. Pursuant to Clause 1, Article 30, BCC disputes are considered commercial disputes under the jurisdiction of the court. It’s essential to file the lawsuit at the proper venue—where the defendant resides or has its registered office.

3. Conclusion

Disputes over profit-sharing in business cooperation contracts not only cost parties time and money but can also seriously damage long-term relationships and reputations. In Vietnam’s increasingly diverse business environment—from real estate and education to e-commerce—clearly defining profit-sharing terms, cost allocation, and management control is vital to protect each party’s rights and interests.

To avoid falling into a “profit-sharing dispute,” businesses should:

• Draft transparent and detailed cooperation contracts with the guidance of experienced legal counsel.

• Implement regular financial supervision and reconciliation mechanisms to ensure transparency.

• Seek early legal intervention at the first sign of disagreement rather than allowing conflicts to escalate.

By taking proactive legal measures and consulting professional law firms like DEDICA Law, businesses can prevent costly disputes and ensure that cooperation truly leads to mutual benefit and sustainable success.

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