I. Current status of merging subsidiary companies
Merging subsidiary companies is an increasingly common trend in global business, but it does not always proceed smoothly. This form of merger is a corporate restructuring strategy employed to optimize operations, leverage resources, and improve management efficiency.
Below are some common situations encountered by businesses during the merger of subsidiary companies:
- Subsidiaries may have fragmented and inefficiently utilized resources. Mergers help concentrate resources and reduce costs.
- Managing multiple subsidiaries can be complex and ineffective. Merging them simplifies the organizational structure and improves governance.
- Mergers can help expand market access and prevent internal competition among subsidiaries, which can waste resources.
However, integrating business operations, workflows, and information systems across subsidiaries can be challenging and resource-intensive. The merged company may need to reassess its existing business model to align with the new strategy. Additionally, customers and partners may express concerns about the stability following the merger of two or more companies into a single entity.
II. Legal regulations on merging subsidiary companies
1. Conditions for merging subsidiary companies
According to Article 200 of the Law on Enterprise 2020, mergers of companies in general — and subsidiary companies in particular — must meet the following conditions:
- The merger must be approved by the Members’ Council (for multi-member limited liability companies), the Owner (for single-member limited liability companies), or the General Meeting of Shareholders (for joint-stock companies).
- Before proceeding with the merger, the enterprise must notify creditors and seek opinions from other relevant parties in accordance with legal regulations.
- The company must have a plan to resolve debts, commit to continuing contractual obligations, and settle employee rights in compliance with labor laws.
- Compliance with competition laws is required, as subsidiary company mergers are considered a form of economic concentration under Article 29 of the Law on Competition 2018.
2. Competent authorities for approving the merger
As previously mentioned, the competent authorities/agencies for approving mergers include the competent Business Registration Authority and even the Owner, Members’ Council, General Meeting of Shareholders.
3. Procedures for merging subsidiary companies
Under Clause 2, Article 200 of the Law on Enterprise 2020, the procedure for merging subsidiaries is as follows:
- The subsidiary proposed to be merged must prepare a merger contract along with the draft charter of the new company. This contract must contain the following key information: name and head office address of the subsidiary to be merged; name and address of the head office of the new company after the merger; procedures and preconditions for the merger; labor resolution plan; roadmap and methods for transferring assets, contributed capital, shares, and bonds from the subsidiary to the new company; and the expected timeline for completing the merger.
- Members, owners, or shareholders of the merged subsidiary must approve the merger contract and the new company’s charter. They must also elect or appoint the Chairman of the Members’ Council, Company Chairman, Board of Directors, and Director or General Director of the new company. Subsequently, the new company must complete business registration in accordance with current legal provisions. Importantly, the information about the merger must be publicly announced to creditors and employees within 15 days from the date of approval to ensure transparency.
III. Questions about merging subsidiary companies
1. After the merger, is it necessary to change the charter capital?
After merging subsidiary companies, a change in charter capital may occur since the new company will be a completely new legal entity. The charter capital of this new company will be determined based on the total value of all merging subsidiaries. Therefore, it is necessary to adjust the charter capital after merging the subsidiaries.
2. Is it necessary to change the list of founding shareholders after the merger?
According to Clause 1, Article 200 of the Law on Enterprise 2020, a subsidiary company merger involves two or more subsidiaries (referred to as merged companies) consolidating into a new company (referred to as the merging company), and the merged companies cease to exist. Consequently, the legal status and roles of the founding shareholders in the merged subsidiaries also terminate.
Furthermore, under Clause 1, Article 120 of the Law on Enterprise 2020, a joint-stock company that is divided, separated, merged, or consolidated from another joint-stock company is not necessarily required to have founding shareholders. In such cases, the charter of the company included in the enterprise registration dossier must bear the signature of the legal representative or the ordinary shareholders of the company.
Therefore, based on the above provisions, founding shareholders are not required in a subsidiary merger, and there is no need to include or update the list of founding shareholders after the merger.
IV. Legal consultancy services for merging subsidiary companies
The above information provides a general overview of subsidiary company mergers. For further assistance or legal consultation regarding subsidiary company mergers, clients are encouraged to contact NPLaw for support from our team of experienced lawyers and legal experts.
