A company is considered a significant asset that may be purchased and sold, or transferred. Individuals and organizations, instead of establishing a new company, may choose to acquire an existing company for various purposes. Acquiring a joint-stock company involves changing shareholders through the transfer of stocks within the company. NPLaw would like to provide our Clients with some information about the acquisition of a joint-stock company.
I/ What is the acquisition of a joint-stock company?
Although the concept and approach to acquiring a joint-stock company may vary depending on the regulations governing the process, there are two common elements in understanding this concept, as follows:
Firstly, the targets that the parties aim to obtain through acquiring a joint-stock company.
Secondly, the outcome of the acquisition must enable control or dominate over the business operations of the target company, achieved by purchasing its assets, stocks or contributed capital. Accordingly, the proportion of contributed capital or stocks acquired in the corporate transaction must be sufficient to gain control over the business operations of the target company (referred to as contributed capital or controlling stocks).
II/ Methods of acquiring a joint-stock company
The acquisition is implemented through the transfer of the company’s stocks. Accordingly, to acquire and gain control of the company’s management and operations, a substantial portion of the issued stocks must be transferred. The parties negotiate and sign a stock transfer agreement based on the provisions stated in Article 127 of the Law on Enterprise 2020. The minutes confirming the completion of the stock transfer procedures,, is required to be obtained. Simultaneously, a General Meeting of Shareholders is also convened to approve the transfer. The company then proceeds to register the change of shareholders, including the updated list of new shareholders, and the change of legal representative.
Thus, when conducting corporate acquisition, it is crucial to clearly identify the type of enterprise and the scope of the intended acquisition to make an appropriate plan and ensure compliance with legal procedures.
III/ Guidelines for procedures to acquire a joint-stock company
1. Dossier
Dossiers for the stock transfer includes:
- A stock transfer agreement;
- A liquidation minutes;
- A minutes of the General Meeting of Shareholders;
- A resolution of the General Meeting of Shareholders;
- A list of shareholders;
- A shareholder register book;
- A company charter.
Tax filing dossier includes:
- A stock transfer agreement;
- A liquidation minutes;
- A personal income tax declaration;
- A power of attorney for the individual authorizing the company to submit the tax filing;
- A letter of introduction.
Dossiers for changing the enterprise registration includes:
If the stock transfer involves a change in the company’s legal representative, the enterprise must notify the business registration authority of this change to obtain a revised Business Registration Certificate. The dossiers include:
- A decision of the Board of Directors or General Meeting of Shareholders;
- A minutes of the meeting of the Board of Directors or General Meeting of Shareholders;
- A notification of change in the legal representative;
- A notification of change in business registration;
- A power of attorney authorizing NPLaw to submit the change request;
- Other relevant legal documents.
2. Procedures
Step 1: Verify information of the target joint-stock company
Before acquiring a joint-stock company, the acquiring organization or individual should verify the company’s details, specifically:
+ Information about the company’s operational status;
+ The company's use of labor and employee insurance;
+ Tax information: assess the usage of invoices (incoming and outgoing), revenue during operation, financial statements, and other accounting documents.
- Company’s tax obligation: ensure whether such a company has fulfilled its tax obligations or not, including tax filings and outstanding tax debts (if any), and tax finalization status of it.
Note: To minimize risks when acquiring a joint-stock company, the acquiring organization or individual should request such a company to finalize its taxes with relevant tax authority.
Step 2: Transfer of stocks
The transfer of stocks can be implemented in two ways: through a stock transfer agreement between the transferor and the transferee (individual or organization); and through transactions on the stock market, following the procedures, processes and such an ownership stipulated by securities Law. When implementing stock transfer procedures, Clients should note the following contents:
- For individuals transferring stocks: personal income tax must be declared and paid at the tax authority overseeing enterprises (tax department). Accordingly, the personal income tax is calculated as follows: Personal tax income payable = Transfer price x 0.1% tax rate.
Note: The deadline for submitting the personal income tax declaration is 10 days from the date of signing the stock transfer agreement.
- For an organization as a legal entity: revenue from stock transfer activities is subject to corporate income tax, and the organization must declare this revenue in quarterly provisional tax filings and include it in the annual tax finalization.
Step 3: Complete the procedures:
+ Establishing a confirmation record for the completion of the stock transfer process.
+ Then, convincing a General Meeting of Shareholders to approve the stock transfer.
+ Amending and supplementing information in the company’s shareholder register.
+ Registering changes in shareholder information as required.
Pursuant to Decree No. 01/2021/ND-CP, currently, the business registration authorities do not oversee changes in shareholders due to stock transfers, so companies are not required to notify them of such changes. The stock transfers are handled internally within the company and the company fulfills its obligations for personal income tax declaration and payment.
However, if the stock transfer involves a change in the legal representative, the company must notify the business registration authority to obtain a revised business registration certificate. The dossiers include:
+ A decision of the Board of Directors or General Meeting of Shareholders;
+ A minutes of the meeting of the Board of Directors or General Meeting of Shareholders;
+ A notification of change in the legal representative;
+ A notification of change in business registration;
+ A power of attorney for submitting the change request;
+ Other relevant legal documents.
Submitting dossiers and paying fees for information disclosure
+ The updated business registration dossiers must be submitted to the Department of Planning and Investment where the company is headquartered within 10 days from the date of the business registration change.
+ The company must pay an information disclosure fee of 100,000 VND per submission as required by Law.
+ Tax filing documents must be submitted to the Tax Department where the company is headquartered within 10 days from the date of signing the stock transfer agreement.
IV/ Addressing concerns when acquiring a joint-stock company
4.1 Is it necessary to have shareholders to acquire a joint-stock company, or can a single company make the acquisition?
According to Article 111 of the Law on Enterprise 2020, a joint-stock company is regulated, as follows:
A joint-stock company is an enterprise where:
1. The charter capital is divided into equal portions called stocks;
2. Shareholders can be organizations or individuals, with a minimum of three shareholders and no limit on the maximum number;
3. Shareholders are liable for the company’s debts and other liabilities only within the amount of capital contributed to the enterprise;
4. Shareholders have the right to freely transfer their stocks to others, except in cases stipulated in Clause 3 Article 120, and Clause 1 Article 127 of Law on Enterprise.
A joint-stock company has a legal entity upon issuance of the Enterprise Registration Certificate. A joint-stock company has the right to issue stocks, bonds and other securities.
Thus, shareholders may be organizations or individuals, with a minimum of three shareholders and no maximum limit. If a company intends to acquire another enterprise, it must ensure the minimum number of shareholders for a joint-stock company. In this case, if a company acquires all the stocks of a joint-stock company by itself, it would not meet provisions as prescribed, instead it will need at least three shareholders, who may be organizations or individuals.
4.2 What should be noted when acquiring a joint-stock company?
4.2.1. Assessing the actual conditions of the target company
Before deciding to acquire a company, it is essential to conduct due diligence on its legal, financial and asset conditions. This helps identify liabilities, burdens and obligations at the time and prior to the transfer.
Checking whether the target company has deactivated its tax code, has paid taxes, and has submitted tax declarations fully and on time or not. Additionally, reviewing the company’s financial statements and tax filings over the past 3-5 years to assess its current financial conditions and identify future financial orientations before proceeding with the acquisition.
If the target company has debts, it is necessary to determine the cause and origin of the debts and identify financial resources to restore the company’s operations.
This due diligence not only ensures that the purchaser makes the most informed decision about whether to acquire the target company but also determines the transfer price and the seller’s obligations regarding any outstanding liabilities. In most acquisitions, the former owners remain responsible for certain obligations for a defined period after the transfer is completed, as stipulated in the transfer agreement.
4.2.2 Personnel
Most important employees are valuable assets for many enterprises. Investors need to evaluate their expertise, performance and future direction of each employee. Alongside the acquisition plan, both parties should develop a human resource strategy to manage personnel effectively, avoiding psychological distress, uncertainty or talent attrition.
4.2.3 Customers
Acquiring an enterprise often aims to take advantage of existing resources as a platform to enter new markets. Investors should evaluate the current customer numbers, business relationships and profitability of the target company to stabilize, build and grow its customers after implementing the acquisition. Customers are the most critical assets of a company and should be retained as securely as tangible assets.
4.2.4 Brand
A brand is an intangible asset of an enterprise. Acquiring an enterprise with an established brand can save time, effort and costs associated with building the company brand. However, the brand’s value is proportional to the transaction value during the acquisition. Therefore, investors should ensure the brand is reasonably valued with their budget.
4.3 Should you acquire a joint-stock company when its shareholders are in dispute?
It is not advisable to acquire a joint-stock company when its shareholders are in dispute, as this can lead to numerous risks.
First, there are many legal risks.
Legal risks may include: operational risks (such as the company being suspended or forced into bankruptcy due to violations of tax obligations for outstanding debts, or non-compliance with regulations); risks arising from government authorities, who have the power to promulgate administrative decisions and enforce them; risks from legal actions taken by partners, who may act or refrain from acting based on agreements between the parties; risks caused by intentional or unintentional misconduct or negligence by company managers or employees; disputes, etc, resulting in lawsuits or other legal issues the company may face.
Second, there are many financial risks.
This is a significant concern for purchasers. These may include: Capital risks (such as the purchaser failing to contribute sufficient capital or the company having non-transparent business funds, etc); Asset risks (such as asset valuations not aligning with their actual worth); Debt-related risks for government agencies or business partners.
To mitigate financial risks in large transactions, parties typically engage independent auditing firms to review and verify the company’s financial statements, assets and related matters, then make financial appraisal reports.
Additionally, parties can hire valuation firms to assess the company’s assets if they cannot agree on a valuation. These reports provide the purchaser with insights into the company’s financial situation and risks, serving as a basis for deciding whether to proceed with the acquisition or not and for negotiating the purchase price.
V/ Seeking legal services when acquiring a joint-stock company
- Advising the conditions and procedures for acquiring a joint-stock company.
- Advising and drafting the acquisition agreement of a joint-stock company.
- Representing Clients in negotiations regarding price and other matters related to the acquisition of a joint-stock company.
- Representing Clients in completing the transfer procedures with State authorities.
While acquiring a joint-stock company is not uncommon, the process still presents many challenges in practice. Therefore, if you encounter difficulties during the research and implementation of the aforesaid procedures and need legal advice related to Law on Enterprise, please contact NPLaw directly.
