How is the merger of a subsidiary company into its parent company implemented?

Merging a subsidiary company into its parent company (holding company) can bring many benefits such as enhancing competitive capacity, leveraging resources, simplifying management, and reducing costs.

You are reading information about the merger of a subsidiary company into the parent company that is currently of interest.

However, the merger also requires the parties to undertake numerous steps, including legal, financial and human resources matters to ensure the legality, efficiency and transparency of such a process. Below are some legal regulations regarding the merger of a subsidiary company into its parent company:

I. The current situation of merging a subsidiary companies into its parent company

Merging a subsidiary company (subsidiary companies) into its parent company is the process by which two or more subsidiary companies are consolidated with its parent company to form a single business unit. Such a process can bring many benefits to the stakeholders, such as increasing operational efficiency, reducing management costs, leveraging resources and enhancing competitive capacity.

However, merging subsidiary companies into the parent company also poses many challenges and risks, such as difficulties in unifying the corporate culture, conflicts of interest between parties, and the loss of flexibility and independence of such subsidiary companies. Therefore, such the process needs to be implemented carefully and with a detailed plan to ensure success.

II. Legal regulations on the merger of a subsidiary company into its parent company

1. The concept of merging a subsidiary company into its parent company

The merger of a subsidiary company into its parent company is a process in which the parent company takes over all assets, rights, obligations and legal benefits from such a subsidiary company, and then the subsidiary company ceases to exist.

2. Conditions for merging a subsidiary company into its parent company

Conditions for merging a subsidiary company into its parent company include:

- In the case of a merger where a merging company holds from 30% to 50% of the market share in the relevant market, the legal representative of the merging company is required to notify the Competition Administration Agency before proceeding with the merger, unless otherwise regulated by the Competition Law.

- Prohibition for mergers in which the merged company holds more than 50% market share in the relevant market, unless otherwise regulated by the Competition Law.

3. Procedures for merging a subsidiary into its parent company

Procedures for merging a subsidiary company into its parent company is as follows:

- The involved companies shall prepare the merger agreements and draft the Charter of the merging company.

- Members, owners or shareholders of related companies approve the merger agreements and the parent company's charter, and proceed with the enterprise registration for the parent company in accordance with the Law on Enterprise 2020. The merger agreements must be sent to all creditors and notified to employees within 15 days from the date of approval.

- After the parent company implements the enterprise registration, its subsidiary companies cease to exist; the parent company enjoys the legal rights and benefits, and is responsible for the obligations, unpaid debts, employment contracts, and other asset obligations of the subsidiary companies. The parent companies automatically inherit all legal rights, obligations, and benefits of the subsidiary companies according to the merger .

4. Fees for merging a subsidiary company into its parent company

Pursuant to Circular No. 47/2019/TT-BTC, the fee for merging a subsidiary company into its parent company is 50,000 VND per time.

III. Questions about merging a subsidiary company into its parent company

1. How many forms of merging a subsidiary company into its parent company are there?

There are main forms of merging a subsidiary company into its parent company such as:

- Merger in full;

- Merger by stocks;

- Merger by ;

- Merger through asset exchange.

2. Is it possible to merge a subsidiary company into its parent company where the State holds 100% stocks?

It is possible, a one-member limited liability company wholly owned by the State is also a type of State-owned enterprise whose organization and its operation are regulated by the Law on Enterprise 2020.

Thus, the merger of companies into a one-member limited liability company wholly owned by the state is also implemented in accordance with the provisions of the Law on Enterprise 2020.

3. What are the consequences of merging a subsidiary company into its parent company?

Merging a subsidiary company into its parent company has the following consequences:

- The legal consequence of the merger is that it does not create a new enterprise.

- The subsidiary companies cease to exist.

- The parent company assumes the rights and obligations of the subsidiary companies: The parent company will take over all legal assets, rights, obligations, and benefits from the subsidiary companies.

- The parent company is responsible for the unpaid debts, employment contracts, and other asset obligations of the subsidiary companies.

- The parent company will change its enterprise registration.

4. How will the conversion of stocks be handled when a subsidiary company is merged into its parent company?

When merging a subsidiary company into its parent company, the conversion of stocks will be handled as follows:

- No conversion of the parent company's stocks: Merging the subsidiary company into the parent company is a capital investment recovery, so the parent company's stocks in the subsidiary company will not be converted into new ones.

- Converting stocks at a 1:1 ratio for the remaining shareholders: Only converting stocks at a 1:1 ratio for the remaining shareholders (excluding stocks owned by the parent company). This means that each shareholder of the subsidiary company (excluding stocks owned by the parent company) who holds 01 stock in the subsidiary company will receive 01 share of the parent company after the merger.

IV. Legal consulting services for the merger of a subsidiary company into its parent company

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