In the current economic context, the consolidation (merger and acquisition) of companies is considered an effective resolution, both taking advantage of developing economic potential and supporting in overcoming common troubles for enterprises. Thus, Is it required to have a consolidation contract when merging and acquiring companies? How are legal regulations on such a matter? Let’s NPLaw clearly understand the consolidation contract through the following article.
In the current economic context, the consolidation (merger and acquisition) of companies is considered an effective resolution, both taking advantage of developing economic potential and supporting in overcoming common troubles for enterprises. Thus, Is it required to have a consolidation contract when merging and acquiring companies? How are legal regulations on such a matter? Let’s NPLaw clearly understand the consolidation contract through the following article.
I/ Definition of a consolidation contract
A consolidation contract is a type of legal contract between two or more enterprises, while parties agree to consolidate enterprises into an enterprise only. In such a contract, terms and conditions of consolidation may be stated specially, including determining whether such a consolidating enterprise will continuously operate after the consolidation (usually larger and stronger enterprises), as well as how to separate powers, assets, payable owes and other issues. It helps enterprises expand their operation scope and enhance competitive ability and business effects.
II/ Legal regulations on the consolidation contract
1. Is it necessary for notarizing and authenticating the consolidation contract?
Pursuant to Article 200 of the Law on Enterprise 2020 and Point a, Clause 3, Article 25 of Decree No. 01/2021/ND-CP, the Law only states regulations on main contents required in a consolidation contract without setting conditions for consolidation contract forms such as requirements for notarization and authentication. Thus, according to common principles, a consolidation contract isn’t obliged to implement such a notarization and authentication.
2. Forms of the consolidation contract in current
The orm of the consolidation contract currently is:
As the above form, the consolidation contract often includes the following terms:
- Terms on parties: It is a part of a specific description on name, address and contact information of companies participating in the consolidation.
- Terms on objectives and scope of the consolidation: It clearly states reasons and objectives of the consolidation, as well as the company's operation scope after the consolidation.
- Terms on parties’ rights and obligations: It specifically regulates rights and responsibilities of each company during and after the consolidation.
- Terms on organization structures after the consolidation: It will describe a new organization structure, including a list of Boards of Directors, shareholders and other titles in a consolidating company.
- Terms on finance and transaction values: It obviously explains the consolidation transaction value, payment methods and other relevant financial issues.
- Terms on consolidation duration and conditions: It regulates the time of commencing and terminating the consolidation process, as well as necessary conditions to implement the consolidation.
- Terms on dispute resolution: It undoubtedly states methods of dispute resolution arising during the consolidation.
- Terms on confidentiality and protection of information: It regulates principles and requirements of the information confidentiality in the process of the consolidation.
- Other terms: It includes terms regarding contract termination, contract adjustment or other legal matters.
3. Problems on entering into the consolidation contract
- Verification of information: It is necessary to verify parties’ information before entering into the consolidation contract, ensuring all information on enterprises, products, services and other terms is accurate and legal.
- Clarification of terms and interests: All terms and interests of each party in the contract need to be described obviously and in detail, and there are no any mistakes or misunderstandings.
- Assessment of potential risks: It is required to specifically and comprehensively consider and assess possible risks from entering into the contract, including financial risks, reputable risks and other potential risks.
- Negotiation: Cautious negotiation may help parties achieve the best conditions for their enterprises.
- Re-examination of contract: Before signing the contract, it is important to ensure that parties have read and understood all terms and conditions in the contract. Parties should be required to explain and clarify any misunderstood terms and conditions.
III/ Questions on consolidation contract
1. When is the validity of the consolidation contract?
Pursuant to Article 200 of the Law on Enterprise 2020, Article 25 of Decree No. 01/2021/ND-CP, and Article 401 of the Civil Code 2015, the validity of the consolidation contract commences from the following time:
- Firstly, the validity of the consolidation contract can commence from the time companies enter into each other to consolidate. It is a stage where companies have completed the negotiation and obtained unity together. At this time, companies have signed contracts and commitments according to terms and conditions as stated in the contracts.
- Secondly, the validity of the consolidation contract can also commence from the time companies agree to implement the consolidation. Such an agreement not only includes their decision on consolidation but it also specifically determines the organization structure of the consolidating company, relevant parties’ rights and obligations and other matters. Thus, there is no time, the validity of the consolidation contract also commences immediately after entering into the contract. It can be based on companies’ agreement and according to specific conditions in each case. It allows companies to flexibly manage and adjust their activities appropriately with objectives and requirements of the consolidation.
2. Are commitments required contents in the consolidation contract
Pursuant to Point a, Clause 2, Article 200 of the Law on Enterprise 2020, the consolidation contract must include the following main contents: Name and headquarters address of consolidated companies; name and headquarters address of the consolidating company; procedures and conditions on the consolidation; plan for using labor; duration, procedures and conditions on converting assets, contributed capital, stocks and bonds of consolidated companies into contributed capital, stocks and bonds of the consolidating company; duration for implementing the consolidation.
According to the above contents, the consolidating company’s commitment may be regulated on the below terms: plan for using labor; conditions on converting contributed capital, stocks and bonds. Thus, the commitment of the aforesaid contents is considered required content in the consolidation contract.
IV/ Legal advice services on consolidation contract
The above information is necessary content related to the consolidation contract. To clearly understand legal regulations and receive professional support from qualified lawyers and specialists, Clients may contact NPLaw to be protected with the best legitimate rights and interests.
