Merger and acquisition procedures for enterprises under vietnam's legal regulations

In recent years, in order to accelerate the process of international economic integration, Vietnam has actively participated in Free Trade Agreements (FTAs), especially new-generation FTAs. It opens up both opportunities and challenges for Vietnamese enterprises. Therefore, establishment procedures, division procedures, and merger and acquisition procedures for enterprises are important issues that investors need to understand and be familiar with. NPLaw will help Clients clarify the regulations regarding merger and acquisition procedures under the Law.

I. Are merger and acquisition procedures for enterprises easy to implement?

Currently, merger and acquisition procedures are specifically regulated by the Law on Enterprise (amended and supplemented in 2022). Accordingly, for sole proprietorship, there are provisions for selling a sole proprietorship, while other enterprises will be sold in the form of transferring stocks or transferring capital contributions. The documents for implementing the merger and acquisition procedure include legal documents such as contracts and necessary documents to implement changes to the Enterprise Registration Certificate.

So, what is the procedure for merger and acquisition of enterprises under the current legal regulations, and how is it actually implemented in practice? Below, NPLaw will help enterprises address any questions regarding this issue.

You are reading information about enterprise sale procedure that is currently of interest.

II. Merger and acquisition procedures for enterprises under legal regulations

According to current regulations, the procedures for merger and acquisition of enterprises are governed by the Law on Enterprise 2020 (amended and supplemented in 2022) and Decree 01/2021/ND-CP issued by the Government on January 4tth, 2021, regulating enterprise registration. Accordingly, while there are various forms of merger and acquisition of enterprises such as the entire merger and acquisition of the sole proprietorship, the transfer of stocks in the joint-stock company, or the transfer of capital contributions in the limited liability company, the general procedures for merger and acquisition of enterprises consist of the following steps: 

Stage 1: The merger and acquisition process between parties

+ Step 1: Preparing the contract between the parties

+ Step 2: Choosing the time and location for the parties to check and sign the contract

+ Step 3:  Handing over and fulfilling the obligations of the parties as stated in the contract.

Stage 2: The completion and consular legalization of the merger and acquisition procedure between the parties

+ Step 1: Preparing the required documents

+ Step 2: Submitting the documents to the business registration office where the company’s headquarters is located

+ Step 3: Waiting for the results from the business registration office.

Typically, the business registration office will return the result within 03 to 05 working days from the date the complete and valid documents are submitted.

III. Guide to merger and acquisition procedures under current regulations

Based on the legal provisions, there are three methods for merger and acquisition of enterprises: the merger and acquisition of the sole proprietorship, the transfer of stocks in the joint-stock company, or the transfer of capital contributions in the limited liability company. For each method, the merger and acquisition procedure and process are various. 

1. The merger and acquisition of the sole proprietorship

After signing a merger and acquisition contract of the enterprise, the purchaser is required to implement the procedures for changing the ownership of the sole proprietorship as stipulated in Article 54 of Decree 01/2021/ND-CP. The steps are as follows:

Step 1: Preparing the required documents, including:

+ Notification of changes to enterprise registration contents signed by the seller

+ A copy of the purchaser’s legal document (ID card, citizen identity card, etc.)

+ The merger and acquisition contract or documents proving the completion of the sole proprietorship merger and acquisition.

Step 2: Submitting the documents online or in person to the Business Registration Office where the company’s headquarters is located, and paying the required fees and charges and waiting for the result. 

Step 3: Within 3 to 5 working days from the date the documents are received, the Business Registration Office will issue the Enterprise Registration Certificate if the documents are valid.

2. The merger and acquisition of the single-member Limited Liability Company or the multiple-member Limited Liability Company 

- Procedures for transferring capital contributions in the multiple-member Limited Liability Company:

Step 1: Preparing the set of documents for the capital contribution transfer, which includes:

+ Notification of changes to the contribution members of the multiple-member Limited Liability Company;

+ The Decision and Meeting Minutes of the Members' Council regarding the capital contribution transfer;

+ The transfer contract and documents certifying the completion of the capital contribution transfer;

+ Documents from the transferee: A certified copy of the personal identification of the transferee (valid ID card, citizen identity card, passport).

Step 2: Submitting the documents to the Business Registration Office where the company’s headquarters is located.

Step 3: The Business Registration Office will check the validity and accuracy of the documents and process them, then issue a receipt and register the change in the company’s members.

Step 4: Based on the date stated on the receipt, the company will visit the Business Registration Office to receive the result.  

- Procedures for transferring the single-member Limited Liability Company involves two stages. The first stage is the capital contribution transfer. In this stage, the company follows steps similar to those for transferring capital contributions in the multiple-member Limited Liability Company, with the required documents including:

+ Notification, meeting minutes and decision regarding the changes;

+ Capital contribution transfer contract signed by both parties;

+ Documents certifying the completion of the transfer, verified by the company;

+ Liquidation minutes for the completion of the transfer.

The second stage applies when the transfer of capital contributions leads to a change in the enterprise's type. In this case, the company needs to convert its enterprise type according to the following steps: 

In the case of transferring a portion of the capital contribution:

+ Application for enterprise registration;

+ Application for enterprise conversion;

+ Application for registration of changes to the enterprise registration contents;

+ Notification of changes to the enterprise registration contents;

+ Company charter after conversion;

+ List of members in the company after conversion;

+ Certified copy of the valid ID card/ citizen identity card for individuals;

+ Certified copy of the Decision of Establishment/ Enterprise Registration Certificate/Business License for organizations, along with a certified copy of the personal identification document of the authorized legal representative;

+ Corresponding authorization decision of organizations;

+ Capital transfer contract and documents confirming the completion of the transfer.

In the case of transferring all capital contributions: 

+ Notification of a change of ownership;

+ Certified copy of personal or legal entity identification documents of a new owner;

+ Amended company charter;

+ Capital transfer contract;

+ Other documents, if any.

Once the documents are complete, the enterprise submits them to the Business Registration Office and waits for the result. 

3. The merger and acquisition of the Joint-Stock Company

The registration of changes in founding shareholders must be implemented at the Business Registration Office where the company is registered within 10 working days from the time the founding shareholders are changed. The required documents include:

+ Notification of changes in founding shareholders' information;

+ Updated list of founding shareholders after the change;

+ Stock transfer contract or documents confirming the completion of the stock transfer.

Once the documents are complete, the enterprise submits them to the Business Registration Office where the headquarters is registered. After receiving the documents, the Business Registration Office will review them. If there are any missing or incorrect items, the agency will notify the enterprise within 3 working days. 

IV. Necessary notes when implementing the merger and acquisition procedures for enterprises

Pursuant to the Law on Enterprise 2020 (amended and supplemented in 2022), Decree No. 01/2021/ND-CP on enterprise registration and Circular No. 01/2021/TT-BKHDT on guidance of enterprise registration issued by the Ministry of Planning and Investment, the parties involved in the merger and acquisition procedures for enterprises should pay attention to the following issues: 

Firstly, the transferee must consider whether the transfer will result in a change in the enterprise type or not. For instance, in the case of the sole proprietorship, if the owner sells it to another individual, the enterprise type will not change. However, it is the opposite if the sole proprietorship is sold to an organization or multiple individuals.

Secondly, regarding rights and obligations of the Parties after the merger and acquisition. It is essential to clarify the term of when each party will exercise their rights and obligations to ensure that the contract is performed legally and to avoid any disputes.

Thirdly, when transferring capital or stocks, the transferee should be aware of the type of capital or stocks being transferred and the conditions under which such transfers are allowed in different types of enterprises.

Finally, after the transfer is complete, both parties must register the changes with the Business Registration Office. (If all members of a company transfer stocks to one individual or a group of fewer than three organizations or individuals, the company will also need to complete the enterprise conversion procedure.)

V. Frequently asked questions about the merger and acquisition procedures for enterprises

5.1. Does the transfer value of the company have to be equal to the company's charter capital?

In practice, the transfer value is determined by the agreement between the parties in the transfer contract, based on the company's value at the time of transfer or the value of the capital contributions or stocks at the time of transfer. As stipulated in Clause 34, Article 4 of the Law on Enterprise 2020 (amended and supplemented in 2022), the company's charter capital is the total value of assets contributed or committed to be contributed by the members or owner of the company when establishing a limited liability company or a partnership; or the total par value of stocks sold or registered to be purchased when establishing a joint-stock company.

Therefore, the transfer value of the company does not necessarily have to be equal to the company's charter capital. However, the charter capital of the company must be declared in the Enterprise Registration Certificate. As such, while the transfer value may differ from the charter capital, the purchaser has to still ensure that the charter capital is correctly stated in the Enterprise Registration Certificate. If the charter capital changes, the purchaser must proceed with registering amendments and supplements to the Business Registration Certificate.

5.2. After the merger and acquisition of the company, is the previous owner still responsible for the company's operations?

Pursuant to Clause 2, Article 52, and Clause 2, Article 192 of the Law on Enterprise 2020 (amended and supplemented in 2022), after the merger and acquisition, the company owner is still responsible for the debts and financial obligations of the company until the merger and acquisition procedure, capital contribution transfer or share transfer is completed. 

5.3 Is it necessary to report the merger and acquisition of the enterprise to the Business Registration Office?

While the law does not specifically require notifying the Business Registration Office about the merger and acquisition of the enterprise, in practice, it is necessary to register the change of ownership and amend the charter capital in the Enterprise Registration Certificate after the transaction. This procedure allows the Business Registration Office to monitor and manage the company's activities.