Principle agreements on corporate mergers: contents, roles, and important legal considerations

In the corporate merger process, a principle agreement on corporate merger is considered an important preliminary step that enables the parties to establish fundamental principles before proceeding to execute a formal agreement. However, due to an insufficient understanding of the legal nature and scope of such an agreement, many enterprises still encounter errors during negotiations, thereby leading to dispute risks and difficulties in implementing M&A transactions.

I. Common mistakes regarding principle agreements on corporate merger

In practice, many enterprises involved in M&A transactions tend to underestimate the importance of a principle agreement on corporate merger, resulting in agreements that are drafted merely for formality purposes or lack legal binding.

Common mistakes include: Failing to clearly define the scope of the agreement, confusing a principle agreement with a definitive agreement, omitting confidentiality and information handling provisions, or failing to clearly stipulate responsibilities in the event negotiations break down. Such shortcomings may lead to disputes, legal risks, and adverse impacts on the corporate merger process.

II. Understanding the principle agreement on corporate merger

1. What is a principle agreement on corporate merger and what is its primary purpose?

From a legal perspective, a principle agreement on corporate merger is formed during the negotiation stage prior to the execution of a merger agreement under Clause 2 Article 201 of the Law on Enterprise 2020 (amended and supplemented in 2025), when the parties begin reaching consensus on the foundational terms of the transaction.

The primary purpose of such an agreement is to establish preliminary principles concerning the merger, such as the transaction scope, negotiation mechanism, confidentiality obligations, transfer arrangements, and implementation roadmap, thereby serving as a basis for the execution of the definitive merger agreement and minimizing legal risks during the negotiation process.

2. At what stage should a principle agreement on corporate merger be drafted during negotiations between the parties?

A principle agreement on corporate merger is typically drafted at the early stage of the M&A negotiation process, after the parties have expressed initial interest but before conducting detailed due diligence or executing a formal merger agreement according to Clause 2 Article 201 of the Law on Enterprise 2020 (amended and supplemented in 2025).

Such a stage generally arises when the parties need to determine main principles such as the transaction scope, confidentiality mechanisms, transfer orientation, and working timeline in order to prevent arbitrary changes to negotiation conditions during subsequent in-depth discussions.

3. How does a principle agreement on corporate merger differ from a share purchase agreement or a definitive merger agreement?

A principle agreement on corporate merger differs from a share purchase agreement and a definitive merger agreement in that it is merely a “framework-oriented” document established during the preliminary negotiation stage in accordance with the spirit of Clause 2 Article 201 of the Law on Enterprise 2020 (amended and supplemented in 2025). The main distinctions include:

• Legal nature: A principle agreement primarily constitutes a preliminary commitment and does not yet lead to full ownership rights, asset transfers, or legal status changes as would a share purchase agreement or a definitive merger agreement.
• Contents: It generally stipulates only overarching principles (such as tentative pricing, implementation roadmap, confidentiality obligations, and exclusivity arrangements), whereas the original agreement contains detailed provisions regarding rights and obligations, transfer value, and implementation mechanisms.
• Timing of application: A principle agreement is executed prior to the due diligence process and before the execution of the definitive agreement, while a share purchase agreement or merger agreement is signed at the transaction completion stage.

4. What are the basic contents commonly included in a principle agreement on corporate merger?

A principle agreement on corporate merger generally focuses on establishing framework provisions in line with the transaction structure and the merger mechanism prescribed under Clause 2 Article 201 of the Law on Enterprise 2020 (amended and supplemented in 2025). Typically, such a document includes the following groups of provisions:

• Information on the parties participating in the merger: Identification of the merged enterprise and the receiving enterprise.
• Transaction principles and scope: Orientation of the merger, ratio, structure, and anticipated transaction form.
• Preliminary valuation and financial arrangements: Methods for determining enterprise value or valuation principles.
• Due diligence mechanism: Rights of access to information and scope of examination.
• Confidentiality provisions: Control over the use and disclosure of information during the negotiation process.
• Transaction implementation roadmap: Steps ranging from negotiation and due diligence to execution of the definitive agreement.
• Exclusivity provisions (if any): Restrictions on negotiations with third parties within a specified period.
• Principles for allocation of costs and termination of negotiations: Allocation of responsibilities in the event the transaction is unsuccessful.

III. Legal regulations related to principle agreements on corporate merger

1. Under current law, is a principle agreement on corporate merger required to be registered or disclosed to any authority?

Pursuant to Clause 2 Article 201 of the Law on Enterprise 2020 (amended and supplemented in 2025), the law only requires registration and notification procedures with respect to the merger agreement and the enterprise registration procedures of the receiving company, together with notification obligations toward creditors and employees.

Accordingly, a principle agreement on corporate merger is not required to be registered with or disclosed to any State authority. Such a document merely serves as an orientation instrument supporting negotiations between the parties during the pre-merger stage.

Disclosure or registration of a principle agreement is therefore not mandatory unless the parties voluntarily agree otherwise or the agreement contains contents subject to disclosure obligations under other specialized laws.

2. What legal procedures must be implemented to transfer capital contributions or shares after the execution of a principle agreement on corporate merger?

Following the execution of a principle agreement on corporate merger, the transfer of capital contributions or shares does not take effect immediately but must comply with a prescribed legal process in accordance with Clause 2 Article 201 of the Law on Enterprise 2020 (amended and supplemented in 2025).

The basic procedures include:

• Conducting legal and financial due diligence to verify the enterprise’s status, assets, debts, and related obligations.
• Negotiating and executing definitive agreements (such as a merger agreement or share/capital transfer agreement) serving as the legal basis for the transfer.
• Obtaining internal corporate approvals from the competent bodies (Members’ Council, Board of Directors, or General Meeting of Shareholders).
• Implementing enterprise registration amendment procedures with the business registration authority where there are changes to ownership, members, shareholders, or enterprise structure.
• Completing the transfer of ownership over capital contributions or shares, updating the shareholder/member register, and fulfilling related financial obligations (if any).

3. How may disputes arise from failure to comply with confidentiality obligations under a principle agreement on corporate merger?

During the implementation of a principle agreement on corporate merger, confidentiality obligations are often regarded as essential provisions for protecting financial information, customer data, and business strategies throughout the negotiation stage. Where one party breaches such obligations, disputes may arise in the following forms:

• Contractual disputes: The aggrieved party may request termination of negotiations, cancellation of the agreement, or enforcement of liabilities stipulated under the agreed provisions.
• Compensation disputes: Pursuant to general contractual principles, the breaching party may be liable for actual damages arising from the unauthorized disclosure or use of confidential information.
• Disputes relating to trade secrets or data protection: If the disclosed information falls within the scope of trade secrets or personal data, legal liabilities may arise under specialized regulations, including administrative sanctions or criminal liability in serious cases.
• Impact on the validity and progress of the M&A transaction: A breach of confidentiality obligations may delay or entirely collapse the transaction due to the loss of trust between the parties.

IV. Questions relating to principle agreements on corporate merger

1. How does a principle agreement on corporate merger affect tax declaration obligations and the tax identification number conversion of the merged entity?

A principle agreement on corporate merger does not directly alter tax obligations at the time of execution; however, it serves as the basis for the parties to agree on the method for handling tax obligations upon implementation of the official merger.

Pursuant to Point c Clause 2 Article 201 of the Law on Enterprise 2020 (amended and supplemented in 2025), the merged company ceases to exist, while the receiving company inherits all rights and obligations, including financial obligations.

Based on this provision, it may be understood that:

• The merged entity must finalize its tax obligations up to the completion date of the merger.
• Upon legal termination, the tax identification number of the merged enterprise shall be deactivated.
• The receiving company shall continue to perform any remaining tax obligations (if any).
• Tax declaration and payment after the merger shall be implemented under the tax identification number of the receiving company.

2. Are there any specific regulations governing principle agreements on corporate merger involving foreign investors?

Currently, the law does not provide a separate type of “principle agreement on corporate merger” specifically applicable to foreign investors. However, where the transaction contains foreign elements, it must comply with the market access conditions prescribed under Article 8 of the 2025 Law on Investment. Specifically:

• Pursuant to Clause 1 Article 8 of the Law on Investment 2025, foreign investors are entitled to the same market access conditions as domestic investors, except in restricted cases.
• Pursuant to Clause 2 Article 8, the Government shall promulgate a list of sectors and trades subject to market access restrictions (including sectors not yet open to market access or subject to conditional access).
• Pursuant to Clause 3 Article 8, such conditions may include foreign ownership ratios, investment forms, scope of operations, investor qualifications, and other conditions prescribed by international treaties and Vietnamese law.

Therefore, in a principle agreement on corporate merger involving foreign elements, special attention should be paid to the following matters:

• Verifying whether the business sector falls within the list of restricted market access sectors;
• Determining limitations on foreign ownership ratios;
• Anticipating approval conditions imposed by investment authorities;
• Providing that approval by competent authorities constitutes a condition precedent for the effectiveness of the transaction.

3. What are the common legal consequences when one party provides inaccurate financial information in a principle agreement on corporate merger?

The provision of inaccurate financial information during the negotiation and execution of a principle agreement on corporate merger may lead to legal liability in several respects, particularly civil liability.

• Pursuant to Clause 2 Article 3 of the Civil Code 2015, parties are required to comply with the principles of goodwill and honesty in establishing and performing civil transactions. Intentionally providing financial data that does not accurately reflect the actual condition of the enterprise constitutes a breach of the duty of honesty in transactions.
• Pursuant to Article 127 of the Civil Code 2015, a civil transaction may be declared invalid due to fraud where one party intentionally provides false information causing the other party to misunderstand and enter into the transaction. In such circumstances, the principle agreement or related commitments may be declared invalid.
• Pursuant to Article 584 of the Civil Code 2015, any person committing acts infringing upon the lawful rights and interests of another and causing damage must compensate for such damage. A party providing inaccurate information may therefore be liable for due diligence expenses, negotiation costs, or damages arising from an incorrect investment decision.

Common practical consequences include:

• Termination of negotiations or cancellation of the merger transaction due to loss of trust between the parties;
• Disputes relating to compensation for damages;
• The risk of the agreement being declared invalid where fraudulent conduct can be proven.

4. What important considerations should be noted regarding the validity period and termination conditions of a principle agreement on corporate merger under the law?

Current law does not prescribe a mandatory validity period for a principle agreement on corporate merger. Accordingly, such a matter is primarily determined based on the parties’ agreement, provided that it complies with civil law regulations.

• Pursuant to Article 401 of the Civil Code 2015, a contract takes effect from the time of execution unless otherwise agreed by the parties or otherwise provided by law. Therefore, the validity period of a principle agreement may be flexibly determined based on a specific timeframe or the occurrence of a legal event (for example, execution of the definitive merger agreement).
• Pursuant to Article 428 of the Civil Code 2015, a party has the right to unilaterally terminate contract performance where grounds exist under the agreement or where the other party commits a serious breach of obligations. This serves as the legal basis for establishing termination conditions in a principle agreement on corporate merger.

5. If a principle agreement on corporate merger violates competition regulations, what measures may the competition authority impose?

Where a principle agreement on corporate merger shows signs of violating competition regulations, the competition authority under the Law on Competition 2018 may intervene as follows:

• Pursuant to Article 30 of the Law on Competition 2018, enterprises involved in economic concentration transactions subject to competition control must provide prior notification before implementation. Such an obligation functions as a pre-merger control mechanism, enabling the competition authority to assess the impact of the merger in advance and prevent risks of monopoly or anti-competitive effects in the market. If the transaction constitutes a prohibited act, the merger may not be implemented; where it has already been carried out, the parties may be required to terminate, cancel, and restore the original competitive conditions.
• Pursuant to Article 42 of the Law on Competition 2018, competent authorities may prohibit the merger if the transaction causes or is likely to cause substantial anti-competitive effects, thereby preventing implementation of the principle agreement.
• Pursuant to Article 80 of the Law on Competition 2018, where enterprises proceed with a merger without prior notification or approval, they may be subject to administrative sanctions and compelled to implement remedial measures. In addition, the competition authority may:
• Require the submission of dossiers and documents for appraisal purposes;
• Temporarily suspend or halt the transaction during the review process;
• Impose conditions such as divestment requirements, market share limitations, or competition commitments where the transaction is permitted to proceed.

V. Are you looking for a reputable legal expert to support matters relating to principle agreements on corporate merger?

During the drafting and negotiation of a principle agreement on corporate merger, having a legal advisory firm accompanying the transaction is extremely important in order to control risks relating to legal compliance, taxation, competition, and confidentiality.

NPLaw is a legal consultancy firm with in-depth expertise in corporate and M&A matters, particularly in the following areas:

• Assisting in the drafting and review of legally rigorous principle agreements on corporate merger;
• Advising on transaction structures in accordance with the Law on Enterprise 2020 (amended and supplemented in 2025);
• Controlling risks relating to post-merger transfers of assets, obligations, labor matters, and taxation;
• Ensuring effective confidentiality mechanisms, data processing procedures, and dispute prevention measures.

The above information is provided for reference purposes only. Should clients require detailed advice regarding specific cases, please contact NPLaw Firm for prompt consultation.