The conditions for merging a limited liability company into a joint-stock company

Currently, many enterprises are choosing to merge limited liability companies into joint-stock companies with the aim of developing the business and expanding the market. So what are the conditions for merging limited liability companies into joint-stock companies? Let's follow the article below to understand the regulations. 

I. The current situation of merging limited liability companies into joint-stock companies

The merger of limited liability companies (LLCs) into joint-stock companies (JSCs) is a common form of merger in Vietnam. According to data from the Foreign Investment Agency (Ministry of Planning and Investment), during the period from 2016 to 2022, about 20% of mergers and acquisitions in Vietnam involved the merger of limited liability companies into joint-stock companies.

II. Legal regulations on the merger of limited liability companies into joint-stock companies

The legal regulations regarding the merger of limited liability companies into joint-stock companies are as follows: 

1. What is the merger of limited liability companies into joint-stock companies?

According to Clause 1, Article 201 of the Enterprise Law 2020, the regulation on company mergers is as follows: One or several companies (hereinafter referred to as the company being merged) may merge into another company (hereinafter referred to as the acquiring company) by transferring all assets, rights, obligations, and legal benefits to the acquiring company, while simultaneously terminating the existence of the companies being merged.

Thus, the merger of limited liability companies (LLCs) into joint-stock companies (JSCs) is a form of business merger, whereby one or several LLCs (the companies being merged) are merged into a JSC (the acquiring company).

2. Conditions for merging limited liability companies into joint-stock companies

Pursuant to Clauses 3 and 4 of Article 201 of the Enterprise Law 2020, the conditions for merging limited liability companies into joint-stock companies are as follows: 

- Companies that carry out mergers must ensure compliance with the regulations of the Competition Law regarding company mergers.

- The business registration authority updates the legal status of the companies being merged in the national business registration database and makes changes to the business registration details for the acquiring company. In the case where a company being merged has its headquarters located outside the province or city under the Central Government where the acquiring company is based, the Business registration authority where the acquiring company is located must notify the Business registration authority where the companies being merged are headquartered to update the legal status of the companies being merged in the national business registration database.

3. The procedure for merging a limited liability company into a joint-stock company

Pursuant to Clause 2, Article 201 of the Enterprise Law 2020, the merger procedure is regulated as follows: 

Step 1: Prepare the merger agreement and draft the Standing rules for the acquiring company.

The merger contract must include the main contents regarding the name; the address of the main headquarter of the acquiring company; the name; the address of the main headquarters of the companies being merged; the procedures and conditions for the merger; the plan for labor utilization; the methods; procedures; duration and conditions for the conversion of assets; the conversion of capital contributions; shares; bonds of the companies being merged into capital contributions; shares; bonds of the acquiring company; the duration for the implementation of the company merger; the enterprise.

Step 2: Members, company owners, or shareholders of the related companies through the merger agreement, the Standing rules of the acquiring company.

Members, company owners, or shareholders of related companies through merger agreements, the Standing rules of the acquiring company. The merger contract must be sent to all creditors and notified to employees within 15 days from the date of approval.

Step 3: Proceed to perform enterprise registration for the acquiring company according to regulations.

Step 4: Tasks to be completed after the merger of enterprises.

After the merger, the companies being merged will cease to exist. The business registration agency updates the legal status of the companies being merged in the National database on business registration and makes changes to the business registration content for the acquiring company.

4. How to handle assets when merging limited liability companies into joint-stock companies

Upon review, there is currently no legal document that specifically and detailedly regulates the handling of assets during company mergers. However, based on practical work experience, the handling of assets during a company merger is carried out as follows:

Assets handling for companies being merged

The companies being merged will officially disappear from the market; how will the asset handling be carried out during the merger? This is a question that many people are interested in. Accordingly, after the merger decision, the companies being merged must be responsible for closing the accounting books and carrying out the following tasks:

Inventory of assets and value of assets

The companies being merged must conduct an inventory to determine the quantity, quality, and actual value of the assets that the company is managing and using.

Classify the inventoried assets into groups such as: assets in use, assets not in use, idle assets, assets awaiting liquidation, etc.:

- The missing, depleted, lost, damaged, and low-quality assets must have their causes clearly identified. If it is due to subjective causes, the individual or collective responsible for the loss must compensate according to the law. The Members' Council, or the Chairman of the companies being merged, decides on the compensation according to legal regulations and is responsible for their decisions.

- Assets that have been insured, in the event of loss, will be handled according to the insurance contract.

- The difference between the value of the missing assets and the compensation amount is recorded as a business expense of the companies being merged.

- For the surplus asset value that cannot be attributed to a cause and whose owner cannot be identified, it should be recorded as income for the acquiring company.

The inventory of assets must be documented in an inventory report before the merger.

Create a list of debts

The companies being merged must create a detailed list of creditors and debtors, compare, confirm, and classify account receivables and liabilities, and prepare a detailed statement for each type of debt.

- Accounts receivable: Identify specifically the receivables that are collectible and those that are uncollectible. Uncollectible debts must clearly identify the causes and responsibilities of the collective or individual in order to address compensation. The Members' Council, or the Chairman of the companies being merged, decides on the compensation. Note that the difference between the value of account receivables that are uncollectible and the compensation amount is made up by the allowance for uncollectible accounts; if this is missing, it will be accounted for as a business expense of the companies being merged.

- Liabilities: Specify the liabilities due, overdue liabilities, and liabilities that do not need to be paid. Note that liabilities that do not need to be paid should be accounted for as income for the companies being merged.

III. Answering some questions about the merger of limited liability companies into joint-stock companies

1. Is the merger of limited liability companies a transfer of all assets to joint-stock companies?

Pursuant to Clause 1, Article 201 of the Enterprise Law 2020, as follows:

One or several companies (hereinafter referred to as the company being merged) may merge into another company (hereinafter referred to as the acquiring company) by transferring all assets, rights, obligations, and legal benefits to the acquiring company, while simultaneously terminating the existence of the companies being merged.

Thus, according to the above regulation, the merger of companies involves the transfer of all assets, rights, obligations, and legal interests from one company to another.

2. When the existence of limited liability companies being merged is terminated, does the existence of its branches, representative offices, and business locations also come to an end?

Pursuant to Article 73 of Decree 01/2021/ND-CP, which regulates the termination of the existence of companies being merged as follows:

- After the companies are divided and shared, the merged company, the consolidated company are granted business registration, and the companies being divided, merged, or consolidated transition to a legal status that has been divided, merged, or consolidated. The Business Registration Office where the companies are being divided, merged, or consolidated sends information to the Tax Authority. The tax authority is responsible for sending information to the Business Registration Office regarding the completion of tax settlement and the transfer of tax obligations by the enterprise.

- The Business Registration Office carries out the termination of the existence of branches, representative offices, and business locations of the companies being divided, merged, and consolidated before the termination of these companies in the National database on business registration according to the process on the National information system on business registration.

Thus, when the existence of the companies being merged is terminated, the Business Registration Office will carry out the termination of the branches, representative offices, and business locations of the companies being merged before the termination of these companies in the National database on business registration according to the process on the National information system on business registration.

3. How will the labors of the limited liability companies being merged be addressed?

Pursuant to Article 43 of the Labor Code 2019 regarding the obligations of employers when dividing, splitting, merging, consolidating, selling, leasing, and transforming enterprises; transfer of ownership and usage rights of the enterprise's assets, cooperatives are as follows:

- Enterprises; the transfer of ownership and usage rights of the enterprise's assets or cooperatives that affect the employment of many laborers; then the employer must develop a labor usage plan pursuant to Article 44 of this Code.

- The current employer and the next employer are responsible for implementing the approved labor usage plan pursuant to Article 47 of this Code.

Accordingly, in the case of an enterprise merger that affects the employment of many laborers, the employer must develop a labor usage plan in accordance with regulations. Thus, in the case of a company merging with another company that affects the employment of many laborers, the company must develop a labor usage plan in accordance with regulations.

Above are the details regarding the topic of merging limited liability companies into joint-stock companies. To be able to receive support as well as to understand the information and legal regulations regarding the merger of limited liability companies into joint-stock companies, you can contact NPLaw to receive advice from a team of experienced lawyers and legal professionals.