What is enterprise merger, acquisition, division, separation in accordance with legal provisions?

Mergers, acquisitions, divisions, and separations of enterprises are forms of enterprise reorganization, also known as enterprise restructuring, that are specifically recognized by law. Depending on their business situation and development direction, enterprises can choose the appropriate form of merger, acquisition, division, or separation. To better understand these restructuring forms, NPLaw provides some useful information on mergers, acquisitions, divisions, and separations of enterprises in this article.

I. Can all types of enterprises merge, acquire, divide, or separate?

- Examples of mergers, acquisitions, divisions, and separations of enterprises.

Example of a merger:

At the end of 2011, the State Bank officially approved the voluntary merger of three joint-stock commercial banks: First Joint Stock Commercial Bank (FicomBank), VietNam Tin Nghia Commercial Joint Stock Bank (TinNghiaBank), and Saigon Joint Stock Commercial Bank (SCB), merging into Saigon Joint Stock Commercial Bank (SCB). After the merger, First Joint Stock Commercial Bank, VietNam Tin Nghia Commercial Joint Stock Bank, and Saigon Joint Stock Commercial Bank before the merger will cease operations.

Example of an acquisition:

In 2015, Phuong Nam Joint Stock Commercial Bank (Southern Bank) officially merged into Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank). The share purchase and sale transaction between these two banks is an enterprise acquisition. Phuong Nam Bank's shares will be converted into Sacombank shares, and Phuong Nam Bank will cease operations.

Example of a company division:

An Binh Limited Liability Company transfers a portion of its members' contributed capital to establish Binh An Limited Liability Company and An Khanh Limited Liability Company. An Binh Limited Liability Company will cease operations, and the new companies will inherit the rights and obligations of An Binh Company.

Example of a company separation:

Anh Sao Joint Stock Company, wanting to expand its operations, transferred a portion of its shares to a new company and established Anh Duong Joint Stock Company. After the enterprise separation, Anh Sao Joint Stock Company continues to operate alongside the separated company, Anh Duong Joint Stock Company.

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- Which enterprises are not allowed to merge, acquire, divide, or separate

According to the provisions of Article 198 and Article 199 of the 2020 Law on Enterprises, the division and separation of enterprises apply to limited liability companies and joint-stock companies. According to the provisions of Article 200 and Article 201 of the 2020 Law on Enterprises, the merger and acquisition of enterprises apply to “companies.”

According to the provisions of Clause 6, Article 4 of the 2020 Law on Enterprises, companies include limited liability companies, joint-stock companies, and partnerships.

Thus, sole proprietorships are not entities that can undergo division, separation, merger, or acquisition.

II. Distinguishing between mergers, acquisitions, divisions, and separations of enterprises

III. Conditions for mergers, acquisitions, divisions, and separations of enterprises

The conditions for mergers, acquisitions, divisions, and separations of enterprises are detailed in the 2020 Law on Enterprises and Decree 01/2021/ND-CP, specifically including the following conditions:

Regarding the entity: The entity with the right to carry out enterprise division or separation must be a joint-stock company or a limited liability company. The entity with the right to carry out enterprise merger or acquisition must be a "company," including a joint-stock company, a limited liability company, or a partnership.

Regarding procedures: Enterprises carrying out division, separation, merger, or acquisition must do so through resolutions or decisions on the division, separation, merger, or acquisition of the company in accordance with legal regulations.

IV. Documents required for mergers, acquisitions, divisions, and separations of enterprises

According to the provisions of Article 25, referencing Articles 22, 23, and 24 of Decree 01/2021/ND-CP, the documents required for a merger, division, or separation of enterprise include:

- Application for enterprise registration.

- Company charter.

- List of members for limited liability companies with two or more members; list of founding shareholders and list of foreign investor shareholders for joint-stock companies.

- Copies of the following documents:

+ Legal documents of individuals for the legal representative of the enterprise.

+ Legal documents of individuals for company members, founding shareholders, and foreign investor shareholders who are individuals; legal documents of organizations for members, founding shareholders, and foreign investor shareholders who are organizations; legal documents of individuals for authorized representatives of members, founding shareholders, and foreign investor shareholders who are organizations, and the authorization document.

+ For members and shareholders who are foreign organizations, copies of the organization's legal documents must be consular legalized.

+ Investment registration certificate in cases where the enterprise is established or participated in establishment by foreign investors or economic organizations with foreign investment capital as prescribed in the Law on Investment and its implementing guidelines.

+ Resolutions or decisions on the division, separation, or merger of the company.

+ Copies of minutes of the Members' Council meeting for limited liability companies with two or more members, or of the General Meeting of Shareholders for joint-stock companies, regarding the division, separation, or merger of the company.

- Documents for enterprises acquisition as prescribed in Clause 2, Article 61 of Decree 01/2021/ND-CP, include:

+ Acquisition contract as prescribed in Article 201 of the 2020 Law on Enterprises.

+ Resolutions or decisions on the approval of the acquisition contract and copies of minutes of the Members' Council meeting for limited liability companies with two or more members, partnerships, or of the General Meeting of Shareholders for joint-stock companies, regarding the approval of the acquisition contract by the acquiring company.

+ Resolutions or decisions on the approval of the acquisition contract and copies of minutes of the Members' Council meeting for limited liability companies with two or more members, partnerships, or of the General Meeting of Shareholders for joint-stock companies, regarding the approval of the acquisition contract by the acquired company, except in cases where the acquiring company is a member or shareholder owning over 65% of the charter capital for limited liability companies and partnerships, or of the voting shares for joint-stock companies, of the acquired company.

V. What contents are included in the merger, acquisition, division, and separation project?

Current law does not specify project requirements for mergers, acquisitions, divisions, and separations for regular enterprises, but only recognizes regulations for projects involving mergers, acquisitions, divisions, and separations of enterprises wholly owned by the State.

Based on the contents of Appendix II of Decision 1330/QD-BKHDT in 2022, which stipulates the contents of the project for mergers, acquisitions, divisions, and separations of enterprises wholly owned by the State and established by the Prime Minister, the project includes the following:

+ Names and addresses of enterprise before and after the merger, acquisition, division, or separation.

+ Necessity of the merger, acquisition, division, or separation of the enterprise; compliance with the socio-economic development strategy and plan, and national industry planning.

+ Charter capital of the enterprise after the merger, acquisition, division, or separation.

+ Plan for labor arrangement and utilization.

+ Plan for financial handling, capital and asset transfer and handover, and settlement of rights and obligations of enterprises related to the merger, acquisition, division, or separation.

+ Timeline for implementing the merger, acquisition, division, or separation of the enterprises. In cases of enterprise division or separation to form new enterprises, the enterprise division or separation project includes additional content stipulated for new enterprise establishment projects in accordance with legal regulations.

VI. Process of merging and acquiring enterprises

According to the provisions of enterprise law, the process of merging and acquiring enterprises includes the following steps:

Step 01: Prepare the dossier for enterprise merger and acquisition: The dossier for enterprise merger and acquisition must include the enterprise merger and acquisition contract, the draft charter of the merged or acquired company, and other documents and certificates as prescribed by law mentioned above.

Step 02: The merging or acquiring enterprise submits the merger or acquisition dossier according to legal regulations to the competent enterprise registration authority. In case of receiving a complete and valid dossier as prescribed, the competent business registration authority will consider and update the legal status of the merged or acquired company on the national enterprise registration database when issuing the enterprise registration certificate for the merged company or making changes to the enterprise registration content for the acquiring company within 03 working days from the date of receiving a complete and valid dossier.

VII. Frequently asked questions

- Authority to decide on mergers, acquisitions, divisions, and separations of enterprises:

According to the provisions of Clause 2, Article 198; Clause 2, Article 199; Clause 2, Article 200; and Clause 2, Article 201 of the 2020 Law on Enterprises, the authority to decide on mergers, acquisitions, divisions, and separations of enterprises lies with the Members' Council, the company owner, or the General Meeting of Shareholders of the company.

- Who must be notified when dividing, separating, acquiring, or merging an enterprise?

Based on the provisions of Articles 198, 199, 200, and 201 of the 2020 Law on Enterprises, when merging, acquiring, dividing, or separating an enterprise, it is necessary to notify all creditors and employees of the enterprise within 15 days from the date of approval of the merger or acquisition contract, or the resolution or decision on the division or separation of the company.

Understanding the needs of our esteemed customers regarding enterprise mergers, acquisitions, divisions, and separations, Ngoc Phu Limited Liability Law Company will provide support and consultation on all matters relating to business mergers, acquisitions, divisions, and separations. With a solid foundation of experience in business consulting, NPLaw believes we will assist our esteemed customers in achieving the best possible results. Readers can contact NPLaw immediately to receive dedicated and prompt consultation from our experienced lawyers at the contact information below: