In practice, many enterprises focus solely on financial considerations while overlooking the legal framework governing enterprise merger valuation. It often results in non-transparent valuations, concealment of financial liabilities, or disputes concerning share exchange ratios after the transaction has been completed. The following article by NPLaw provides a comprehensive analysis of legal issues relating to enterprise merger valuation under current Vietnamese law.

I. Common mistakes in enterprise merger valuation

During the business merger process, many enterprises regard enterprise merger valuation merely as a financial procedure and fail to recognize its legal significance. It is one of the primary reasons why numerous merger transactions become subject to disputes after completion.

The most common mistake is relying solely on internal financial statements to determine enterprise value without conducting a review of potential legal liabilities. In reality, many tax liabilities, social insurance obligations, labor disputes, or compensation obligations are not fully reflected in accounting records. When the surviving company assumes all rights and obligations of the merged company under Point c, Clause 2, Article 201 of the Law on Enterprise 2020, these contingent liabilities may become a substantial financial burden following the transaction.

Thus, mistakes in enterprise merger valuation not only affect the effectiveness of the transaction but may also expose the parties involved to significant legal consequences.

II. Understanding enterprise merger valuation

1. What is enterprise merger valuation?

Pursuant to Article 201 of the Law on Enterprise 2020, an enterprise merger refers to a transaction whereby one or more companies transfer all of their assets, rights, obligations, and lawful interests to another company. To facilitate such transfer in a transparent manner, the parties must conduct a valuation process.

According to Article 4 of the Law on Prices 2023, enterprise valuation is the process by which a competent valuation organization determines the monetary value of assets, intellectual property rights, goodwill, and other economic benefits of an enterprise.

Accordingly, enterprise merger valuation is a process of determining the actual value of the companies participating in the merger at a specific point in time. The valuation result serves as the most important legal and financial basis for the parties to negotiate share exchange ratios, capital contribution conversion ratios, or payment values, thereby ensuring fairness and protecting the interests of shareholders and capital contributors.

2. Why is enterprise merger valuation important?

Enterprise merger valuation plays a critical role throughout the merger process because it serves as the foundation for determining the rights and obligations of the parties involved in the transaction.

Based on valuation results, the parties can determine post-merger share exchange ratios and ownership structures. If the valuation is inaccurate or biased, the rights of minority shareholders may be seriously affected, potentially leading to internal corporate disputes.

Moreover, valuation results serve as the basis for tax declarations, accounting recognition, and the determination of financial obligations associated with the merger transaction. If the transaction value deviates significantly from market value, tax authorities may investigate potential transfer pricing or tax evasion violations under applicable laws.

3. When should enterprises conduct enterprise merger valuation during negotiations?

In practice, enterprises typically conduct valuation during the pre-negotiation stage or as part of the due diligence process prior to executing a merger agreement.

Early valuation enables the parties to determine transaction value, assess the viability of the proposed transaction, and formulate negotiation strategies. At the same time, valuation is closely connected to legal due diligence, which involves identifying and assessing legal risks associated with the target enterprise.

Following the completion of a preliminary valuation, the parties may adjust the enterprise value based on audited financial statements, actual financial conditions, or obligations arising prior to transaction completion. In many cases, valuation reports are also submitted to shareholders or regulatory authorities for review before approval of the merger plan.

III. Legal regulations relating to enterprise merger valuation

1. Which laws and legal instruments govern enterprise merger valuation?

enterprise merger valuation is regulated by a multidisciplinary legal framework.

- Law on Enterprise 2020: Valuation obligations

It is the primary legislation governing mergers as a form of corporate restructuring. It requires the parties to agree on asset values and conversion ratios in the merger agreement. Article 201 of the Law on Enterprise 2020 requires merger agreements to specify methods, procedures, timelines, and conditions for the transfer of assets and the conversion of capital contributions and shares. In addition, Article 103 of the Law on Enterprise 2020 provides for the valuation of shares at market value where shareholders oppose the merger plan and request the company to repurchase their shares.

- Law on Prices 2023: Valuation standards

This legislation directly regulates professional valuation organizations responsible for determining enterprise value. Article 4 of the Law on Prices 2023 defines valuation as a consulting activity aimed at determining the value of assets at a specific point in time for a particular purpose in accordance with Vietnamese Valuation Standards. Valuations must comply with asset-based, income-based, or market-based valuation methodologies prescribed under valuation standards issued by the Ministry of Finance.

- Decree No. 57/2026/ND-CP: Documentation and financial reporting requirements

It is the most recent legal instrument governing capital restructuring and corporate reorganization, particularly for state-owned enterprises and large-scale enterprises. Article 62 of Decree No. 57/2026/ND-CP requires enterprises to prepare audited financial statements for the immediately preceding fiscal year and the most recent quarterly financial statements as the basis for valuation and merger planning.

- Competition Law 2018: Merger value thresholds

Valuation also serves to determine whether a merger transaction may violate competition regulations. Article 30 of the Competition Law 2018 requires enterprises to notify the National Competition Commission if the asset value or revenue of the merging parties exceeds prescribed thresholds.

2. What is the process from initial assessment to issuance of a valuation certificate in a business merger?

The enterprise merger valuation process generally consists of six stages:

- Step 1: Establishing the purpose and executing the valuation service agreement

Before commencing the valuation, the enterprise and the valuation organization must agree that the valuation is being conducted for merger purposes. The valuation service agreement is executed under Clause 2, Article 40 of the Law on Prices 2023.

- Step 2: Information collection

Valuers must physically inspect fixed assets, machinery, factories, and inventories. The enterprise must provide financial statements and legal documentation evidencing ownership of assets. In particular, under Article 62 of Decree No. 57/2026/ND-CP, enterprises must provide audited financial statements for the immediately preceding fiscal year and the most recent quarterly financial statements. Information collection procedures must comply with Article 6 of Circular No. 31/2024/TT-BTC.

- Step 3: Information analysis

Valuers analyze collected information, including:

  • Financial performance, profitability, and business risks;
  • Industry market conditions and macroeconomic factors affecting enterprise value;
  • Existing liabilities and contingent obligations that may arise after the merger.

- Step 4: Selection and application of valuation methodologies

Depending on the characteristics of the enterprise, valuers select appropriate methodologies in accordance with Vietnamese Valuation Standards.

- Step 5: Consolidation of results and preparation of draft report

Valuers consolidate the results obtained from the applied methodologies to determine a final valuation figure. The draft report must undergo internal quality control within the valuation organization to ensure the accuracy of data and legal reasoning. Valuers may discuss assumptions and valuation bases with the enterprise before issuing the final report.

- Step 6: Issuance of the valuation certificate and valuation report

Such a final step establishes the legal validity of the valuation results.

3. What are the most common violations in enterprise merger valuation?

The most common violations include:

- Use of outdated or inaccurate financial data

Many enterprises continue to rely on historical financial statements or unaudited reports when determining enterprise value. Article 62 of Decree No. 57/2026/ND-CP clearly requires updated financial information for corporate restructuring transactions. The use of outdated data constitutes a violation of merger planning procedures.

- Collusion to manipulate valuation results

It is the most serious violation and typically occurs when enterprises and valuation firms collude to produce predetermined valuation figures for specific objectives. Such conduct is expressly prohibited under Clause 2, Article 7 of the Law on Prices 2023.

- Failure to account for existing and contingent liabilities

During valuation, parties often focus solely on tangible assets while overlooking or intentionally ignoring tax liabilities, social insurance debts, or compensation obligations arising from ongoing litigation. Since the surviving company inherits all rights and obligations of the merged company under Point c, Clause 2, Article 201 of the Law on Enterprise 2020, undervaluation of liabilities directly harms the shareholders of the surviving company.

IV. Questions regarding enterprise merger valuation

1. What are the common methods used for enterprise valuation in corporate mergers?

At present, enterprise valuation for mergers is generally conducted in accordance with Vietnamese Valuation Standards. Pursuant to Article 7 of Circular No. 36/2024/TT-BTC, the valuation approaches and methods applicable to enterprise valuation include:

  • Asset-based approach: Determining the value of an enterprise based on the total value of its tangible and intangible assets after deducting outstanding liabilities.
  • Income approach: Determining enterprise value based on its future earning capacity, commonly through the Discounted Cash Flow (DCF) method.
  • Market approach: Comparing the enterprise with similar companies that have been traded in the market or are listed on stock exchanges.

2. What is the typical dispute resolution procedure when the parties disagree with the valuation result after a merger valuation report has been issued?

Where a dispute arises regarding the valuation result following the issuance of a valuation report, the parties generally proceed in the following order:

  • Negotiation and mediation based on the terms of the merger agreement;
  • Requesting a revaluation or engaging a second independent valuation firm for comparison purposes (under Article 53 of the Law on Prices 2023);
  • Initiating proceedings before a commercial arbitral tribunal or a court if no agreement can be reached (the parties’ right to choose a dispute resolution mechanism is recognized under Article 5 of the Law on Commercial Arbitration 2010).

For shareholders who disagree with the valuation adopted in the merger plan, they are entitled to require the company to repurchase their shares at market value in accordance with Article 132 of the Law on Enterprise 2020.

3. What legal disputes commonly arise when hidden debts or contingent liabilities are concealed in a merger valuation report?

Pursuant to Clause 4, Article 201 of the Law on Enterprise 2020, following a merger, the receiving company may not refuse liabilities of the merged company, even where such liabilities were omitted from the valuation report.

Concealing debts or contingent liabilities in a valuation report frequently leads to significant legal disputes concerning claims for damages, rescission of the merger agreement on grounds of fraud, and even criminal liability for individuals involved in fraudulent conduct. Since the receiving company inherits all financial obligations, undisclosed liabilities become a direct burden that reduces enterprise value and adversely affects shareholder interests.

If the merged company intentionally provides inaccurate information or conceals liabilities in order to induce the other party into believing that the enterprise is free of liabilities and proceeding with the merger, such conduct may constitute fraud in a civil transaction. In such circumstances, the receiving company may petition the court to declare the merger agreement invalid under Article 127 of the Civil Code 2015. The parties would then be required to restore one another to their original positions, causing substantial operational and personnel disruptions.

In addition, shareholders of the receiving company may initiate legal action against company managers (including members of the Board of Directors and executive officers) for failing to exercise due diligence during the review process, thereby causing inaccurate valuation and financial losses to the company. If the valuation firm was aware of such liabilities but omitted them from the report, or negligently failed to identify them, it may become a defendant in litigation relating to the valuation services agreement.

If the concealment of liabilities forms part of a systematic scheme to misappropriate assets from investors or shareholders by artificially inflating share values prior to the merger, the individuals involved may face criminal prosecution for the offence of Fraudulent Appropriation of Property under Article 174 of the Criminal Code 2015.

5. What are the legal consequences of intentionally inflating asset values during enterprise valuation for a merger?

Intentionally overstating asset values in the context of a merger may result in serious legal consequences, including:

  • Administrative sanctions and revocation of professional licenses for the valuation firm involved;
  • The merger agreement being declared invalid under Article 127 of the Civil Code 2015;
  • Company managers being held personally liable for damages arising from breaches of their managerial duties pursuant to Article 165 of the Law on Enterprise 2020;
  • In severe cases, criminal liability for offences such as fraud or forgery of documents.

V. Are you looking for a trusted legal expert to assist with enterprise valuation in corporate mergers?

In a corporate merger transaction, determining the true value of a business involves far more than analyzing figures on a balance sheet. It requires a comprehensive assessment of tangible assets, growth potential, goodwill, and underlying legal risks. Even a minor valuation error can jeopardize an entire strategic transaction.

With extensive experience advising both domestic and international corporations, NPLaw provides comprehensive legal support services relating to enterprise valuation in merger and acquisition transactions.

The information provided above is for reference purposes only. For detailed advice tailored to your specific circumstances, please contact NPLaw Firm for prompt assistance.