The acquisition of a company under Vietnamese legislation involves the transfer of shares, stocks, or assets from one entity to another. The acquisition of a company in Vietnam can be complex and time-consuming, involving legal and regulatory requirements that are subject to change. In this article, LSX legal firm would like to give you an insight into: “Acquisition of company under Vietnamese legislation”
Legal ground
- Law on Enterprise 2020
- Decree 01/2021/ND-CP
M&A (Merger & Acquisition)
A merger or acquisition is the process by which two firms unite to become a single entity. A merger or acquisition means to expand a company’s reach or to achieve a larger market share. Besides, there are certain differences between a merger and an acquisition.
In order to cut manufacturing costs, some acquisitions made to purchase the supplier of another company. Companies may also purchase businesses in various markets in order to diversify their operations. In an acquisition, a larger corporation buys out a smaller company. The equities of the purchased company are no longer traded, although shares of the larger corporation are.
On the one hand, there are cases where the two firms agree on a purchase price for the smaller company.
On the other hand, an acquisition sometimes known as a hostile takeover, in which the smaller company is bought by purchasing a majority stake in the smaller company’s stock.
According to Clause 1, Article 201 of the Law on Enterprise 2020, one or some companies (acquired companies) may be acquired by another company (acquiring company) by transferring all of the acquired company’s assets, rights, obligations, and lawful interests to the acquiring company, after which the acquired company shall cease to exist.
Procedure of Acquisition
- Firstly, the acquiring company and the acquired company shall prepare the acquisition contract and draft the charter of the acquiring company. The contract shall contain the name and address of the acquiring company; name and address of the acquired company; procedures and conditions for acquisition; employment plan; method, procedures, deadline, and conditions for the transfer of assets, shares/stakes, bonds of the acquired company to the acquiring company; acquisition time.
- Secondly, the members, owners, or shareholders of the companies shall ratify the acquisition contract and the acquiring company’s charter and apply for registration of the acquiring company in accordance with this Law. The acquisition contract shall be sent to the creditors and employees within 15 days from the day on which it is ratified.
- After the acquiring company is registered, the acquired companies shall cease to exist. The acquiring company shall inherit the lawful rights and interests, liabilities, unpaid debts, employment contracts, and other obligations of the acquired company under the acquisition contract.
- The business registration authority shall update the status of the acquired company to the national enterprise registration database and revise the Certificate of Enterprise Registration of the acquiring company. In case the acquired company is headquartered outside the province in which the acquiring company is headquartered, the business registration authority of the province in which the acquiring company is headquartered shall request the business registration authority of the province in which the acquired company is headquartered to make the update.
Ceasing existence of acquired company
Ceasing existence of acquired company under Decree 01/2021/ND-CP guiding Enterprise Registration:
- After the acquiring company issued with an enterprise registration certificate, the legal status of the acquired companies shall be changed to “acquired”. The Business Registration Offices of provinces where the acquired companies headquartered shall send relevant information to tax authorities. The tax authority shall send information about the statement and transfer of tax liabilities to the Business Registration Office.
- Within 01 working day from the day the tax authority notifies that the acquired company has completed the statement and transfer of tax liabilities, the Business Registration Office of province where the acquired company headquartered shall change the legal status of this company on the National Enterprise Registration Database into “cease to exist” on the National Enterprise Registration Information System.
- The Business Registration Office shall cease the existence of branches/representative offices/business locations of the acquired company before ceasing the existence on the National Enterprise Registration Database according to the process of the National Enterprise Registration Information System.
- In case the enterprise registration information of the acquiring company is unchanged, within 10 working days from the completion of the acquisition, the acquiring company shall give written notification to the Business Registration Office of province where it is headquartered for ceasing the existence of the acquired company. The notification must be accompanied by the documents mentioned in Points a, b Clause 2 Article 61 of Decree 01/2021/ND-CP.
- In case the acquired company is headquartered outside the province where the acquiring company is headquartered, the Business Registration Office of the province where the latter is headquartered shall send information to the Business Registration Office of the province where the former is headquartered to cease their existence on the National Enterprise Registration Database according to the process on the National Enterprise Registration Information System.
Differences between a merger and an acquisition
Merger
A merger, according to the law, requires two companies to merge into a new company with new ownership and management structure. Mergers do not require any money to complete (parties consolidate their assets), but they dilute each company’s individual authority.
When this occurs, both companies’ stocks are surrendered, and fresh stocks are issued in the name of the new corporate identity.
Parties get involved in mergers to cut operational costs, expand into new markets, and increase revenue and profits. The participants are usually economic organizations of similar size and scope.
Acquisition
An acquisition occurs when a company buys the assets of another. To achieve complete control of the target company, the acquirer must purchase the majority of the acquired company’s equity. The participants are usually two organizations of different sizes: a bigger company buys out a smaller one. As mentioned above, a hostile takeover occurs when one firm takes over the operations of another without the latter’s agreement.
The smaller corporation operates under the larger one’s name and the acquirer can choose to keep or fire the acquired company’s employees.
Acquisition motivations are the same as that of merger. The primary goal is to acquire a competitive advantage by grouping resources with another firm.
Legal service of LSX Legal Firm
LSX legal firm provides legal services to clients in various legal areas. To make your case convenient, LSX will perform:
- Legal advice related to new regulations;
- Representing in drafting and editing documents;
- We commit the papers to be valid, and legal for use in all cases;
- Represent to submit documents, receive results, and hand them over to customers.
With a team of experienced, reputable, and professional consultants, The firm is always ready to support and work with clients to solve legal difficulties.
Furthermore, using our service, you do not need to do the paperwork yourself; We guarantee to help you prepare documents effectively and legally.
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Frequently asked questions
During M&A, the parties should remark on factors such as increased competition, technological development, modernization, restructuring of production, a change in strategy, etc.
The Law on Enterprise 2020 and the Law on Competition 2018 do not provide any requirement for “companies of the same type”. So, companies operating in different lines can enter into acquisition
The time to process merger procedures for all forms: 03 working days from the date of receipt of complete and valid dossiers.
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