Procedures for Company Consolidation in Vietnam: A Detailed Guide and Legal Considerations

I. What is a Company Consolidation?

According to the stipulations in Clause 1, Article 200 of the Law on Enterprises No. 59/2020/QH14 dated June 17, 2020:

"Two or several companies (hereinafter referred to as the consolidating companies) may consolidate into a new company (hereinafter referred to as the resulting company), concurrently terminating the existence of the consolidating companies."

Thus, a company consolidation is the process where two or more existing companies consolidate to establish a single new company (the resulting company). Upon the consolidation, the consolidating companies will simultaneously cease their legal existence.

II. Detailed Procedures for Company Consolidation in Vietnam

The process for merging limited liability companies (LLCs) and joint-stock companies in Vietnam involves the following key stages:

1. Preparation of Consolidation Documentation:

Consolidation Agreement: The consolidating entities (or the companies participating in the consolidation) must prepare a comprehensive written consolidation Agreement.

This agreement shall detail the following principal aspects:

• Full names and registered office addresses of each consolidation company.
• Proposed name and registered office address of the resulting company.
• Consolidation Procedures and Conditions: A detailed outline of the steps, timeline, and prerequisites for the successful completion of the consolidation process.
• Labor Transition Plan: The proposed strategy for the continued employment, retraining, or severance of employees from the consolidation companies.
• Asset Transfer Timeline, Procedures, and Conditions: Specification of the timing and methods for transferring ownership of assets from the merging companies to the resulting company.
• Capital Conversion Timeline, Procedures, and Conditions: Stipulation of the methods for converting the contributed capital of LLC members, shares of joint-stock company shareholders, and bonds of the consolidating companies into the corresponding capital, shares, and bonds of the resulting company.
• Consolidation Implementation Timeline: The anticipated completion date for the entire consolidation process.
• Draft Charter of the Resulting Company: The companies involved in the merger are responsible for developing a draft charter for the new entity. This document will outline the organizational structure, management framework, operational procedures, and business activities of the resulting company.

2. Approval of Consolidation Documentation:

- The members (for LLCs), company owners (for single-member LLCs), or shareholders (for joint-stock companies) of each consolidating company must convene a meeting to formally approve both the Consolidation Agreement and the Charter of the resulting company. This approval process must adhere to the stipulations of the Law on Enterprises and the individual Charters of each consolidating company.

- During the same meeting, the members/owners/shareholders will elect or appoint the Chairperson of the Members' Council, Company President, Board of Directors, Director, or General Director of the resulting company.

- Notification to Stakeholders: The approved consolidation Agreement must be formally sent to all known creditors of each consolidating company, and all employees of these companies must be notified within fifteen (15) days from the date of approval.

3. Enterprise Registration of the Resulting Company:

- Following the completion of the preceding steps, the resulting company (or its duly authorized legal representative) is required to submit the enterprise registration dossier to the competent business registration authority in accordance with the provisions of the Law on Enterprises.

- The enterprise registration dossier for the resulting company must include the following documents:

• Enterprise registration application form (following the prescribed template).
• The consolidation Agreement as approved by the consolidating companies.
• The Charter of the resulting company.
• Decisions of the company owner, resolutions of the Members' Council, or resolutions of the General Meeting of Shareholders of the consolidating companies regarding the company merger.
• List of founding members/shareholders (if applicable).
• List of legal representatives of the resulting company.
• Valid notarized or certified copies of the identification documents of the founding members/owners/shareholders and legal representatives.
• Other documents as mandated by applicable law.

4. Competition Law Compliance:

- The consolidating companies bear the responsibility of ensuring full compliance with the provisions of the Competition Law concerning company consolidations, particularly those related to economic concentration thresholds. This is crucial to prevent unfair competitive practices or distortions within the market.

- In certain circumstances, the consolidation may necessitate formal notification to or seeking prior opinion from the relevant competition authority.

III. Legal Consequences of Company Consolidation

1. Dissolution of consolidating Companies: Upon the issuance of the Enterprise Registration Certificate to the resulting company, all constituent merging companies shall simultaneously cease their legal existence and be dissolved.

2. Universal Succession: The resulting company shall be the universal successor to all legitimate rights, benefits, and obligations of the merging companies. This includes, but is not limited to, all debts (both paid and unpaid), contractual liabilities, labor agreements, and other property-related obligations, as stipulated in the company consolidation contract/agreement.

3. Update of Business Registration Information: The competent business registration authority shall update the legal status of the consolidating companies in the National Business Registration Database upon the issuance of the Enterprise Registration Certificate to the resulting company. In instances where the consolidating companies maintained their registered offices in a different province or city than the location of the resulting company's registered office, the business registration authority in the jurisdiction of the resulting company shall notify the respective business registration authorities where the consolidating companies were previously registered to ensure accurate record updates.

IV. Strategic Considerations for Company Consolidation

When contemplating a company consolidation, several strategic considerations are paramount for achieving desired outcomes and ensuring long-term success:

1. Legal Risk Assessment (Due Diligence): A critical evaluation of the legal landscape of each consolidating entity to uncover potential liabilities and opportunities.

2. Financial and Operational Synergy Analysis: A detailed review of financial standing and operational processes to identify potential synergies and integration challenges.

3. Human Capital Integration Strategy: A well-defined plan for integrating personnel, addressing potential redundancies, and fostering a productive workforce.

4. Operational and Systems Alignment: A roadmap for aligning IT systems, operational workflows, and management structures.

5. Cultural Integration Framework: A proactive approach to bridging cultural gaps and establishing a shared organizational identity.

6. Tax Optimization and Compliance: Strategic planning to address tax implications and ensure compliance with all relevant tax regulations.

7. Regulatory Navigation: Expert management of the intricate administrative procedures and interactions with relevant government bodies.

8. Legal Contingency Planning: Anticipating and developing strategies to mitigate potential legal challenges and disputes.

V. Comprehensive Legal Consulting Services for Company Mergers by DB Legal

DB Legal, backed by a team of experienced legal professionals with profound knowledge of Vietnamese enterprise law and M&A practices, offers extensive legal consulting services to support our esteemed clients throughout the complexities of company consolidations. Our firm is committed to:

1. Providing strategic counsel on the most suitable consolidation transaction structure to align with your organization's business objectives.

2. Diligently drafting and preparing all requisite legal dossiers and documentation.

3. Acting as your professional representative before the relevant state authorities.

4. Offering expert advice and effective solutions to any legal issues that may emerge during the consolidation process.

5. Conducting comprehensive legal due diligence on the target consolidating companies.

Should your company have an interest in understanding or executing company consolidation procedures in Vietnam, we invite you to contact DB Legal for detailed and professional consultation. We are dedicated to providing unwavering support to ensure a seamless, legally compliant, and effective merger process.

 

The information contained in this article is general and intended only to provide information on legal regulations. DB Legal will not be responsible for any use or application of this information for any business purpose. For in-depth advice on specific cases, please contact us.

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📞: +84 357 466 579

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🌐Facebook:  DB Legal Vietnamese Fanpage or DB Legal English Fanpage 

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