Setting up a company in Vietnam

Legal Framework For M&A Transactions in Viet Nam

M&A activities have developed rapidly (both number and size) in Viet Nam recent years. The number of reported M& A deals in 2016 is the total of US $ 5.3 billion. It shows that Viet Nam is an attractive destination for the investors doing and exploring their business in Viet Nam.

However, there is no legal platform for M&A activities and laws/regulations are in various pieces of legislation, for example:

1. Viet Nam’s commitments to WTO and other trade agreements:

These agreements play an important role in guiding the foreign investment by M&A. There are some lines of business that foreigners can set up 100% foreign owned Company (FDI). Or for some sectors, the foreign investors are permitted to have maximum 49% or 50% of the total of capitals or stocks in company. These documents will be the first one to study and understand before the foreigners intend to pour their money in Viet Nam.

Viet Nam has signed the trade agreements with New Zealand, Japan, India, China…. And is currently negotiating trade agreements with Israel and and the European. Then, the M&A activities are predicted to increase rapidly in Viet Nam in the period of 2018-2025.

2. The Law on Enterprises 2014.

The introduction of the Law on Enterprises 2014 marked a significant development of the legal systems in Viet Nam and in the M& A in particularly. The enterprises of any form can enter into a merger. Or the quorum is reduced from at lease 75% to 65% of charter capital to convene a Members’ Council Meeting of an LLC.  The Law offers more opportunity for the foreign investors to do business in Viet Nam. The foreigners do not want to start a new company in Viet Nam, then can buy the capitals or stocks which bring to them the rights to control / manage the company.

3. The Law on Investment 2014.

This Law allows the foreign investors buy the stocks or capitals of the existing company. Depending on the line of business, the foreign can buy from maximum 0% or 51% or 100%. The first step is obtaining the approval from the competent agency to buying the capitals or stocks. After that, the foreign investment can transfer their money via bank to the buyer.  The last but not least, the investors need to change information relating to the owners, the percentage of the charter capitals/stocks or the Legal representative.

4. The Law on Land 2013.

M&A activities in real estate areas are attracting the foreign investors in the period of 10 recent years and are predicted to increase rapidly in the coming years. This open for the foreign company can own the land use rights or buildings via M&A. With the aim of decreasing the risks from buying directly the land use rights, the foreign company usually decide purchase the stocks in the construction company. They then operate as the Vietnamese company and can sell the properties to make the profits. This law is one of the elements to encourage the Viet Nam’s real estate markets becoming hotter and hotter in the eyes of the foreign investors.

In summary, the M&A transactions in Viet Nam are becoming attracted ways doing business Viet Nam because it brings a wide range of benefits such as reducing the competitors, taking full advantage of the existing company (employee, customer, the manufactory). However, the regulations and legislation need to improve to meet the development of M&A activies.

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