As Vietnam increasingly becomes a hub for foreign businesses, the government is streamlining the mergers and acquisitions (M&A) process to encourage investment in new sectors of the economy. While establishing a business in Vietnam may prove too cumbersome for some hopeful entrants, the M&A route provides a unique solution to many of these obstacles. With this path, investors will enjoy preexisting access to consumers, locations, and distribution channels. This local knowledge can prove critical to successful operations within Vietnam’s vibrant but rapidly changing investment environment.
To successfully carry out M&As within Vietnam, it is important to recognize the legal foundation of current policies, and to understand the procedures and limitations associated with acquisitions in Vietnam.
Legal Foundation for M&As in Vietnam
M&As within Vietnam are largely regulated by the following two laws:
1. The Law on Enterprise No. 68-2014-QH13
- Article 18: explains the rights of companies and individuals to establish an enterprise, purchase shares, and supply capital. There are some restrictions on who can participate, such as state officials, minors, and those prosecuted for criminal acts.
- Article 195: dictates the process and limitations of a merger. In the case of a possible conflict with the Law on Competition, a legal representative of the company must settle the issue with the administrative agency for competition. Once the merge has been completed, the newly formed company must submit notice to the national enterprise registration database.
2. The Law on Investment No. 67-2014-QH13
- Article 25: establishes foreign investor’s rights to contribute capital and buy capital or shares.
- Article 26: spells out the procedure to contribute capital and buy capital or shares. The application for registration must be submitted to the Service of Planning and Investment for approval.
One of the great advantages of executing a merger is that there are very few restrictions. The main control imposed by governing officials is on the size of the merged company. With this in mind, it is important to determine what percentage of market share the newly merged company will hold. If it will possess more than 50 percent, the merger will be prohibited. If it is between 30 and 50 percent, a legal representative of the company must first obtain permission from the administrative agency for competition before implementing the merger.
In the case of capital and shares, investors must pay special attention to and be in compliance with the laws on securities for public and listed companies. If a company has been converted or equitized, it has to follow all regulations applicable to conversion and equitization. Lastly, the nature of the investment should conform to international agreements that Vietnam is part of.
While executing a merger can become a detailed and daunting task, the actual steps required are not extensive. The Vietnamese government has worked diligently to make the process appealing and straightforward in order to encourage foreign investment. The following are recommended steps for companies seeking to pursue investment in this manner:
- It is important to identify the feasibility and legality of the merger and to think about the structure of the newly merged company.
- Sign a non-disclosure agreement to gain further information about the company’s operations, finances, etc. With these details, the investor must administer due diligence and identify whether the company is sound.
- The two parties now have to negotiate terms and conditions of the merger, creating the contract and a draft of the charter. The contract must detail the parties involved and the specifics and timeline of the merger. Depending on the nature of the plan, it is advisable to obtain preliminary permission from the appropriate authorities. The company is required to notify all employees of the merger and provide creditors with a copy of the contract within 15 days of passing.
- Submit the application to the licensing authority in order to receive an investment certificate or certificate of enterprise registration. The application may require a merger contract and a resolution and minutes of the merged company meeting and the merging companies meetings where the contract was approved.
- Based on the type of merger, certain post-merger actions may be required, such as opening an escrow account. The government will update the status of the company in the national enterprise registration database.
Capital Contribution and Purchasing Shares or Capital
- Submit an application for registration to the Service of Planning and Investment, which must contain the specifics of the investment and either the passport or ID card for an individual or Certificate of Establishment for an organization.
- Within 15 days of receipt, the investor will receive either approval or denial of the contribution/purchase.
This article was first published July 2016.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.