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Mergers and acquisitions (M&A) are a crucial part of the business world. Regardless of what country you are conducting business in, you will want to know the rules and regulations surrounding any transaction. This article will explain the need-to-know facts about mergers and acquisitions in Vietnam.
Acquisitions in Vietnam
Within the realm of acquisitions in Vietnam, various company types could be transferring. In each situation, the process differs when the change of ownership occurs.
#1 Foreign-owned company to a foreign-owned company
The first set of procedures apply when a foreign-owned company (LLC) changes ownership to another foreign-owned company.
Single-member LLC to a single-member LLC
For a single-member limited liability company to another single-member limited liability company, there are no special conditions or procedures that you need to follow.
However, there are a few additional steps that you need to take:
1) As the first step of acquisition, you need to submit the transfer of capital contribution documents to the Department of Planning and Investment. These documents include the transfer contact documents, and other paperwork relevant to the acquisition.
2) Once the Department of Planning and Investment (DPI) receives the transfer documents, they must review them. They have 15 business days to review the information presented after which they will do one of three things:
- issue an approval letter
- request more information
- request amendments from the company
3) If the DPI requests for changes or more information, you need to provide them to the DPI before they grant you the approval.
4) Once you receive the approval letter, you need to apply for changing the owner.
The entire process takes approximately one month.
Also, take note that you need to transfer the money necessary for the applications, cash is not acceptable for this kind of acquisition.
Single-member LLC to a multiple-member LLC
For single-member limited liability companies that are changing ownership to a multiple-member limited liability company, the rules differ.
To change a single-member LLC to a multiple-member LLC, you must also change all the documents that the company has.
For that, you need to factor in an additional week or more for changing the company documents when planning the acquisition. Emerhub can take care of the paperwork on your behalf.
The rest of the steps are the same as that of a single member company transfer.
#2 Locally-owned company to a foreign-owned company
A locally-owned company can also get acquired by a foreign-owned company. In this case, there is a different set of rules that apply, depending on the allowed foreign ownership in that business line.
1) The World Trade Organization (WTO) agreement allows foreign ownership
If the WTO agreement permits foreign investment in the business line of the local company that you want to acquire, the process is the same as for any acquisition. The length of the process depends on whether you need to change a single-member LLC to a multiple-member LLC.
In total, the process can take between 15-30 business days.
2) No WTO commitment or local regulation for foreign investment in that business line
If there is no World Trade Organization commitment nor is there any local regulation for foreign investment in that business line, you will first need to apply for a Ministry level approval for the transfer.
The length of the acquisition depends entirely on whether the company needs to be transferred into a two or more-member limited liability company and takes between one and three months.
Mergers in Vietnam
A merger occurs when two companies join together. It differs from an acquisition because it is not a change of ownership, but rather a combining act that leads to only one company standing at the end.
Mergers are a good option if the owners of two companies want to do business together without
- setting up a new company or
- operating two entities
It is also a good option if you plan to start operations as soon as possible but have a plan to exit a nominee arrangement. You can begin operations in Vietnam under a local company, which will take one week to set up, and later merge the companies after your 100% foreign-owned company is ready.
When a merger in Vietnam occurs, one company transfers all of its assets, rights, and debts to the other company. The company that receives them is the one that continues to exist. The company that gives all of those things does not.
For mergers, three scenarios can occur:
#1 Merger of two foreign-owned companies
For the merger of a foreign-owned company with another foreign-owned company, there are no licenses nor special approvals necessary. Since everything is wholly foreign-owned, none of that is needed.
However, it is essential to make sure that the foreign-owned company that will remain has the correct licenses.
#2 Merger of two locally-owned companies
For the merger of a locally-owned company with another locally-owned company, the same situation applies. Because it is 100% locally-owned, there is no need for any special licenses or approvals, as long as the right permits are in place.
#3 Merger of a locally-owned company with a foreign-owned company
For the merger of a locally-owned company with a foreign-owned company, the rules differ. The foreign-owned company should be in full compliance with the local regulations to assure that the company’s activities will not pause or stop.
If there is anything that is missing when the two companies merge, business will be unable to continue until everything is in place.
For example when a 100% foreign-owned and a 100% locally-owned trading company merge but the foreign company does not have a trading license for all the product categories as the local trading company had, then the company will need to apply for a new trading license before importation of these products can take place.
Merger contract
In addition to approvals and licenses that may be needed, a merger contract is also necessary, regardless of the scenario. The merger contract determines who has ownership after the merger, as well as the transfers and conditions of the merger process.
The merger contract will likely take time to negotiate between the two companies to ensure that it meets all the needs of both parties. Emerhub can handle the process entirely on your behalf.
The last important thing to note is that if the companies have a market share that is larger than 30%, you will need approval from the Competition Authority before proceeding. Once that is finished, and the merger contract is complete, the rest of the procedure for the merger will take around 30 days.
What to consider before mergers and acquisitions in Vietnam?
In deciding what is best for your business, it is essential to weigh all the facts before choosing whether you are going to merge with a company or make an acquisition. Make sure you know about mergers and acquisitions in Vietnam, as well as the merger and acquisition regulations.
#1 Conduct proper due diligence beforehand
Carry out proper due diligence and have enough information about the company with whom you are going to have this transaction. Find all the necessary information in Emerhub’s company registry in Vietnam.
Among other important facts, information about the company includes:
- current status and the legal representative
- transaction history and capital
- Articles of Association
#2 Prepare a merger/transfer contract
Regardless of what you choose, be familiar with the merger or transfer contract and let lawyers draft it to ensure that it secures the interests of both parties. Emerhub can assist you on this matter and draft the necessary documents on your behalf.
#3 Have an action plan
Having an action plan is important for being in full compliance with the Vietnamese regulations. This way, your business does not have to stop operation, and you can be as efficient and profitable as possible.
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