A is a company established in Japan. B is a one-member limited liability company established in Vietnam, which is wholly owned by Mr. C – a Vietnamese citizen. B is operating many retail outlets of fitness equipment in Vietnam. A is going to acquire a prestigious company distributing fitness equipment in Vietnam to import its equipment into Vietnam and save market research expenses. A believes that B is a potential target company, therefore, A would like to acquire wholly B. Accordingly, A would like to consult lawyers about the most important legal problems that A should note.
Our legal advice: A should note about the following legal problems:
1. Foreign ownership cap of A in B
According to Law on Investment 2014, the ownership cap of foreign investors in a Vietnamese company when the investors acquire partly or wholly such company shall be subject to international treaties to which Vietnam is a party and the laws of Vietnam.
According to the commitments of Vietnam in the service sector in WTO, as of 01 January 2009, restrictions on foreign ownership are abolished. Therefore, A can own 100% equity in B.
2. A’s acquisition registration
Under Law on Investment 2014, A needn’t obtain Investment Registration Certificate, instead, A needs to perform the procedures of acquisition registration at B in the Department of Planning and Investment where B is located.
A should note that the application form must also be signed and sealed by B before it is submitted to the Department.
Please click here to refer to the procedures for the acquisition registration of foreign investors.
3. Changing B’s charter (or memorandum of association and articles)
Once A becomes the owner of B, the charter of B needs to revise for law compliance. For examples:
– Information about new owner
– Information about new legal representative (if any)
– Information about new managers
– Information about the equity transfer from C to A (if necessary)
4. Changing B’s enterprise registration
Under Decree No. 78/2015/NĐ-CP, B needs to revise its enterprise registration certificate with the following information after closing:
– Owner change registration
– Legal representative change registration
– Managers change notification (if any)
– Enterprise registration declaration
After the procedures above are completed, B will receive a revised Enterprise Registration Certificate with new information publicized in the National Portal of Enterprise Registration.
Please click here to refer to the procedures of changing a company’s owner
Please click here to refer to the procedures of changing legal representative
5. Business license and certificates of retail outlet’s establishment of B
B also needs to obtain a Business License and Licenses of the establishment of retail outlets after A acquires.
Legal eligibility for obtaining Business License:
– B does not owe tax
– B has approved a financial plan
– B must carry out the procedures for checking economical needs for the second retail outlets onward
In addition to basic legal problems, as shown above, in order to avoid legal risks in the future, A should consult lawyers to conduct legal due diligence in B, negotiation and signing Stock Purchase Agreement, and after closing activities.
Legal risks often come up when A does not examine carefully B, which may lead to arisen expenses that B must pay to a third party after A acquires. A should note about the following legal problems when conducting legal due diligence:
– Legal risks on key contracts, among others, purchase and sales contract, loan, office lease, employment contract and contracts with key partners.
– Legal risks on tax: outstanding tax debt, tax law violation, etc.
– Legal risks on employment coming from, among others, unpaid wages, social insurance liabilities, violation of labor rule, collective labor agreement, employment contract, labor discipline.
– Legal risks from disputes relating to contracts, disputes resolved through a court, an arbitration center or negotiation, and disputes of which judgments/decisions of courts, arbitration center are enforced.
– Legal risks on assets and properties, among others, investment projects, land use right, intellectual property, equipment and machine, representative office, branch, business location.
– Legal risks on company management, which come from, among others, charter, right to sign documents, internal documents, meeting minutes, enterprise registration certificates in any amendment version.
This is our preliminary legal advice. Please do not hesitate to contact us through the following address should you have the demand to use our service. We look forward to our cooperation.
Bizlawyer & Partners Law Firm
Hanoi Office: Unit 505A, Thang Long Ford building, Dong Da district, Hanoi, Vietnam.
Ho Chi Minh City Office: Unit A16.12, Sky Center, 5B Pho Quang street, Tan Binh district, Ho Chi Minh city, Vietnam.
Phone number: (+84)86 888 1900