Reference situation:

Company A is a limited liability company with 01 member and specializes in trading electrical equipment. Company B is a limited liability company with 02 members. The two companies have the demand for consolidation to establish a new company and would like to consult lawyers about the necessary procedures to do so.

Legal grounds:

1. Law on Enterprise 2014;
2. Decree No. 78/2015/NĐ-CP;
3. Decree No. 108/2018/NĐ-CP;
4. Circular No. 02/2019/TT-BKHĐT.

Our legal advice:

Under article 194 of Law on Enterprise 2014, consolidation of companies is the case in which “Two or more companies (hereinafter referred to as companies being consolidated) may be consolidated into a new company (hereinafter referred to as the consolidated company) and at the same time, terminate the existence of the companies being consolidated.”

The company needs to prepare the following documents in order to perform the procedures for consolidation:

(a) A consolidation contract. The consolidation contract shall have the following main details: the names and offices of the companies being consolidated; the name and address of the head office of the consolidated company; the procedures and conditions for consolidation; the plan for employment of employees; the time-limit, procedures, and conditions for conversion of assets, for conversion of shares of capital contribution, shares, and bonds of the companies being consolidated into shares of capital contribution, shares, and bonds of the consolidated company; the time-limit for implementing the consolidation

(b) The draft charter of the consolidated company;

The two companies should note the following problems:

• In the case of consolidation whereby the consolidated company holds a market share of between thirty (30) percent and fifty (50) percent of the relevant market, the legal representatives of the companies being consolidated must notify the administrative agency for competition before carrying out the consolidation, unless otherwise stipulated by the Law on Competition.
• Cases of consolidation of companies whereby the consolidated company holds a market share of fifty (50) percent or more of the relevant market shall be prohibited, unless otherwise stipulated by the Law on Competition.
• Licensing authority: Provincial Department of Planning and Investment where the new company is going to be located

Click here to refer the detailed procedures for consolidating companies