I. Distinguishing consolidation and merger

Consolidation and merger are all forms of reorganizing enterprise, but they have many differences, namely:

1. Definition

– Consolidation: Two or some enterprises (“consolidating enterprises”) may consolidate into a new enterprise (“consolidated enterprise”). After that, the consolidating enterprises shall cease to exist.

– Merger: One or some enterprises (“merging enterprises”) may merge into another enterprise (“merged enterprise”) by transferring all their assets, rights, obligations and interests to the merged enterprise, at the same time, the merging enterprises shall cease to exist.

2. Legal consequences

– Consolidation creates a new enterprise. The consolidating enterprises cease to exist.

– Merger does not create a new enterprise. The merging enterprises cease to exist.

3. Transfer of assets, rights, obligations and interests

– Consolidation: The consolidating enterprises transfer their assets, rights, obligations and interests into the consolidated enterprise.

– Merger: The merging enterprises transfer their assets, rights, obligations and interests into the merged enterprise.

4. Legal procedures

– Consolidation: Registering to establish a new enterprise (the consolidated enterprise).

– Merger: Registering to change the business registration content of the merged company (capital, capital contributing members, business lines, head office address, legal representative, name of enterprise, etc,.).

II. Legal procedures before conducting consolidation or merger

Legal procedures before conducting consolidation or merger including:

Step 1: Check the conditions for conducting consolidation or merger:

In Article 194, 195 of Law on Enterprise 2014, “the market share of the consolidated enterprise and the merged enterprise holding on the relevant market” will determine whether the consolidation and merger can be conducted or not, specifically under 03 types of following thresholds:

Case 1:The market share of the consolidated enterprise or the merged enterprise is more than 50% in the relevant market: The parties cannot conduct consolidation or merger, unless otherwise provided by the Law on Competition.

Case 2: The market share of the consolidated enterprise or the merged enterprise is from 30% to 50% in the relevant market: The legal representative of the consolidated enterprise or the merged enterprise shall notify the competition authority unless otherwise provided by the Law on Competition. At the Law on Competition, the notification records will be submitted to the National Competition Commission for formal evaluation. After the formal evaluation is completed, the National Competition Commission shall make a decision on the possibility of conducting consolidation or merger.

Case 3: The market share of the consolidated enterprise or the merged enterprise is under 30% in the relevant market: The parties may consolidate or merge under the law.

Step 2: Complete the internal procedures

Preparation procedure: prepare a consolidation contract or merger contract (“Contract”), and a draft Charter of the consolidated enterprise or the merged enterprise (“Charter”);

Ratification procedure: Members, owners, shareholders of the consolidating enterprises, the merging enterprises and the merged enterprise ratify the Contract and the Charter. Note: The Contract must be sent to all creditors and notified to all employees within 15 days from the ratification date.

Step 3: Complete the tax obligation of the consolidating or merging enterprises

The consolidating or merging enterprises must fulfill their tax obligations before consolidation or merger, the deadline for submission of tax finalization dossiers is the 45^th days from ratification date of the consolidation or merger (Clause 3, Article 10 of Circular No. 156/2013/TT-BTC). If tax obligations mentioned above are not fulfilled, the consolidated enterprise or the merged enterprise is responsible for fulfilling these tax obligations (Clause 2, Article 42 of Circular No. 156/2013/TT-BTC).

Step 4: Complete the registration procedure with the business registration office

Within 10 working days from the ratification date of the Contract and the Charter, the consolidated enterprise or the merged enterprise shall register with the business registration office under the law.

Consolidation: Registering to establish a new enterprise (the consolidated enterprise).

Merger: Registering to change the business registration content of the merged company (capital, capital contributing members, business lines, head office address, legal representative, name of enterprise, etc…).

The above are legal advice related to distinguishing consolidation and merger and legal procedures before conducting consolidation and merger. Bizlawyer is providing legal services related to this matter. If you still have any questions, please do not hesitate to contact us via our Hotline: +8486 888 1900 or email: info@bizlawyer.vn for time ly advice and support.