Mergers and acquisitions (M&A) refer to critical activities in the modern economy, going beyond the mere exchange of goods and services. With the rapid development of the global economy and the trend of international integration, M&A increasingly plays a pivotal role in driving growth and expanding business scale. However, the M&A process is quite complex and requires a thorough understanding of the applicable legal regulations. In the following article, KMC will provide a clearer understanding of the M&A process and highlight important considerations when executing mergers and acquisitions, offering an overview of the procedural steps and legal issues that need to be addressed.

What is Mergers and Acquisitions (M&A)?

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Mergers and acquisitions refer to activities involving the acquisition, merger, or takeover of a enterprise. It is a method of corporate restructuring through the transfer of ownership rights and obligations, whereby a larger company may legally control and own a smaller company. This process typically occurs in various forms, from the merger of large and small companies to one company acquiring another to expand its scale or improve its competitive capacity.

Mergers and acquisitions are not merely asset transfers but also a strategy for stronger enterprises to absorb and restructure weaker or struggling companies. Through this, larger companies can enhance operational efficiency and reduce costs. Additionally, smaller companies are protected from the risk of bankruptcy or the inability to continue operating in the market.

Regulations on Mergers and Acquisitions in 2024

Under current regulations, not all types of enterprises are permitted to engage in full mergers and acquisitions. Only sole proprietorships have the right to sell all of their assets and business operations. Depending on the type of enterprise, the regulations and methods for carrying out mergers and acquisitions will differ significantly.

Mergers and Acquisitions of Sole Proprietorships

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According to Article 192 of the 2020 Enterprise Law, the owner of a sole proprietorship has the right to transfer their enterprise to another individual or entity. The buyer, after completing the transaction, must follow the procedure to register the change of ownership in accordance with legal provisions.

Specifically, after agreeing on the price and signing the sales contract, the parties must proceed to register the change of the sole proprietorship owner within 10 days from the completion of the transaction. The documents to be submitted to the Department of Planning and Investment include:

  • Notification of changes to the business registration details (as per Circular No. 01/2021/TT-BKHĐT), signed by both the seller and the buyer.
  • Documents proving the legal status of the buyer.
  • A copy of the signed business sale agreement.

Complying with these requirements ensures that the business sale is legalized and helps avoid future legal risks.

Mergers and Acquisitions of Limited Liability Companies (LLC)

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To carry out a merger or acquisition of an LLC, the most common method is the transfer of capital contributions. According to Article 52 of the 2020 Enterprise Law, this process is conducted through negotiations between the buyer and the members who own the company’s capital contributions. After an agreement is reached, the buyer may become the sole or co-owner of the company, depending on the proportion of capital transferred.

Once the capital contribution transfer contract is signed, the following steps must be taken: notifying the remaining members (if any) and holding a Members’ Council meeting. Then, the change notification must be submitted to the Business Registration Office where the enterprise is registered to complete the update of business registration information.

Mergers and Acquisitions of Joint Stock Companies (JSC)

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Mergers and acquisitions of joint stock companies typically occur through the transfer of shares. To gain control and management rights, the buyer must hold a majority of the issued shares. This process starts with the parties agreeing on and signing a share transfer contract, in accordance with Article 127 of the 2020 Enterprise Law. The next steps include preparing a minutes confirming the completion of the transfer, organizing a General Shareholders’ Meeting to approve the transfer, and registering the change of shareholders, updating the list of new shareholders, and the legal representative.

Process of Mergers and Acquisitions

Engaging in a merger or acquisition requires the buyer to adhere to a series of fundamental steps to ensure a smooth transaction. These steps typically include:

Step 1: Identify Needs and Negotiate

Clearly defining the objectives of the merger or acquisition is crucial for ensuring compliance with relevant legal regulations. This process involves accurately applying provisions in corporate law, establishing appropriate transaction procedures, and drafting the framework of the sale agreement. Both parties must fulfill their information disclosure obligations and notify the regulatory authorities to ensure transparency and legality in the transaction.

Step 2: Conduct Due Diligence

In the merger and acquisition process, due diligence plays a vital role in ensuring the transaction is safe and transparent. Activities to be conducted include:

  • Market Analysis and Growth Potential: Assessing the overall industry, expansion opportunities, and the company’s competitive capabilities.
  • Legal Status Verification: Confirming the legality of business operations, as well as issues related to enforcement actions or other legal responsibilities.
  • Collection of Essential Documents with Confidentiality Commitments:
    • Legal Documents: Business registration certificates, investment certificates, company charters, capital contribution records, member/shareholder registers, seals, and minutes or resolutions from the Board of Directors, Members’ Council, or General Meeting of Shareholders.
    • Financial and Accounting Records: Financial statements, accounting books, receipts and payments, financial plans, debts, financial obligations, and information on loans.
    • Labor and Insurance Records: Labor regulations, employment contracts, union records, payroll systems, and related insurance documents.
    • Assets and Organization: Verifying charter capital, fixed assets, real estate, human resources, organizational scale, and structure.
    • Intellectual Property and Brand: Evaluating trademarks, copyrights, and other intellectual property rights.
    • Customer and Partner Information: Analyzing relationships with customers, partners, products, and target markets.
    • ESG (Environmental, Social, and Governance) Records: Considering related impacts.

Additionally, reviewing existing legal disputes (if any) is necessary to avoid potential risks post-transaction.

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Step 3: Valuation and Negotiation

  • Determine Value: The buyer should use appropriate criteria to value the company, ensuring the value accurately reflects the market situation and current financial capabilities. This task can be performed independently by the buyer, with the assistance of a professional valuation firm, or based on the price proposed by the seller.
  • Negotiation: Both parties engage in discussions to agree on the purchase price, transaction methods, payment terms, and payment deadlines, ensuring maximum consensus between the parties.

Step 4: Prepare the Contract

In a business sale transaction, drafting the contract is a crucial step that requires written consent from the Members’ Council. The contract should clarify terms such as the transfer price, the company’s debt status, responsibility for debts (borne by the buyer or seller), asset ownership rights, as well as existing employment contracts and other business agreements. To ensure a successful transaction, the contract must be constructed fairly and meet the interests of both parties.

Step 5: Complete Legal Procedures

The business sale may include activities such as mergers or consolidations, which essentially involve adjusting business registration information, particularly concerning capital due to the transfer of shares or capital contributions. At this stage, it is necessary to complete legal documents to ensure the transfer process is officially recognized

Step 6: Finalize the Transaction and Transfer the Company

Once all the above steps are completed, the buyer will proceed with payment, and the seller will transfer ownership and management rights of the company. This is a crucial step to conclude the business sale transaction. After the transfer contract is finalized, the buyer needs to address issues related to personnel, organizational structure, management policies, as well as resolve outstanding legal and financial matters. Simultaneously, they must minimize cultural differences to ensure integration and sustainable development after taking over the company.

Key Considerations When Buying or Selling a Business

When engaging in a business acquisition transaction, the involved parties need to pay attention to several important factors to ensure the process proceeds smoothly and in compliance with the legal regulations:

  • Access to Foreign Market and Investors:
      • For cross-border transactions, especially when one party is a foreign legal entity, Vietnamese law requires a clear identification of foreign investors.
      • Depending on the industry, the law may impose restrictions on capital, the percentage of shares sold or transferred to foreign investors.
      • Before proceeding with the acquisition, foreign investors need to obtain an investment certificate from the relevant government authority.
  • Competition Conditions:
      • Business acquisitions may lead to economic concentration, potentially affecting market competition.
      • The law mandates that businesses submit documentation to the National Competition Committee to assess the potential impact on market competition.
      • The goal is to prevent market manipulation or abuse of market dominance for profit.
  • Market Research and Business Due Diligence:
      • Prior to the transaction, the buyer must conduct thorough market research, understand market trends, and identify the strengths and weaknesses of the target business.
      • The buyer must also examine relevant legal regulations regarding acquisition conditions, management, and operation of the business.
  • Financial Evaluation and Acquisition Plan:
      • The buyer should review the financial condition of the target business, including debts, asset values, and financial status.
      • A detailed acquisition plan should be prepared, setting a fair price and preparing negotiation strategies.
  • Post-Acquisition Development Plan: The buyer should prepare post-acquisition strategies to ensure stability and growth after the merger.
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Professional Mergers and Acquisitions Advisory Services

With a strong global network and in-depth expertise in the business sector, KMC Consulting Co., Ltd. is proud to offer effective mergers and acquisitions (M&A) advisory services, assisting businesses in finding ideal partners and supporting the process of mergers, acquisitions, or joint ventures. Our goal is to help businesses build and strengthen sustainable competitive advantages in the market.

Our services are designed to optimize strategic opportunities through thorough due diligence and efficient execution of acquisition and merger activities. Specifically, KMC provides the following services:

  • Post-Transaction Evaluation: This service provides a comprehensive analysis of the transaction’s outcome, helping you better understand the long-term impacts on your business.
  • Financial Due Diligence: With this service, we offer deep insights into the financial condition of businesses, enabling you to make informed investment decisions.
  • Legal Due Diligence: Designed for foreign investors, this service assists in navigating complex legal issues when entering new markets, safeguarding your interests in every transaction.
  • M&A Investment Advisory: We offer specialized advisory services to help you develop effective M&A strategies, ensuring maximum benefits for all stakeholders.

The process of buying and selling businesses is not just a legal procedure; it is a critical milestone in the development of the company. To ensure that every transaction is seamless and beneficial for all parties involved, M&A advisory services are indispensable. KMC is committed to providing you with comprehensive solutions, supporting you from the initial stages through to the completion of the transaction. Don’t let valuable opportunities slip away—contact us today for in-depth advice and to make well-informed decisions in business acquisitions.