Merger of foreign-invested companies with the same ownership

Some Foreign Investors establish multiple companies in Vietnam to operate in different business sectors, and each company may own one or several separate manufacturing plants in industrial zones. After a period of operation, Foreign Investors may find that maintaining multiple companies simultaneously consumes human resources and incurs additional costs for maintenance and management. Therefore, Foreign Investors tend to restructure, consolidating or merging to operate under a single company for all business activities in Vietnam.  

Because this is an internal restructuring of companies owned by the same Foreign Investor, a merger is often preferred over a consolidation. The Foreign Investor has the right to choose one of its companies as the Surviving Company to continue business operations, and the Merged Company will be dissolved. The Surviving Company shall assume all legal rights, benefits, and liabilities of the Merged Company, including outstanding debts, labor contracts, and other property obligations. The Surviving Company shall automatically assume all rights, obligations, and legal interests of the Merged Companies under the Merger Agreement. 

Although the merger decision can be easily approved due to the same ownership, foreign-invested companies must still comply with legal regulations and carry out complex administrative procedures to merge.

1. Approval of the Merger Agreement and the Charter of the Surviving Company

Article 201.2.a of the 2020 Law on Enterprises prescribes that companies participating in a merger must prepare a Merger Agreement and a draft Charter of the Surviving Company. Although this is a merger between companies with the same ownership, the Merger Agreement must still be signed and include the following contents:  

(i) merger procedures and conditions;  

(ii) labor utilization plan;  

(iii) the methods, procedures, timeframe, and conditions for transferring assets and converting the capital contributions of the Merged Company into capital contributions of the Surviving Company;  

(iv) the timeframe for implementing the merger. 

The Foreign Investor, as the owner of the companies, must approve the Merger Agreement and the Charter of the Surviving Company. Subsequently, the companies must send the Merger Agreement to all creditors and notify employees within 15 days from the date of approval.

2. The Surviving Company registers the merger, and the Merged Company settles and transfers tax obligations

The Surviving Company is responsible for carrying out the merger registration procedure at the Department of Planning and Investment where the Surviving Company’s head office is located, as follows: 

(i) If, after the merger, there are changes to the enterprise registration content of the Surviving Company, within 10 days from the completion of the merger, the Surviving Company must submit an application to register the changes to the enterprise registration content as prescribed in Article 61.2 of Decree No. 01/2021/ND-CP on business registration. 

(ii) If, after the merger, there are no changes to the enterprise registration content of the Surviving Company (the Surviving Company’s Enterprise Registration Certificate does not change any information), within 10 working days from the completion of the merger, the Surviving Company must send a written notice to the Department of Planning and Investment where the Surviving Company’s head office is located to terminate the existence of the Merged Company (Article 73.4 of Decree No. 01/2021/ND-CP on business registration). 

After the Surviving Company is issued an Enterprise Registration Certificate in case (i) or after the Surviving Company sends the notice of the merger in case (ii) above, the Merged Company’s legal status changes to “merged.” The Department of Planning and Investment where the Merged Company’s head office is located sends information to the Tax Authority. The Tax Authority is responsible for informing the Department of Planning and Investment that the Merged Company has completed its tax finalization and transferred its tax obligations.  

Within 01 working day from the date of receiving notification from the Tax Authority that the Merged Company has completed its tax finalization and transferred its tax obligations, the Department of Planning and Investment where the Merged Company’s head office is located shall update the legal status of the Merged Company to ‘terminated’ in the National Business Registration Database. The Department of Planning and Investment shall terminate the existence of branches, representative offices, and business locations of the Merged Company before terminating the existence of these companies in the National Business Registration Database. 

3. Adjustment of Investment Projects and application for licenses and certificates after the merger is completed

For Investment Projects of the Surviving Company:  The Surviving Company shall continue to implement them as before the merger. If the Surviving Company registers changes to its enterprise registration content and there is information that differs from the information in the Investment Registration Certificate, such as a change in company name, it must carry out procedures to adjust the Investment Registration Certificate. 

For Investment Projects of the Merged Company: The Surviving Company shall assume and continue to exercise the rights and obligations of the Merged Company with respect to the Merged Company’s Investment Projects. Accordingly, the Surviving Company shall assume the investment incentives applied to the Investment Project (if any) before the merger if it still meets the conditions for assuming investment incentives. After completing the merger, the Surviving Company shall carry out procedures to adjust the Merged Company’s Investment Project as prescribed in Article 51 of Decree No. 31/2021/ND-CP. Although the investment registration authority will re-evaluate whether the owner, the Foreign Investor, meets the conditions prescribed in Article 24.2 of the 2020 Investment Law to be allowed to continue implementing the Merged Company’s Investment Project, due to the same ownership, the Foreign Investor automatically meets this condition. 

For other licenses and certificates: The Surviving Company must establish branches or business locations in accordance with enterprise law for each Investment Project of the Merged Company. At the same time, the Surviving Company must apply for re-issuance of sub-licenses and certificates that the Merged Company had in order to continue conducting conditional business lines (e.g., Food Safety Certificate, Certificate of Approval for Fire Prevention and Fighting Design, etc.). 

4. Registration of change of ownership of assets from the Merged Company to the Surviving Company

For assets that require registration, such as real estate, vehicles, etc., or registered assets such as trademarks, industrial designs, packaging, etc., the Surviving Company must carry out administrative procedures to change the ownership information of the assets in accordance with related laws. 

See more:

1/ Issues during the due diligence process in M&A transactions

2/ Protecting minority shareholders in shareholder agreements

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