The specific time for transferring ownership right of asset is
very important in all contracts. This time affects the lawful rights and
obligations of not only seller, purchaser but also of the third party.
The most-important principal of civil law is the recognition and
respect of agreement between the related parties. It means that the parties may
freely decide the specific time for transferring ownership rights. Nonetheless,
in some special case such as M&A contract, the specific time is not under
the decision of parties.
In legal term of Vietnam, M&A is deemed as similar to
split-off, split-up, merger, acquisition of an enterprise, contributing capital
to existing enterprise, and purchasing contributed capital of member or
shareholder of existing enterprise.
When is the transfer of member or shareholder rights of buyer
come into effect in cases of split-off, split-up, merger and consolidations,
acquisition?
The Law on Enterprise 2014 provides the definition for each type
as follows:
For splitting up enterprise:
“Article 192. Split-up
4. The splitted-up company shall cease to exist
after the new companies are granted Enterprise Business Registration. The new
companies are jointly responsible for the unpaid debts, labor contracts, and
other liabilities of the splitted-up company, or reach an agreement with the
creditors, customers, and employees to decide on one of the new companies to
settle such obligations.”
For splitting off enterprise:
“Article 193. Split-off
5. After business registration, the splitted-off
company and new companies are jointly responsible for the unpaid debts, labor
contracts, and other liabilities of the splitted-off company, unless otherwise
agreed among the splitted-off company, new companies, the splitted-off
company’s creditors, customers, and employees.
For merger and consolidations of enterprise:
“Article 193. Consolidation
5. After business registration, the consolidated
companies shall cease to exist; the new company shall take over the lawful
rights and interests as well as unpaid debts, labor contract, and other
liabilities of the consolidated companies.”
For acquisition of company:
“Article 195. Acquisition
2. Procedures for acquisition:
3. c) After business registration, the acquired
companies shall cease to exist; the acquirer shall take over the lawful rights
and interests as well as unpaid debts, employment contract, and other
liabilities of the acquired companies.”
The above regulations of laws have determined the specific time
for ceasing survival, transferring rights and obligations from old entity(ies)
to new entity(ies) after split-off, split-up, merger and consolidations,
acquisition. This time is specified after completing the legal procedures at
competent state authorities.
After being granted an enterprise registration certificate or
carrying out business adjustment and registration procedures, the new
entity(ies) must (jointly) be responsible for: unpaid debts, labor contracts,
and other liabilities, and the old entity(ies) will either cease to exist or
still exist with smaller or bigger business. Accordingly, although the buyer
and the seller (called collectively the parties participating M&A) have signed
a M&A contract which has been agreed to take effect before the completion
of legal procedures at state authorities, the buyer has not had any legitimate
right yet to the seller. The M&A contract is one of the necessary documents
submitted to state authorities to proceed the next legal procedures.
When is the transfer of member or shareholder rights of buyer
come into effect in cases of contributing capital to existing enterprise,
purchasing contributed capital of member or shareholder of existing enterprise?
The purpose of M&A is to gain control and dominance right of
all or part of seller, not merely owning part of the capital or shares of the
enterprise as a normal investment activity. With these cases, no new entity is
established and no old entity is ceased to exist. The enterprise, after
contributing capital or purchasing contributed capital, may have a change in
the capital contribution ratio or keep it unchanged, but the information of
members and shareholders of the enterprise shall be modified. The Law on
Enterprise recognizes the rights of only members of limited liability companies
and shareholder of joint stock companies but does not prescribe legal status
before becoming a member or shareholder.
When is investor recognized as a legitimate member, shareholder
to get the rights and obligations that the law stipulates?
The contribution of sufficient capital as committed is not a
decisive factor in being entitled the right of member or shareholder. As well
as notifying to the competent authorities is uncertain to generate member and
shareholder right. Nevertheless, the Enterprise Law has uniform provisions on
this issue as follows:
For joint stock company:
· Contributing capital:
“Article 124. Offering of shares to existing
shareholders
3. In case the amount of offered shares are not
completely purchased by shareholders and recipients the preemptive right, the
Board of Directors is entitled to sell the remaining authorized shares to
shareholders of the company or other people in a reasonable manner and
conditions that are not more convenient than the conditions offered to
shareholders, unless otherwise accepted by the General Meeting of Shareholders
or shares are sold via a Stock Exchange.
4. Shares are considered as sold when they are fully
paid and information about the purchaser mentioned in Article 121.2 hereof are
fully written in the shareholder registration book; from this time, the
purchaser shall be come a shareholder of the company.”
· Purchasing contributed capital:
“Article 126. Share transfer
7. Recipients of shares in the cases mentioned in
this Article shall only become the company’s shareholders from the day on which
their information mentioned in Article 121.2 hereof are fully recorded in the
shareholder registration book.”
For limited liability company:
· Purchasing contributed capital:
“Article 53. Transferring contributed capital
2. The transferring member still has the rights
and obligations to the company in proportion to his/her capital until
information about the buy mentioned in Article 49.1.(b), (c) and (d) hereof is
written on the member registration book.”
Accordingly, when the information of buyer is recorded in
member/shareholder registration book, the buyer will officially have the legal
rights for members and shareholders. The next legal procedures are intended to
notify the competent authority and amend the enterprise registration
certificate. The most important content of the registration book is the total
amount of contributed capital of each member or shareholder. This is evidence
for the ownership in limited liability companies and joint stock companies. For
a limited liability company, both registration book and enterprise registration
certificate are two proofs of ownership right of the member. However, for joint
stock company, only registration book is evidence on shareholder’s ownership
right. This is the reason showing important role of registration book.
Depending on each M&A form, the buyer and the seller should
attend to the time of termination and generation of legitimate rights and
interests, obligations and responsibilities as members and shareholders.
M&A aims to purchase and sell a special asset, which is property or capital
of an enterprise. With the special assets, the regulation of laws may stipulate
strictly depending on case by case which it is suggested the parties consult
with law firm in M&A in Vietnam to receive advice.
ANT
Lawyers – A Law firm in Vietnam has law offices in Hanoi,
Ho Chi Minh City and Da Nang. The lawyers at each law offices in Vietnam
have consistently made valuable and important contributions to our profession
through the cases we handled on daily basis to facilitate business transaction
or represented our clients to access justice.
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