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
For splitting off enterprise:
“Article 193. Split-off
For merger and consolidations of enterprise:
“Article 193. Consolidation
For acquisition of company:
“Article 195. Acquisition
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:
“Article 124. Offering of shares to existing shareholders
“Article 126. Share transfer
For limited liability company:
“Article 53. Transferring contributed capital
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.
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