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 off enterprise:
“Article 193. Split-off
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
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
Procedures for acquisition:
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:
Contributing
capital:
“Article
124. Offering of shares to existing shareholders
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.
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
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
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.
