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
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