BUSINESS TRANSFER AND WHAT TO TAKE NOTE

Business transfer is performed when shareholders or capital-contributing members transfer all or a part of the ownership of the their shares or capital contributions to new shareholders, capital-contributing members.

A few notes when performing business transfer

 The sale and purchase of enterprises is not purely the sale and purchase of shares, capital contributions and the subsequent performance of business registration procedure. With many years of experience in the field of M&A, we believe that business registration procedure

With the exception of sole proprietorship, all other forms of enterprises such as Joint Stock Company, Limited Liability Company, Partnership are all independent legal entities, as such, the transfer of the Business does not change its rights and obligations to third parties, rather, only the owner of the business changes. For example: Enterprise A signs a construction agreement with Enterprise B. After completing the business transfer, all shareholders of Enterprise A divest and are replaced with new shareholders. However, the agreement between Enterprise A and Enterprise B still stands, and both parties still exercise the rights and obligations prescribed in the agreement. New shareholders of Enterprise A cannot refuse to perform the agreement signed with Enterprise B.

Due to it not changing the legal status, even if the the transfer happens, the rights and obligations of the enterprise do not change. As such, to the buyer, certain issues should be noted:

  • Before deciding on the purchase an Enterprise, legal, financial, asset due diligence of the target Enterprise must be performed to confirm exactly the debts, burdens and obligations before and at the time of transfer. This due diligence does not only guarantee that the buyer shall be able to make the most accurate decision regarding the transfer, it also helps to determine the transfer price, the responsibilities of the seller toward to outstanding obligations of the enterprise. In most cases of business transfer, the old owners are still responsible for some of the obligations of the enterprise for a certain period after the completion of the transfer. Such contents should be included in the transfer agreement.

Suggestion:

Buyer or seller could request assistance from Consultant Lawyers experienced in the field of M&A. Currently, there are many law firms in Hanoi and Ho Chi Minh city that are capable of providing such service that you can choose from. However, not every Lawyer can provide a perfect due diligence since each Lawyer have their own specialized field of practice. Consultant Lawyers for M&A shall assist the drafting of the contract and create a road map to perform tasks in the most efficient way.

 If you have the need for Professional Lawyers in the field of M&A, please reference the Team of Lawyers at Inteco Legal Practice here.”

 

  • The transfer of the Enterprise does not change the rights and obligations of the enterprise, however, it would have great effects on the officers, employees of the Enterprise. As such, alongside the plan to receive the hand over of the Enterprise, parties need to have a reasonable human resources plan to avoid confusion and brain drain. Even though this is not a legal issue, it is still very much a reality that we have faced many times.

  • After completing the transfer (or the necessary conditions are met pursuant to the transfer agreement), buyer organizes a General Meeting of Shareholders/Members Council to reelect management positions in the Enterprise such as the Board of Management, the President…These internal procedures are necessary to ensure that the enterprise fully complies with the legal regulations and ensure the safety during the internal management of the enterprise.

The Enterprise Law 2020 have no regulations regarding the transfer of Joint Stock Company, Limited Liability Company and Partnership; there are only regulations on the sale of sole proprietorship. According to which, the owner of a sole proprietorship has the right to sell his enterprise to another individual, organization. After having sold the sole proprietorship, the owner is still liable for the debts and asset obligations of the sole proprietorship that arose before the transfer of the enterprise, unless agreed otherwise between the owner of the sole proprietorship, the buyer and the creditor of the sole proprietorship.

The transfer of the enterprise for Joint Stock Company, Limited Liability Company and Partnership is performed in accordance to the procedures for transferring shares, capital contributions.

 

Instructions on the procedures to transfer an Enterprise

 In terms of principle, when changes occur regarding the contents on the Enterprise Registration Certificate (such as name, address, legal representative…), the enterprise must perform the procedure to register the changes made to the enterprise registration certificate. The enterprise shall be responsible for registering the changes within 10 days from the date the changes are made.

When there are changes regarding: (i) Business lines; (ii) Founding shareholders and shareholders who are foreign investors in the case of  a Joint Stock Company, with the exception of listed companies; (iii) Other contents in the Enterprise registration dossier, then the enterprise must perform the procedure to notify the changes made to contents of the enterprise registration certificate.

As such, when conducting the transfer, the Enterprise must perform the procedure to notify the changes made to the enterprise registration certificate relating to the changes of the capital-contributing members in the case of a Limited Liability Company. For a Joint Stock Company, within 03 years from the time of establishment, the enterprise is required to perform the notification procedure, and after 03 years from the time of establishment, the enterprise needs to conduct the procedure for internal transfer and keeps records pursuant to regulations without needing to notify, register with the competent State agency.

For the dossier, procedure for business registration (shares transfer, capital contributions transfer…), please reference our detailed guide here.

Note: These above contents are applicable to domestic enterprises. If the transfer involves enterprises with foreign capital, the procedures will differ slightly and we shall present such contents in a different article.