Buying and selling businesses – Issues to note

Buying and selling businesses is a complex process and requires a deep understanding of law, finance, as well as business strategy. This activity not only involves the transfer of assets or shares but also greatly affects the structure, rights and obligations of related parties. The article below analyzes aspects that need attention, from legal, procedural, to risks and solutions related to business purchase and sale procedures.

Concepts and forms of business buying and selling

According to the provisions of the Law on Enterprise 2020, buying and selling businesses includes forms such as transferring capital, shares or assets, for the purpose of controlling part or all of the target enterprise. This activity is popular in Vietnam in limited liability companies and joint stock companies.

Types of transfer:

• Transfer of contributed capital applies to limited liability companies.
• Share transfer applies to joint stock companies.

The appropriate form of purchase and sale needs to be based on the type of company and strategic goals of the customer.

Steps to buy and sell a business

Buying and selling businesses requires specific steps to ensure legality and minimize risks.

Step 1: Evaluate the target business

• Financial analysis and business operations: It is necessary to evaluate the financial situation of the business, including revenue, profits, assets and debts, to help determine the actual value of the business.
• Check legal and tax obligations: Verify tax obligations, legal disputes, property ownership and related contracts.

Step 2: Negotiate and create a memorandum of understanding

• Agreement on basic terms: The parties agree on the purchase price, rights, obligations and commitments of related parties.
• Making a memorandum of understanding (MOU): MOU is a step for the parties to make a preliminary agreement, has no binding legal value but creates the basis for signing an official contract.

Step 3: Legal and financial appraisal (Due Diligence)

• Check legal documents: Check the business’s legal documents, including asset ownership, labor contracts, shareholder rights, debts and obligations.
• Ensure assets are not mortgaged or disputed: Check whether the business’s assets and shares are in dispute or mortgaged or not.

Step 4: Sign the contract

The parties sign a business purchase and sale contract, which should contain provisions on transaction value, payment method, rights and obligations of the parties, as well as dispute resolution provisions.

Step 5: Complete legal procedures

According to the Law on Enterprise 2020, the parties need to carry out procedures to register information changes at the business registration agency (Business Registration Office under the Department of Planning and Investment) to update changes related to name, address, shareholders, company members.

Legal factors that need attention and related risks

Buying and selling businesses involves many complex legal issues, requiring caution from the parties involved. Specifically, some issues to note are as follows:

1. Legal status of the enterprise:

• Business license: Check if the business has a valid business license and operates in the licensed industry.
• Decisions and resolutions: Check the decisions of the board of directors and shareholders’ meeting (if any) on approval of merger and acquisition transactions.
• Company rules and regulations: Ensure that the provisions in the company charter are not violated during transactions.

2. Tax and financial obligations:

• Tax obligations: Enterprises must ensure that there are no remaining tax debts or unresolved tax obligations. Check the tax payment status and tax code of the business.
• Financial situation: Evaluate financial statements, liabilities, assets, and cash flow situations to avoid financial risks in transactions.

3. Issues of property ownership and contracts:

• Property ownership: Check the status of the business’s assets, including ownership and use of assets, whether they are mortgaged or in dispute.
• Effective contracts: Verify labor contracts, commercial contracts and other contracts that the business has signed with partners.

4. Consensus of relevant parties:

• Agreement with shareholders or company members: Ensure that transaction decisions are approved and approved by shareholders or company members.
• Approval from state agencies: If necessary, confirm approval from the state agency with jurisdiction over the transaction (ex: tax authority, business registration office).

5. Transfer of ownership and change of information:

• Register to change business information: Carry out procedures to change business information at the Business Registration Office, local Department of Planning and Investment after the transaction is completed.
• Adjust business license: Enterprises need to re-issue their business license or adjust a new business license if there is a change in business information.

>>> See more: Guidance on asset valuation when buying and selling businesses.

Post-deal and maintain business operations

After completing a business acquisition or merger, businesses need to take steps to ensure stability and maintain effective operations. These procedures not only help ensure legality but also optimize operating processes in the new environment.

1. Update relevant legal documents:

• Adjusting the business license If there is a change in information, the business needs to apply for a new business license.
• Update labor contracts, commercial contracts, service contracts, and related documents that need to be adjusted to reflect the information of the new business.

2. Update the list of shareholders and change the organizational structure (if any):

• Update the list of shareholders: For joint stock companies and limited liability companies, businesses need to adjust the list of shareholders or members and change shareholder information in the license.
• Change in organizational structure: If there is a change in organizational structure, such as board of directors, board of directors, other departments, this decision should be recorded and notified to the competent authorities.

3. Complete the remaining financial and legal procedures:

• Carry out procedures for transferring assets according to the signed contract.
• Fulfilling financial obligations including taxes related to merger and acquisition transactions should be fully paid to the tax authority.

4. Maintain production and business activities:

• Maintain contracts and commitments: Continue to implement current contracts with customers and suppliers.
• Ensuring product and service quality: Do not change the quality of the company’s products and services.

5. Handling disputes and legal risks

• Dispute resolution: Handle disputes through negotiation, arbitration or court.
• Legal risk management: Ensure legal issues that arise are resolved according to regulations.

Comprehensive business buying and selling consulting in Long Phan

At Long Phan, we have a team of consulting experts with many years of experience in the field of business consulting. We support customers with the following procedures:

• Consulting on transaction forms (repurchasing shares, assets, mergers…) in accordance with the business’s goals.
• Support in drafting merger and acquisition contracts, ensuring legality and protecting customers’ rights.
• Representing customers to carry out procedures for registering and changing business content.
• Support customers to resolve problems that arise during the transfer process and resolve disputes (if any).

If you are considering buying and selling businesses, please contact Long Phan for in-depth advice and comprehensive support. Our team of experts is always ready to accompany you, ensuring your transactions take place smoothly and safely. Please contact the hotline 0906735386 to receive advice today.