How to Merge a Subsidiary into a Parent Company

To merge a subsidiary into a parent company is the process of consolidating two businesses into a unified entity. This process enhances competitive strength, leverages shared resources, simplifies management, and reduces costs. However, the merger also requires both parties to complete numerous legal and financial procedures. This article will guide our clients through the process of merging a subsidiary into a parent company in accordance with Vietnamese law.

Business merger concept

Business merger is the process of merging two or more companies into a unified whole. This is the transfer of all assets, rights, obligations and legal interests by one or several companies (merged company) to another company (merger company). This process leads to the termination of the merged company’s existence.

Merging businesses is an important development strategy in the modern business environment. The purpose of a merger can be to expand market share, enhance competitiveness, optimize resources or diversify products and services. The merger process requires strict compliance with legal regulations, especially the Enterprise Law and related guiding documents.

Legal basis: Clause 1, Article 201 of the Law on Enterprises 2020.

What is a subsidiary?

A subsidiary is an enterprise controlled by another company called the parent company. According to the Enterprise Law, a subsidiary is defined as an enterprise that falls into one of the following cases:

• The parent company owns more than 50% of the charter capital or total common shares;
• The parent company has the right to directly or indirectly decide to appoint the majority or all members of the Board of Directors, Director or General Director of the subsidiary;
• The parent company has the right to decide on amendments and supplements to the Charter of that company.

The relationship between the parent company and its subsidiaries is specifically regulated in the Enterprise Law and related legal documents.

Depending on the legal type, a subsidiary has the following rights:

• Autonomy in business activities;
• Manage and use assigned capital and assets;
• Carry out business activities according to the business registration certificate.
• Sign contracts and transactions with the parent company on the principle of equality and independence. However, these transactions must ensure compliance with regulations on transactions with related persons under the Enterprise Law.

Obligations of subsidiaries include:

• Management and use of the parent company’s capital contribution and other capital sources according to the provisions of law and the company’s charter;
• Implement financial reporting and management reporting regimes according to regulations and be subject to inspection and supervision by the parent company;
• Fulfill financial, tax and other obligations according to the provisions of law;
• In case of merger, the subsidiary must comply with regulations on merger procedures and transfer of assets, rights and obligations under the merger contract.

Legal basis: Article 195, Article 196, Article 197 of the Law on Enterprises 2020.

Merge a subsidiary into the parent company procedures

Merging a subsidiary into the parent company is one of the important activities in the corporate restructuring strategy. This process not only helps optimize business operations but also simplifies management and reduces costs. To effectively carry out the merger, customers need to take the following steps:

Appraisal of subsidiaries

This is the process of evaluating and analyzing in detail the financial, legal, operational situation and related factors of a company before implementing a merger. The parties need to clearly determine the status of the subsidiary through appraisal, specifically:

• Existing assets of the subsidiary, including tangible assets and intangible assets; registered assets and unregistered assets;
• List of investment projects of subsidiaries, including production projects and real estate business projects;
• List of employees of the subsidiary, including employees working under indefinite-term or fixed-term contracts, seasonal contracts; position and professional title of each employee; Other criteria depending on the goals of the parties such as education, professional qualifications, age, seniority…
• List of customers, partners, suppliers, creditors… with valid transactions with the subsidiary, clearly defining the rights and obligations of the parties agreed in the contract; Contract implementation progress; and especially check the binding provisions that affect or limit the merger or reorganization of the company;
• The legal status of the subsidiary, including disputes and complaints in which the subsidiary is participating as a defendant, plaintiff or person with related interests; compliance with legal regulations.
• Other issues that the parties consider necessary, related to the business characteristics of the subsidiary.

Make a plan

Based on the appraisal results, the parties make specific plans for each job and implementation sequence. Merger implementation planning is an important part of the company merger process, helping to ensure that the merger process goes smoothly, effectively and achieves the set goals. A detailed merger implementation plan not only helps stakeholders clearly grasp the steps that need to be taken but also helps manage risks and optimize merger results.

By defining clear goals, creating a management team, analyzing and evaluating details, building a communication and change management plan, and tracking progress, businesses can optimize their results. merger process. Make sure that before implementing items, there is a detailed and flexible plan to handle arising problems and make adjustments when necessary.

Carry out merger procedures

Company merger is a complex process, requiring many legal and management procedures. To ensure the merger process is successful and fully complies with legal regulations, below are the important steps and necessary procedures to carry out a company merger:

1. Signing merger agreements and contracts according to Article 201 of the Law on Enterprises 2020;
2. Approve the merger contract and company charter;
3. Prepare and submit merger registration documents at the business registration agency.
4. Implement the consolidation of accounting systems, human resource management, and operational processes of related companies. Ensure that new processes and systems operate effectively.

Companies carrying out mergers must ensure compliance with the provisions of the Competition Law on company mergers.

Legal basis: Article 201 of the Law on Enterprises 2020, Article 61 of Decree 01/2021/ND-CP on Business Registration.

Consulting services for company merger process at Long Phan

Long Phan provides professional consulting services for the company merger process, especially the merger of subsidiaries into the parent company. With a team of experienced experts and a deep understanding of corporate law, Long Phan supports customers in implementing an effective merger process, complying with legal regulations and optimizing benefits for businesses.

Our consulting services include:

1. Support businesses in analyzing feasibility, determining goals and benefits of mergers, and proposing merger plans suitable to the actual situation of the business;
2. Support in drafting merger contracts and related legal documents: Prepare merger contracts to ensure full content according to regulations, draft post-merger company charter, resolutions and necessary documents Other equipment;
3. Detailed instructions on the steps to carry out procedures for merging a subsidiary into the parent company, from holding a meeting to approve the merger decision to registering changes to the business registration content and disclosing information;
4. Consulting on asset transfer plans, debt handling and ensuring compliance with accounting and tax regulations related to the merger process;
5. Support in developing post-merger employment plans, ensuring compliance with labor laws and protecting the rights of employees;
6. Support contacting, explaining and completing documents as required by the business registration agency and other authorities;
7. Consulting on resolving disputes arising in case of disputes arising related to the process of merging a subsidiary into the parent company.

Merging a subsidiary into the parent company brings many benefits to the business. However, this process also poses many challenges, risks and conflicts of interest if businesses make mistakes when implementing merger procedures. To solve this problem, Long Phan provides high-quality consulting services for the company merger process, supporting the completion of procedures and legal compliance. Please contact us via Hotline 090.673.5386 for detailed advice.