Consultancy service on investment by capital contribution and share purchase to Vietnamese companies

Contributing capital and buying shares in existing enterprises is also a popular form of investment. From the buyer's perspective, the process of contributing capital and buying shares usually consist, according to general practice, of seven basic steps as follows:

Step 1: Select target companies.

This step is mainly initial assessments of the target companies and the seller, the demand for sale, and the conformity between the target company's main activities and the buyer's plans. The buyer can take this step without the involvement of the seller. Upon completion of this process, the buyer will have a shortlist of potential target companies.

Step 2: Open letter

The buyer will send an open letter to the target company or the seller to show goodwill and a desire to carry out the transaction of a capital contribution or share purchase. The open letter is not a binding contract or agreement but only notes what is expected to be done in the transaction or its original structure. Of course, sometimes the two parties may also stipulate some terms that are usually binding on the buyer's confidentiality obligation or the seller's commitment not to offer to sell to another party during the negotiation period with the buyer.

Step 3: Due diligence

To get detailed information about the seller, the buyer will invite consultants, lawyers, accountants, etc. to review all documents about the target company to make comprehensive assessments about the target company, such as legal, financial, labor, property, land, and environment... The due diligence report issued by lawyers, accountants, and consultants will be the basis for the buyer and seller to agree on the price, transaction structure, and content of the purchase and sale contract.

Step 4: Negotiate and sign a sales contract

Based on the information obtained from the due diligence, the parties will discuss the contents of the sale contract. This stage is usually very time-consuming, and it is easy to cause a transaction to fall apart. A successful negotiation will lead to the conclusion of a sale contract. However, usually, the contract will not be fully effective without receiving the necessary approvals from competent state agencies.

Step 5: Apply for policy approval

Normally, a capital contribution or share purchase transaction will have to apply for internal and external approval. Internal approval is approval from member shareholders. External approvals are usually from state agencies such as competition authorities, securities commissions, and business/investment registration agencies.

Step 6: Submit transaction registration documents

Once the policy approval of shareholders and related agencies has been obtained, the complete dossier will be submitted to state agencies for issuance of official decisions (by issuance of enterprise registration certificates or amended investment certificates recording those capital contribution transactions, share purchase).

According to the 2020 Investment Law, when a foreign investor contributes capital, buys shares or contributes capital to an economic organization operating in a conditional business investment line, or the grant, purchase of shares, or contribution of capital leads to a foreign investor, a foreign-invested economic organization holds 51% or more of the charter capital of the organization Economically, foreign investors need to obtain approval from the investment registration agency for capital contributions, the purchase of shares, or other contributions of capital. After obtaining this approval, investors will carry out procedures for the registration of changes of members and shareholders to be recognized as capital contributors or shareholders of the target company.

Step 7: Complete the transaction

After obtaining the necessary approvals for the investor to be considered as a capital contributor or shareholder of the target company, the parties will have to meet to confirm the completion of the transaction (such as the buyer having delivered enough money or the seller has fulfilled its obligations) or agree on what needs to continue after completion.

The above seven steps are common processes in a capital contribution or share purchase transaction. Of course, a specific capital contribution or share purchase transaction is not required to go through seven steps but can be shortened or divided into more steps, depending on the agreement of the parties.

LVT Lawyers provides the service to the clients in transactions of capital contribution and share purchase, including:

  • Advising on the transaction structure that the parties aim for;
  • Helping clients understand the priority interests desired or directed by the parties;
  • Advising on laws, procedures, and regulatory procedures related to issues and transactions registered at state agencies (business registration agencies, tax authorities, competition control agencies, etc.);
  • Drafting and reviewing documents, documents, and transaction contracts between the parties;
  • Appraising the legal issues of the seller's enterprise (if it is the seller's lawyer) or preparing legal documents of the buyer's enterprise;
  • Reviewing and recognizing the legal risks of the seller's enterprise that the buyer needs to pay attention to.
  • Advising on other legal aspects related to transactions.