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M&A and the Legal Regulations Governing M&A Activities

Mergers and Acquisitions (M&A) refer to the processes through which companies combine or one company purchases another to achieve strategic goals. These activities are governed by specific legal regulations that ensure transparency, compliance, and fairness. Understanding these regulations is crucial for businesses aiming to navigate M&A successfully and legally. Legal regulations governing M&A activities vary across jurisdictions but typically include provisions under corporate law, competition law, and sometimes specific sectoral regulations. These regulations ensure that M&A transactions are conducted fairly, do not create monopolies or restrict healthy competition, and protect the rights of employees and other stakeholders affected by the transaction. In case you need advice, please contact Apolo Lawyers via email at or Hotline - (+84) 903 419 479 for the best advice and support.

1. What is M&A and the Benefits of M&A

Mergers and Acquisitions (M&A) represent strategic initiatives undertaken by companies to consolidate their operations, expand market reach, achieve synergies, and enhance competitive advantages. In essence, M&A transactions involve the combination of two or more businesses, either through mergers (where two companies unite to form a new entity) or acquisitions (where one company purchases another).

1.1. Understanding Mergers and Acquisitions

Mergers involve the joining of two separate entities to form a single entity, pooling their assets, resources, and operations under a unified structure. This strategic move aims to leverage complementary strengths and economies of scale, thereby enhancing market presence and operational efficiency.

Acquisitions, on the other hand, occur when one company buys another, often to gain access to new markets, technologies, or capabilities. Acquisitions can be friendly (with mutual agreement) or hostile (against the wishes of the target managementof company), depending on the circumstances and negotiations involved.

1.2. Benefits of Mergers and Acquisitions

  • Economies of Scale: M&A transactions enable companies to achieve economies of scale by combining their operations and resources. This consolidation often leads to reduced costs per unit of production, improved purchasing power, and enhanced efficiency in resource allocation.

  • Market Expansion and Diversification: M&A activities provide companies with opportunities to expand into new markets, both domestically and internationally. By acquiring or merging with businesses in different geographical regions or sectors, companies can diversify their revenue streams and reduce dependency on specific markets or products.

  • Enhanced Competitive Advantage: Consolidation through M&A can strengthen a competitive position of company by combining complementary strengths and capabilities. This may include access to new technologies, intellectual property, distribution channels, or a broader customer base, allowing the merged entity to offer more innovative products or services.

  • Synergy Realization: Synergies are efficiencies or cost savings that result from the merger or acquisition. These synergies can arise from operational efficiencies, elimination of duplicate functions, streamlined processes, or combined research and development efforts. Synergy realization is a key driver of value creation in M&A transactions.

  • Access to Talent and Expertise: M&A transactions often facilitate access to skilled talent and specialized expertise. This can be particularly valuable in industries driven by innovation and technological advancement, where acquiring companies seek to harness the knowledge and capabilities of the target workforce of company.

  • Strategic Restructuring and Reorganization: M&A activities provide companies with opportunities for strategic restructuring and reorganization. This may involve aligning business units, reallocating resources to high-growth areas, or divesting non-core assets to focus on core competencies, thereby enhancing overall corporate strategy and performance.

  • Financial Benefits: From a financial perspective, M&A transactions can create value for shareholders through increased profitability, enhanced shareholder returns, and improved financial stability. Successful integration of acquired entities can lead to improved financial performance and sustainable long-term growth.

M&A and the Legal Regulations Governing M&A ActivitiesM&A and the Legal Regulations Governing M&A Activities

2. Common Forms of M&A

Mergers and Acquisitions (M&A) encompass various strategic transactions through which companies combine their operations or assets to achieve specific business objectives. Here is an introduction to some common forms of M&A:

2.1. Horizontal Mergers

Definition: Horizontal mergers occur between companies operating in the same industry or sector, often as direct competitors.

Purpose: The primary goal is to achieve economies of scale, expand market share, and reduce competition. By consolidating similar businesses, companies aim to enhance their market power and operational efficiencies.

Example: When two telecommunications companies merge to increase their customer base and infrastructure.

2.2. Vertical Mergers

Definition: Vertical mergers involve companies that operate at different stages of the production or supply chain.

Purpose: The objective is to streamline operations, reduce costs, and improve efficiency by integrating complementary stages of production or distribution. Vertical mergers aim to secure supplies, control quality, or gain access to new markets.

Example: A car manufacturer merging with a tire producer to ensure a stable supply of critical components.

2.3. Conglomerate Mergers

Definition: Conglomerate mergers occur between companies that operate in unrelated business areas.

Purpose: The goal is diversification to spread risk across different industries and stabilize financial performance. Conglomerate mergers allow companies to enter new markets and capitalize on growth opportunities outside their core business.

Example: A technology company merging with a food and beverage company to diversify its revenue streams.

2.4. Acquisitions

Definition: Acquisitions involve one company (the acquirer) purchasing another company (the target), typically through a negotiated agreement.

Purpose: Acquisitions can help companies achieve various strategic objectives, such as gaining access to new markets, technologies, or talent. They can also eliminate competitors or expand product offerings.

Example: Facebook is acquisition of Instagram to enhance its social media platform and reach a broader audience.

2.5. Merger of Equals

Definition: A merger of equals occurs when two companies of similar size and strength agree to merge, often resulting in a new entity.

Purpose: This form of merger aims to combine strengths and capabilities to create a more competitive and financially robust organization. It can also facilitate entry into new markets or enhance innovation through shared resources.

Example: The merger between Dow Chemical and DuPont to create DowDuPont, combining their strengths in agriculture, materials science, and specialty products.

Each form of M&A serves distinct strategic purposes, from achieving economies of scale and market dominance (horizontal and vertical mergers) to diversifying risks and entering new markets (conglomerate mergers). Understanding these common forms of M&A is essential for companies navigating the complexities of strategic growth and consolidation in competitive business environment now. Each transaction type requires careful consideration of industry dynamics, regulatory implications, and integration challenges to successfully achieve desired outcomes and create long-term value for stakeholders.

3. Procedures and Conditions for Implementing M&A According to the Enterprise Law and Investment Law

Mergers and Acquisitions (M&A) are strategic tools used by businesses to expand operations, increase market share, and achieve various strategic goals. However, the implementation of M&A is governed by a complex set of regulations and procedures to ensure legality, fairness, and protection of interests of stakeholders. In Vietnam, these procedures and conditions are primarily outlined in the Enterprise Law 2020 and the Investment Law 2020. This section will introduce the key procedures and conditions that businesses must follow to successfully and legally execute M&A transactions.

M&A and the Legal Regulations Governing M&A ActivitiesM&A and the Legal Regulations Governing M&A Activities

3.1. M&A Procedures

  • Preparing M&A Documentation

​The first step in the M&A process involves thorough preparation of required documentation. According to Article 194 of the Enterprise Law 2020, businesses must compile several critical documents including the M&A contract, minutes of meetings and resolutions from the General Meeting of Shareholders or the Council of members, the latest financial statements, and other necessary documents as required by regulatory authorities. This comprehensive documentation ensures that all aspects of the M&A are transparent and legally sound. Businesses must prepare complete documentation including:

  1. The M&A contract.

  2. Minutes of the meeting and resolution of the General Meeting of Shareholders (for joint-stock companies) or the Council of members (for limited liability companies).

  3. The most recent financial statement.

  4. Other documents as required by the regulatory authorities.

  • Registering Changes with the Business Registration Authority

After completing the documentation, businesses must submit the change registration application to the Business Registration Office under the Department of Planning and Investment where the business is headquartered (Article 195 of the Enterprise Law 2020).

  • Notifying Relevant Parties

Businesses must notify relevant parties such as shareholders, partners, customers, and employees about the M&A implementation (Article 196 of the Enterprise Law 2020).

  • Appraisal and Approval

The business registration authority will appraise the documentation and approve or request additional information if needed. Once approved, the information regarding the merger or acquisition will be updated in the Enterprise Registration Certificate.

3.2. Conditions for Implementing M&A

M&A is a powerful strategy for business growth and restructuring. However, to execute M&A transactions successfully and legally, businesses must navigate a complex landscape of regulatory requirements. These include obtaining shareholder approval, complying with competition laws, protecting employee rights, registering investment projects, securing necessary permits, adhering to foreign capital control regulations, and conducting thorough impact assessments. Understanding and meeting these conditions are critical to optimizing the benefits of M&A while minimizing legal risks and ensuring sustainable business practices.

  • Approval by the General Meeting of Shareholders

The M&A must be approved by the General Meeting of Shareholders or the Council of members as stipulated in the  charter of company (Article 195 of the Enterprise Law 2020).

  • Compliance with Competition Regulations

M&A must comply with competition regulations to avoid creating monopolies or restricting unfair competition. The competition regulatory authority will review and approve the M&A in cases where it might affect market competition (Competition Law 2018).

  • Ensuring Employee Rights

Businesses must ensure the rights of employees during the M&A process, including maintaining employment and welfare benefits as stipulated in Article 197 of the Enterprise Law 2020.

  • Registration of Investment Projects

If the M&A involves an investment project, the business must register the project with the investment regulatory authority. The registration documentation includes the approval decision of the General Meeting of Shareholders or the Council of members, financial statements, and related documents (Article 39 of the Investment Law 2020).

  • Obtaining Necessary Permits

Depending on the business sector, the enterprise may need to obtain relevant permits such as construction permits, environmental permits, and business licenses for conditional business lines (Article 41 of the Investment Law 2020).

  • Foreign Capital Control

For M&A with foreign elements, compliance with regulations regarding the capital contribution ratio of foreign investors as specified in the Investment Law 2020 is required (Article 24).

  • Economic, Social, and Environmental Impact Assessment

The investment regulatory authority will assess the economic, social, and environmental impacts of the M&A project before granting approval. If the project impacts the environment, the enterprise must conduct an environmental impact assessment and obtain necessary permits (Article 45 of the Investment Law 2020).

M&A is a crucial tool for corporate restructuring and development. However, for successful and lawful M&A implementation, businesses must comply with the regulations of the Enterprise Law and the Investment Law. Understanding the relevant regulations and procedures helps businesses optimize the benefits of M&A and avoid legal risks.

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