Which legal grounds shall affect M&A transactions from 2021?

Writer: Truc Nguyen

From 01 January 2021, new Law on Investment 2020 and Law on Enterprises 2020 shall take effect and replace the current ones. Please have a glance to our briefing new regulations for your well-prepared investment plan in the new coming year.

Which legal grounds shall effect M&A transaction in 2021

1. Changes in investment laws affect M&A transactions 

(i) Conditional business lines

The Law on Investment 2020 (“LoI”) has reduced the number of conditional business lines from 243 to 227. Some of the business lines have no longer needed to satisfy the regulated conditions, which include logistics, franchise, etc.

(ii) Investment incentives

This new law also additionally provides more business lines entitled to investment incentives at Article 16. They include:

  • Manufacturing products following scientific and technological results;
  • Manufacturing products belonged to the List of supporting industry products prioritized for development;
  • University education;
  • Drug preservation, medical equipment manufacture;
  • Goods manufacture or service provision that create or are in value chains or industrial clusters.
(iii) Market access for foreign investors

Currently, the foreign investors must check the requirement and compatibility of business lines intended to invest in Vietnam at each international treaty that Vietnam and their countries mutually enter as well as the internal law of Vietnam.

From the effective date of LoI 2020, Vietnamese Government shall issue the List of industries and trades subject to limitations on accessing the market. This will help to create a transparent and comprehensive investment environment for the investors to easily identify which business lines are open to them. It is a significant change and will lead to a positive M&A market in Vietnam.

2. Changes in enterprise laws affect M&A transactions

The new Law on Enterprises 2020 (“LoE”) will help complete the legal framework on company establishment and corporate governance.

(i) Simplifying the administrative procedures

With the aims at minimizing enterprises’ costs and time, LoE 2020 has reduced the paper works for establishing company, changing company’s information as well as re-organization. It also encourages enterprises to use electronic system for more convenient experience when doing these administrative procedures. There are also new regulations that allows the company establishment information to link with other authorities (i.e. Tax Department, Department of Labor, War Invalids and Social Affairs, Social Insurance) for minimizing the declaration of enterprises to them.

(ii) Enhancing the corporate governance

The LoE supplements lots of regulations regarding corporate governance, including:

  • Additionally providing the subjects not allowed to establish enterprises;
  • Amending the regulations in handling the contribution capital in limited company in some special cases;
  • For joint stock company: amending the rights of minority shareholders; adding more rights to the shareholders as well as the obligations of manager of joint stock company; and
  • Allowing the sole proprietorship to convert into limited company, joint stock company and partnership.

From the above changes in LoI 2020, LoE 2020, Vietnamese Government shows their effort in to enhance investment in Vietnam. This will make a competitive environment for both domestic and foreign investors to engage in investment in Vietnam.

Therefore, the investors should take the above-mentioned changes in consideration before making decision for investment. We will keep you posted on the latest guidance on investment of these new laws.

If you have any questions about the above, please contact BLawyers Vietnam’s lawyers at consult@blawyersvn.com. We are more than happy to assist.

Maybe you are interested in reading:

What are new on Law on Enterprises 2020 and Law on Investment 2020 of Vietnam?

Doing business of foreign investors in Vietnam

Common risks happened after mergers and acquisitions (M&A) transactions

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