Corporate restructuring is a popular phrase that is often mentioned a lot in recent years. So what is “restructuring” and “why do you have to restructure an enterprise”? This is a very essential activity that most investors and enterprise owners would like to understand. Specifically, corporate restructuring is the process of organizing and rearranging an enterprise based on its old structure. This restructuring is aimed at overcoming the enterprise’s internal weaknesses while helping it to prepare the foundation for the implementation of new plans for more optimal business operation.
1. Time of corporate restructuring
The time for corporate restructuring is when the enterprise encounters one of the following problems:
- there are changes in the management needs and business strategy of the enterprise;
- due to the arising of conflicts of the owners;
- to enhance the competitive factor in the market;
- increase or decrease the number of members as required by law on enterprises;
- conduct mergers and acquisitions.
Depending on the current situation of the enterprise, the corporate restructuring plan can choose to reform comprehensively or only in a certain area or part that is having problems. Through this article, we will give an overview of organizational restructuring in enterprises according to the law on enterprises of Vietnam and the common ways that are being prioritized at the moment. The restructuring in each department without affecting the form and structure of the business registered at the competent authority will be analyzed by PLF in another topic.
2. Merger
According to Article 201 of Law on Enterprises (2020), an enterprise merger is understood as a case where one or several companies can merge into another company by transferring all legal assets, rights, obligations and interests to the merging company, and at the same time terminate the existence of the merged company.
It should be noted that after business registration, the merging company enjoys all lawful rights and interests and is liable for unpaid debts, labor contracts and other property obligations of the merged company. In addition, in the case of a merger in which the merging company has a market share of between 30% and 50% in the relevant market, the legal representative of the company must notify the competition authority before carrying out the merger.
At the same time, the Competition Law also prohibits mergers if the merging company has a market share of more than 50% in the relevant market.
3. Consolidation
According to Article 200 of the Law on Enterprise (2020), enterprise consolidation is a case where two or more companies can be consolidated into a new company and at the same time terminate the existence of the company being consolidated.
This is a way to concentrate the market, these companies together form new companies, and it ends the existence of the merged companies.
After business registration, the companies being consolidated cease to exist, the consolidated company enjoys lawful rights and interests, is responsible for unpaid debts, labor contracts and other property obligations services of the companies being consolidated.
Similar to the enterprise meager, if the consolidation results in the consolidated company having a market share of between 30% and 50% in the relevant market, a notification must be made to the competition authority, and will be banned from consolidation if the consolidation results in a market share of more than 50% of the relevant market
4. Conversion
Conversion is the restructuring of an enterprise with a more appropriate development scale. The converted companies will inherit the legitimate rights and interests, and be liable for debts, labor contracts and other property obligations after the conversion.
The forms of enterprises as follows are allowed to be converted:
- Converting from a limited liability company into a joint stock company by the following methods:
- not raising additional capital contribution or selling capital contribution to other organizations/individuals;
- mobilizing additional capital contributions from other organizations/individuals;
- sell all or part of capital contributions to other organizations/individuals.
- Converting a joint stock company into a one-member limited liability company by the following method:
- one shareholder transfers all the respective shares of all remaining shareholders;
- an organization/individual that is not a shareholder receives the transfer of all shares of all shareholders.
- Converting a joint stock company into a limited liability company with two or more members by the following methods:
- not raising more shares or transferring shares to other organizations/individuals;
- mobilizing more capital from other organizations/individuals;
- transfer all or part of shares to other organizations/individuals; these methods can be combined or
- the company has only 2 shareholders left.
5. Separation
According to Article 199 of the Law on Enterprises (2020), enterprise separation is understood as the separation of a joint-stock company or a limited liability company by transferring part of the company’s assets to establish one or several new companies.
Consequences of the separation:
- Formation of one or more new companies and the new companies are not required to have the same type as before the separation.
- The separated company does not cease to exist, but inherits the lawful rights and obligations divided according to the decision on separation of the company. The separated company and the new company must be jointly liable for unpaid debts, labor contracts and other property obligations of the separated company, unless otherwise agreed.
- Make registration for change of charter capital and number of members corresponding to contributed capital, shares and reduced number of members for the separated company and at the same time, registering the establishment of new companies
It can be said that these are forms to create flexibility in the process of organizing, managing and operating the business. Accordingly, depending on the situation, conditions, goals and development orientation, enterprises will choose for themselves an appropriate form of organization.
