Update day: December 23 , 2024

Business activities of the acquired company, what foreign investors need to know

Acquiring a business in Vietnam is a great opportunity for foreign investors to enter the market and expand their operations. However, one of the essential steps to ensure the success of the deal is reviewing the business activities of the company being acquired. This is an important factor to determine the legality, opportunities, and risks involved in business operations in Vietnam, as well as to identify the next steps foreign investors need to take regarding each business sector. All of these points will be shared in the article below.

Table of contents:

1. Scope of Operations for Each Business Sector

After acquiring the company and eliminating business sectors that are not suitable or not yet open to foreign investors in Vietnam, the investor will need to reassess the scope of allowed operations for each business sector. The information in the company’s file typically only shows general details or a partial description of the sector. To determine what specific activities the company is allowed to carry out for its customers in that sector, the company will need to cross-reference with industry-specific legal documents to gain a clear understanding. Typically, we recommend that clients create a detailed data table explaining the limitations of activities they are allowed to perform for each sector. For example, for sectors such as tourism, restaurants, or e-commerce platforms, the industry-specific laws in these fields will specify what activities the company is allowed to carry out and what it is not allowed to do.

2. Conditional Business Sectors

This refers to sectors where, in order to operate in practice, the business not only needs to complete the registration procedures for the business sector with the business registration authority but also needs to apply for additional permits for each specific sector to operate effectively. One point that we believe investors should be aware of is that there are certain sectors or activities that differ between 100% Vietnamese-owned enterprises and those with foreign investment. When foreign capital is introduced, the company may need to apply for certain permits that were not previously required for Vietnamese-owned businesses. A clear example of this is the retail sector. While retail operations may have been normal for a Vietnamese company, once it becomes a foreign-invested enterprise and engages in retail activities, the company must apply for a business license. In the case of opening a retail store, the company will also need to obtain an additional permit for operating the retail establishment.

In addition, in Vietnam, some business sectors require specific conditions such as additional permits, professional certificates, or standardized facilities. Investors need to ensure that the acquired company meets all these conditions. For example:

If you acquire a language center, the company must have a training license from the Department of Education and Training, and the teaching staff must hold the required teaching certificates. If the business lacks these documents, you will be responsible for obtaining them or face the risk of suspension of operations. In the case of a restaurant business, the company will need to apply for additional food safety and hygiene permits.

3. Foreign Investment Ratio, Ensuring Compliance with Regulations

According to Vietnam’s commitments under the WTO commitment schedule, not all industries are fully open to foreign investors. Some sectors only allow foreign investors to participate with a limited ownership ratio. For example:

In the logistics sector, foreign investors can only own up to 49% of the charter capital if the business operates inland waterway cargo transport. For road transport, the foreign ownership ratio is limited to no more than 51%. If you are considering acquiring a logistics company and are unaware of this regulation, exceeding the ownership limit could result in the deal being rejected.

Similarly, for advertising services (CPC 871), the law stipulates that a joint venture company must be established, or a business cooperation contract must be signed with a Vietnamese partner who is permitted to operate in the advertising service. Foreign investors are not allowed to own 100% of the capital, but the specific ratio is not restricted.

Reviewing the business sectors of the company being acquired is not only a legal requirement but also a crucial factor in ensuring the success of the investment deal. From checking the scope of operations, business conditions, capital contribution ratios, to ensuring transparency in business activities, all of these elements play an important role in protecting the investor’s interests. Investors should collaborate with legal experts to carry out this process carefully and thoroughly. Only when ensuring that all legal aspects are addressed can you optimize investment opportunities and avoid unnecessary risks.

Time of writing: 18/12/2024

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer at info@cdlaf.vn

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