In the dynamic landscape of modern business, where markets are ever-evolving and competition is fierce, companies often find themselves seeking avenues to enhance their competitive edge, optimize operations, and maximize profitability. One strategic approach that has gained prominence is business consolidation. Business consolidation involves the merging or acquisition of companies within the same industry or related sectors, with the goal of creating synergies, streamlining operations, and achieving economies of scale. For more detail, please contact Apolo Lawyers Law Firm via email contact@apolo.com.vn or hotline: (+84) 903.419.479

1. What is business consolidation?

Enterprise reorganization is an institution with an important position and role in the law on enterprises. There are many reasons for corporate reorganization in a multi-sector economy. Enterprises often reorganize to improve their competitiveness and to promote their operational efficiency; resolve internal conflicts, avoid letting the enterprise fall into the state of dissolution due to insufficient minimum number of members.

Business consolidation is one of the forms to conduct business reorganization during operation. Business consolidation is an effective way to quickly increase the capital as well as the potential of the business. To better understand the concept of business consolidation, readers can refer to Phamlaw article below.

Regulations On Business Consolidation

2. Business consolidation concept

According to the provisions of Clause 1, Article 200 of the Law on Enterprises 2020, on business consolidation, two or more companies (hereinafter referred to as the consolidated company) may merge into a new company (hereinafter referred to as: referred to as the consolidating company), and at the same time terminate the existence of the consolidated companies.

Accordingly, business consolidation is a case in which two or more companies (referred to as consolidating companies) can merge and merge into a new company (referred to as consolidating companies) by transferring all assets, rights, obligations and legitimate interests to the consolidated company, and at the same time terminate the existence of the consolidated companies. The Enterprise Law 2020 does not stipulate the conditions for the type and legal capital of consolidated companies. However, the consolidated company must ensure compliance with the provisions of the Competition Law on corporate consolidation.

3. Consequences of business consolidation

Enterprise consolidation is a measure of enterprise reorganization applied to the type of company against capital, whereby several companies of the same type can merge into a new company by transferring all assets, rights, obligations and legitimate interests to the consolidating company, and at the same time terminate the existence of the consolidated companies.

After the consolidating company registers its business, the consolidated company ceases to exist; the consolidating company enjoys lawful rights and interests, is responsible for the obligations, unpaid debts, labor contracts and other property obligations of the consolidated companies. The consolidating company automatically inherits all legal rights, obligations and interests of the consolidated companies under the company consolidation contract.

The business registration authority updates the legal status of the consolidated company on the National Business Registration Database when issuing the Business Registration Certificate to the consolidated company. In case the consolidated company has its head office located outside the province or centrally run city where the head office of the consolidated company is located, the business registration office of the place where the head office of the consolidation company is located must notify the business registration to the Business Registration Office where the consolidated company is headquartered to update the legal status of the consolidated company on the National Business Registration Database.

In the case of consolidation in which the consolidating company has a market share of more than 30 percent of the relevant market share, the consolidated representative of the consolidated company must notify the competition authority before proceeding with the contract. unless otherwise provided by the competition law. Consolidation cases in which the consolidated company has a market share of more than 30 percent in the relevant market is prohibited, unless otherwise provided for by the competition law.

Regulations On Business Consolidation

4. When to incorporate a business?

Business consolidation can be said to be the fastest and shortest form of power gathering. When two or more companies merge, it will create a new company that is strong in many aspects such as finance, human resources or market share. The consolidation of businesses between companies in the same field will create strength and competitiveness in the market. However, the consolidation also means that the company also needs to reorganize the management and personnel apparatus when the company model is larger. In addition, consolidation will be a burden on the enterprise if the consolidated businesses have unresolved debts or financial obligations.

Business consolidation offers business owners a variety of benefits. Not only is it fostered in terms of capital, but this form also increases the company development opportunities. Correctly understood, business consolidation is a form of gathering strength in the shortest time. The merger between companies in the same field will create a huge competition in the market. Therefore, when you feel that your business is limited in terms of financial or human resources, you can start looking for companions. In the market, there are many companies and businesses that are falling into this situation.

However, business consolidation also has some limitations. When consolidating, businesses need to reorganize their management apparatus, receive jobs as well as business models. It is possible that the consolidation issue will become a burden for the business if the consolidated businesses are already in debt. This is quite a big challenge for businesses. Therefore, before deciding to merge the company, you should carefully consider and research the remaining companies.

5. Some notes when merging businesses

In case of consolidation in which the consolidating company has a market share of between 30 percent and 50 percent in the relevant market, the legal representative of the consolidated company must notify the competition authority before proceeding. consolidation, unless otherwise provided by the Competition Law.

Consolidation cases in which the consolidated company has a market share of more than 50 percent in the relevant market is prohibited, unless otherwise provided for by the Competition Law.

Business consolidation is a strategic approach that can yield substantial benefits for companies aiming to enhance their competitive position and operational efficiency. By carefully considering the potential benefits, challenges, and following key steps, organizations can navigate the path of business consolidation successfully. While the process might be complex, the potential rewards in terms of increased market share, profitability, and innovation make it a viable strategy for companies looking to thrive in today dynamic business environment. If you have any questions, please feel free to contact Apolo Lawyers Law Firm via email contact@apolo.com.vn or hotline 0903.419.479.

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