Question: My company is currently a single-member limited liability company, and I am planning to merge with my friend's company, which is a two-member limited liability company. Could you advise me on the key issues to consider during the merger process?
Answer:
Based on the information provided by you, SB Law has the following considerations:
1. The Nature of Company Merger
Clause 1, Article 201 of the Law on Enterprises provides the definition of "Company Merger" as follows:
“One or some companies (acquired companies) may be acquired by another company (acquiring company) by transfer all of the acquired company’s assets, rights, obligations and lawful interests to the acquiring company, after which the acquired company shall cease to exist.”
From the above definition, it can be inferred that the essence of a company merger is the complete transfer of assets, rights, obligations, and legitimate interests from the merged company to the acquiring company, resulting in the termination of the merged company’s existence.
Source: Internet
2. Methods of Conducting a Company Merger
The procedure for a company merger is stipulated in Clause 2, Article 201 of the Law on Enterprises, with the following provisions:
a. Prepare the Merger Agreement and draft the Charter of the acquiring company.
The Merger Agreement must include the following contents:
- Name and head office address of the acquiring company;
- Name and head office address of the merged company;
- Merger procedures and conditions;
- Labor utilization plan;
- Methods, procedures, timelines, and conditions for the transfer of assets, conversion of capital contributions, shares, and bonds of the merged company;
- Capital contributions, shares, and bonds of the acquiring company;
- Timeline for implementing the merger.
b. Approval of the Merger Agreement by the members, company owner, or shareholders of the involved companies. The Merger Agreement must be sent to all creditors and notified to employees within 15 days from the date of approval.
c. After the acquiring company completes business registration, the merged company ceases to exist. The acquiring company inherits all legal rights and interests and assumes responsibility for outstanding obligations, unpaid debts, labor contracts, and other financial liabilities of the merged company. The acquiring company automatically succeeds to all rights, obligations, and legitimate interests of the merged company as stipulated in the Merger Agreement.
3. Note
Based on the above regulations, for a merger to be carried out comprehensively and accurately, businesses must carefully consider various aspects beyond just the basic business registration procedures. These include asset transactions (such as transfer procedures and asset registration), financial and tax matters (such as debt settlement and tax obligations), labor issues (such as workforce restructuring, termination, and reorganization of departments), and other factors depending on the specific characteristics of each business.
The implementation of a merger, depending on the scale and relationship between the companies, should be carefully planned to ensure the most suitable approach, maximizing efficiency and benefits for all parties involved. Lack of preparation or underestimating the legal aspects of the merger may expose the business to risks, including legal disputes or violations of statutory obligations.
