Legal Advice for Vendor Due Diligence in Vietnam

Vendor Due Diligence is a particularly important step in the process of merging with or acquiring another company. This due diligence helps the business gain a clearer understanding of its actual situation and operational performance, thereby accurately determining its current value. Legal advice for vendor due diligence in Vietnam plays a crucial role in this process, ensuring that businesses identify potential legal risks and compliance issues early on.  It also helps to avoid risks and increase the likelihood of a successful merger or acquisition transaction.

What is Vendor Due Diligence?

Vendor Due Diligence is a fundamental component in the merger and acquisition (M&A) lifecycle. This process entails the systematic collection and thorough evaluation of all legal documents and relevant information pertaining to the target entity. Vendor Due Diligence enables an enterprise, either through internal review or engagement of external advisors, to comprehensively assess its legal standing, ascertain its true valuation, identify potential legal liabilities, and thereby mitigate transaction risks. This ultimately enhances the probability of a successful deal closure and compliance with regulatory requirements.

Importance of Legal Advice for Vendor Due Diligence in Vietnam

Vendor Legal Due Diligence helps the selling enterprise to comprehensively review all legal information, thereby enabling an assessment of the company’s legal risks. If any legal gaps or weaknesses are identified, remedial measures can be promptly implemented to prevent consequences that could negatively impact the company’s reputation and business operations.

Furthermore, legal due diligence assists the company in accurately valuing its worth, which is essential for attracting other businesses or investors to invest in the enterprise. An improper valuation, whether too high or too low, can adversely affect the process of seeking investors or negotiating mergers and acquisitions.

Having a transparent legal due diligence report also facilitates shortening the negotiation and agreement process with potential buyers.

In addition, the due diligence process provides the company with valuable experience in drafting and executing its legal procedures and compliance requirements.

Key Documents for Vendor Due Diligence

First, Corporate Formation and Operation Documents

Enterprise Establishment Documents, including:

• List of founding shareholders / List of capital-contributing members;
• Enterprise registration application form;
• Enterprise charter (Articles of Association);
• Power of attorney authorizing a representative to perform registration procedures (if any).

Enterprise Registration Certificate issued by the Department of Planning and Investment.

For enterprises where foreign investors hold more than 51% of the charter capital, special attention should be paid to:

Investment certificate / Investment Registration Certificate / Approval for foreign investors to register the purchase of capital contributions/shares / Business license.

Branch/ Representative Office/ Business Location Registration Certificate.

In cases where the enterprise has performed procedures to adjust, amend, or supplement its information, attention must be given to the related amendment documents, including:

• Minutes of the Board of Directors / Members’ Council / General Meeting of Shareholders;
• Decisions / Resolutions approved by owners / General Meeting of Shareholders / Board of Directors / Members’ Council;
• Related contracts and agreements;
• Other relevant documents.

Second, Capital Contribution Evidence

• Capital contribution certificates of capital-contributing members / Shareholder register / Share ownership certificates, or other equivalent documents;
• Capital transfer agreements and liquidation minutes of capital transfer contracts;
• Documents and evidence proving the completion of capital contributions by capital contributing members / founding shareholders / existing shareholders;
• Other related documents.

Third, Financial Documentation

• Audited financial statements of the company;
• Documents evidencing the company’s fulfillment of tax obligations;
• Documents related to the company’s land use rights and other assets (vehicles, furniture, etc.);
• Sales contracts of the company;
• Accounts receivable and payable reconciliation statements;
• Loan and lending/mortgage contracts (if any);
• Other relevant documents.

Fourth, Human Resources Records

• List and information of the company’s management structure: Members’ Council / Board of Directors; General Meeting of Shareholders; and key management personnel holding critical positions within the enterprise.
• Minutes and decisions regarding appointment, dismissal, removal, recruitment, and disciplinary actions of employees;
• Employment contracts: fixed-term and indefinite-term employment agreements;
• Internal labor-related documents: labor regulations, collective labor agreements, etc..
• Internal company policies: recruitment policies, salary and bonus regulations, etc.

Additionally, depending on the actual situation of the enterprise, attention may be given to documents related to penalties, disputes, and ongoing litigation.

Information Required for Vendor Due Diligence Services

• Legal information, human resources, and financial records of the enterprise;
• Ongoing transactions of the enterprise;
• The enterprise’s objectives and expectations when conducting vendor legal due diligence;
• Other specific information related to the vendor’s legal due diligence process.

The above constitutes the comprehensive legal advisory from Viet An Law Firm regarding legal advice for vendor due diligence in Vietnam. Should you require further information about corporate law in general or legal due diligence in particular, please do not hesitate to contact us for prompt and dedicated support.