Legal due diligence in merger and acquisition transactions in Vietnam

To complete the merger and acquisition transactions, the parties often have to go through many processes in which the legal due diligence (LDD) is one of the first and most essential processes in merger and acquisition transactions

Chapter I – Incorporation Matters

To complete the merger and acquisition transactions, the parties often have to go through many processes in which the legal due diligence (LDD) is one of the first and most essential processes in merger and acquisition transactions. LDD is a process of legal examination to identify material legal issues, non-compliance matters of the target enterprise (the Target), based on such, to determine conditions precedent, conditions subsequent, representations and warranties in capital transfer/ sale and purchase agreements of capital contribution or share (Share). At the same time, LDD also plays a vital role in making investment decisions and determining the value of enterprises in merger and acquisition transactions.

In order to conduct an LDD, both enterprises and lawyers need to evaluate and review information and documents, in each legal aspect of the Target based on a comparison between the laws and the Target’s current situation.

Establishment information

One of the first aspects to examine when conducting an LDD is to answer the question: have the Target and its affiliates such as branches, representative offices, and business locations (if any) been registered in accordance with the laws yet? Vietnamese laws require that establishment of enterprises must be validly registered, and enterprises must notify or register some fundamental changes in their corporate information with the competent authorities. To confirm and verify this information, the lawyers need to study the enterprise registration certificate (ERC), investment registration certificate (IRC) (if any), operation registration certificate of branches/ representative offices/ business locations (ORC) (if any) and compare the information therein with the actual operation of the Target (such as actual head office’s address, charter capital, legal representative, head of representative offices/ business locations). Besides, based on these documents, the lawyers can obtain necessary information about the Target such as enterprise form, type of capital sources, and business lines. This information will be a foundation for the lawyers to analyze the Target’s obligations, for example, business lines subject to foreign ownership limits, report obligations of foreign-invested enterprises, and the statutory organizational structure of a joint stock/ limited liability company.

In tandem with checking the provided certificates, the lawyers need to collate with the corporate information of the Target posted on the national business registration portal ( (NBR Portal) and the portal for taxpayer information search on the website of the General Department of Taxation ( This collation is to examine the consistency of corporate information posted on such pages and with information in the Target’s certificates.

If the Target cannot provide these certificates in full, or the lawyers insist on further information about the Target’s corporate history, the lawyers may purchase latest enterprise registration information or history information of the Target for the last three years at the NBR Portal. Of note, some enterprises or branches established before 1st July 2015 (the effective date of the Law on Enterprises 2014) may still be operating under the investment certificate concurrently with the business registration certificate. Therefore, it will be challenging to conduct LDD in these enterprises because the comparison with information on the NBR Portal will be impossible.

Business lines

Registration of business lines is a mandatory requirement for every enterprise in Vietnam. The business lines of enterprises can be found on the NBR Portal. The laws on enterprises prescribe the sanctioning of administrative violations for the failure of enterprises to notify changes in their registered business lines (for example, where the registered business lines of enterprises are not shown correctly and in full, compared with the actual business activities of enterprises). Notably, such violations will be more complicated if such business activity falls within the scope of conditional business activities. The first typical instance is when some enterprises sub-lease unused land or offices to a third party, which can be considered as a real estate business (a conditional business line). The second instance is where foreign-invested enterprises carry out retail activities for end-customers during the provision of services. Though carried out neither often nor continuously, this activity may be considered a retail activity of foreign-invested enterprises. Such enterprises may be required to obtain a business license (issued by the Department of Industry and Trade) for their retail activities. In practice, many enterprises are still not aware of this business license and confused with the ERC or IRC. These violations will lead to administrative sanctions and may adversely affect the reputation of the violating enterprises if the incident is made public. Therefore, on this point, the lawyers need to understand the business activities of the Target both in terms of registration on paper and in practice (through discussions and interviews with the authorized person of the Target, or through agreements showing the Target’s transactions with third parties) and examine whether the registered business lines have correctly and fully demonstrated the actual business activities of the Target.

Besides, a typical legal issue in merger or acquisition transactions is that after the completion of such transactions, the Target becomes a foreign-invested enterprise or the existing foreign capital contribution in the enterprise increases significantly. In this case, the lawyers need to review the business lines of the enterprise carefully. Firstly, do any business lines of the Target fall in the list of business lines subject to foreign investment limitations? For example, if the Target provides road transport services, the foreign investor’s contribution capital will be capped at 51% of the Target’s total contribution capital. Secondly, the Target (especially domestic enterprises) often register many business lines under the “too much is always better than not enough” rationale. This situation will prolong and complicate the registration process of Share contribution/ sale and purchase because the competent authorities will have to consider the market opening regulations of many business lines before approving Share contribution/ sale and purchase agreements. Notably, if some business lines are not listed in Vietnam’s Schedule of Specific Commitments on Services of Accession to the World Trade Organization (WTO), the competent authorities will have to seek the opinions of the competent authorities in higher levels (for example, Ministerial level) before making a decision and this process prolongs the merger and acquisition process.

Dependent units

The Target may have dependent units such as branch, representative office, and/ or business location. The lawyers need to examine the ORCs of such dependent units (if any) and interview with the Target for the quantity of such dependent units and other details both in terms of registration on paper and in practice. In case the Target fails to provide sufficient information for this collation purpose, the lawyers may look for such information through the latest enterprise registration information or history information of the Target for the last three years purchased at the NBR Portal.

The operation scope of the branch and business location is limited to the Target’s registered business scope. For the representative office, it can only perform the authorized representative operations for the enterprise. Accordingly, the lawyers must examine compliance with the operation scope of the dependent units by making the comparison between the actual operation of the dependent units (through discussions and interviews with the authorized person of the Target) and operation scope of the Target. For the business location, currently, several licensing authorities may view the warehouse leased by the enterprise as its business location and request an ORC for such a warehouse. Therefore, the lawyers need to check whether the Target has any warehouse and whether it must register such a warehouse as a business location. The latter concern can be resolved by consultation with the local authorities where the warehouse is located. The failure to register or notify on changes in the dependent units’ information may lead to administrative sanctions on planning and investment.

Internal documents

The current laws on internal documents remain few, unclear, and general. However, ensuring compliance with the enterprises’ internal documents is vital in terms of legal compliance and corporate governance efficiency. Common internal documents of enterprises include charter, internal management regulations, shareholders’ agreement/ joint venture agreement/ investment agreement, share certificate, registry of shareholders/ members, meeting minutes, and resolutions.


Charter is a critical document and also a must-have in the application dossier for the establishment of any enterprise. As required by laws, enterprises must retain charter and its amendment(s) at the head office or other places as prescribed by the charter. The lawyers should initially examine the validity of the charter by checking whether the charter was signed by the Target’s competent person(s). For instance, if the Target is a multi-member limited liability company, the charter should be signed by all individual members and the legal representatives/ authorized representatives of organizational members at the time of establishment. After the validity check, the charter’s contents should be reviewed to determine whether such contents comply with applicable laws and reflect the latest factual information of the Target (such as regulations on organizational and management structure, head office address, number of each type of shares, and the legal representative’s information).

The laws specify that the charter and its amendment(s) be retained by enterprises and updated in accordance with the applicable laws and status of such enterprises. However, enterprises are not required to notify or register with the competent authority about changes in the charter’s contents (except in some instances such as charter capital adjustment or change of the legal representative). Consequently, in practice, enterprises frequently fail to comply with this retention obligation and to update the charter’s contents. These non-compliances will adversely affect the corporate governance efficiency of the Target, as they burden the acquiring enterprise (Acquirer) with gaining thorough knowledge about the Target’s corporate governance status.

Shareholder agreement and joint venture agreement

Shareholder agreement and joint venture agreement are not laid down in the laws on enterprises. However, such agreements are commonly used in practice, especially by foreign-invested enterprises. Such documents not only contain agreements among shareholders/ members on the establishment and management of the enterprise but also provide the undertakings among the shareholders/ members relating to re-organization of the enterprise or the Share transfer, such as right of first refusal, tag-along right, and non-transfer commitment. Therefore, the shareholder agreement and joint venture agreement entered into by shareholders/ members of the Target should be reviewed carefully to identify any condition required for the proposed transaction (for instance, written consent of all shareholders/ members prior to the share transfer, principle on determination of transfer price, or tag-along rights).

Other internal documents

In addition to the documents described above, the Target must prepare and retain other internal documents, including share/ capital contribution certificate; registry of shareholders/ members; meeting minutes and resolution of the competent body of the Target (such as general meeting of shareholders, board of management, members’ council). The lawyers should inspect whether the information stated in such documents is consistent with the Target’s public information (such as information of founding shareholders/ members). In case of any inconsistency, the lawyers must raise the questions to the Target for its clarification and confirmation. Furthermore, the lawyers should check the validity of landmark decisions of the Target because the Target must seek prior approval from its competent body (such as general meeting of shareholders, board of management, or members’ council) for certain operation changes (such as establishment of a subsidiary or purchase/ sale of valuable assets).

Particularly for registry of shareholders/ members, under the laws, the Share purchasers will officially become the shareholders/ members of enterprises when they are recorded in this registry. In addition, for recognition of the ownership of the Share, enterprises are obliged to issue the share ownership/ capital contribution certificate to their shareholders/ members. Therefore, share ownership/ capital contribution certificate, and registry of shareholders/ members are the most transparent documents to prove Share ownership of shareholders/ members in the Target. However, in practice, these documents are not well prepared/ retained/ updated by enterprises. These non-compliances may lead to administrative sanctions imposed on the enterprises and affect the rights of shareholders/ members.

Chapter II – Corporate Management, Ownership, Assets, and Material Agreements

Corporate Management

The laws on enterprises require some types of enterprises to have a statutory organizational and management structure, such as limited liability companies with 11 or more members being required to set up a Board of Inspection. Nevertheless, enterprises in Vietnam generally do not pay adequate attention to their statutory organizational and management structure. Typically, enterprises often do not have appointment or reappointment decisions for managerial positions (such as chairman/ member of the members’ council, chairman/member of the board of management, director/ general director). In this aspect, the lawyers should be familiar with the organizational and management structure required for the Target in order to identify statutory positions/ titles and accordingly request/ examine the decisions to appoint/ establish these positions/ titles.


As required by laws, the Share must be paid in full within 90 days from the issuance date of the ERC. Failure to pay in full after this deadline will lead to procedure for decreasing the charter capital of the default enterprises – a complicated and time-consuming procedure in practice. Regardless, competent authorities rarely conduct audits to check the actual Share contribution of enterprises. Therefore, in fact, domestic enterprises often fail to contribute their subscribed Share and also fail to perform share decrease procedures as prescribed by laws. Failure to contribute the Share in full will affect the Acquirer’s financial obligations after the merger and acquisition transaction and prolong the lead time to complete the deal due to the capital decrease procedure.

In order to check the Target’s Share contribution, the lawyers need to review the (audited) financial statements of the Target (the owner’s equity section). In absence of the financial statements, the lawyers should check the share transfer bank statements of the shareholders/ members into the Target’s bank account for the purpose of capital contribution.

Besides checking the Share contribution, the lawyers need to check whether the Share is subject to any transactional encumbrances. These encumbrances may be the guarantee for the obligations of the shareholders/ members (such as pledge and mortgage) or commitment on transferability restriction in joint venture agreements and investment agreements, such as right of first refusal, tag-along right, and rights issue. Examination of these encumbrances will help ensure the validity of the Share transfer and avoid any subsequent disputes.

In order to check the transactional encumbrances on the Share, the lawyers need to review loan agreements (loan agreements of the Target in case the shareholders/ members employ the Share to ensure the Target’s obligations and loan agreements of any shareholders/members who have the intention to transfer the Share), joint venture agreements, investment agreements that the members/ shareholders are signatories. In addition, the lawyers can look up for security transactions for the Share on the online registration system of the National Registry of Secured Transactions ( (NRAST) by searching for the identity card number/ passport/ enterprise registration code of the members/ shareholders to know if such members/ shareholders have registered for any security transactions with respect to their Share. However, the lawyers should note that, since the Share is not an asset required to register for security transactions, the search for secured transactions for the Share on this site is only a reference source for this purpose.

Also, to circumvent the restrictions on foreign investment in some business lines, some enterprises (especially foreign-invested enterprises) have sought recourse to the nominee to hold their share at these enterprises. Vietnam laws currently neither recognize trustee nor nominee arrangement and therefore, the use of nominee may lead to many legal risks. If the nominee intentionally appropriates the Share (such as transfer, pledge, and mortgage the Share) or if the competent authorities detect agreements signed with the nominee, such enterprises may be subject to the investment conditions applicable to foreign investors. Therefore, when conducting the LDD, the lawyers need to check whether the Target adopts the nominee arrangement to hold its Share, then analyze the rationale for such a nominee arrangement and provide the Acquirer with the legal consequence picture.


Besides the Share transfer, the merger and acquisition transaction involves transferring assets from the Target to the Acquirer. Under Vietnamese laws, assets are classified into movable and immovable assets.

Movable assets

As prescribed by the laws of Vietnam, movable assets are not required to register for ownership except for several specific assets (such as ships and aircraft). To examine the ownership registration for such specific assets, the lawyers should first have a general list of movable assets of the Target and then request the Target to input its current assets into the list accordingly. The lawyers can then proceed to check the registration compliance of such assets of the Target.

Immovable assets

First, regarding the land use rights of the Target, at laws, the Target may obtain such land use rights in various ways, including allocation or leasing of land from the State, sub-leasing through a developer of an industrial zone, transfer from an existing land user, and capital contribution by land use rights. The lawyers must request the certificate of land use right, house ownership, and other assets attached to land, commonly referred to as the land use rights certificate (LURC), to evidence the Target’s land use rights. Without the LURC, the lawyers should clarify if the Target has obtained any approval relating to the land (as the case may be, land lease decision or land lease agreement signed between the Target and the competent authority).

Second, regarding assets built up by the Target, such as buildings and factories, the lawyers should review the construction permits of the Target for such assets. In practice, some construction works of enterprises in industrial zones have been found to lack construction permits. Failure to obtain construction permits will lead to administrative sanctions imposed on the Target and demolition of the unlicensed construction work.

Third, the Target may lease some assets for its operations, such as its head office, business location, and warehouse. Therefore, the lawyers should check the lease agreements of such assets, especially their change of control clauses, to identify whether the Target/ Acquirer must serve any notice on or seek any prior approval from the lessors for its merger and acquisition transaction.

In addition to the above legal validity examination, the lawyers should examine whether the Target’s land use rights are subject to any transactional encumbrances. Currently, the mortgage information of land use rights is publicly accessible at NRAST as the security registration is required for the mortgage of land use rights. For the latest update of the mortgage status of the land use rights and other assets of the Target, the lawyers should run the NRAST check on a regular basis till the end date of the LDD process.

Furthermore, the lawyers should determine the completion of financial obligations for land use rights of the Target and bring such information to the attention of the Acquirer. Subject to the forms of land use rights, such financial obligations can be land use fees, land rental, land use taxes, and income taxes payable on the transfer of land use right, land use fees, and/ or land registration fees. As the case may be, the Target may be subject to administrative land fines collected after dealing with administrative breaches or compensation paid to the State for loss caused during land management and administration. To identify such financial obligations applied explicitly to the Target, the lawyers should initially recognize the forms of land use rights stated in the LURC and accordingly, determine the supporting documents evidencing the payment (for instance, payment note to the State budget for annual land rental). With respect to the administrative penalty or compensation requested by competent authorities, there is currently no centralized mechanism for publicizing such information so they may only be identified through public search (such as the Internet), interview with the authorized person of the Target, or its financial statements.

Another vital issue that should be noted during the LDD of land use rights is to check whether such land use rights are subject to any disputes. That is because the land use rights not being subject to any potential/ ongoing disputes is constituted as a condition precedent for conducting any transaction related to such land use rights (such as transfer, lease, sub-lease, and mortgage). However, similar to the administrative penalty check, the precise mechanism for checking disputes on land use rights is currently not present. Consequently, such information can only be found by searching public information, interviewing with the authorized person of the Target, or directly consulting with the competent authority (such as the People’s Committee, Land Registration Office, and Division of Natural Resources and Environment).

Material Agreements

Material agreements may be divided into (i) agreements with substantial value (‘substantial value’ is interpreted on a case by case basis) and (ii) any agreement affecting the day-to-day operation of the Target or the proposed merger and acquisition transaction. Such agreements may include agreements signed between the Target and its key clients/ distributors/ suppliers, agreements signed with Governmental authorities, agreements signed with related parties, and loan agreements. Generally, after the Target provides its material agreements, the lawyers should examine the validity of the agreements by checking whether such agreements were signed by the competent persons of both the Target and the other signatory parties. After that, the lawyers should look for critical clauses of the agreements, such as the change of control and foreign currency clauses. For example, the change of control clause will require the Target/ Acquirer to serve any notice on or seek any prior approval from the other party for its merger and acquisition transaction with the Acquirer. Moreover, the stipulation of foreign currency in agreements may affect the validity of such agreements under Vietnamese laws and even impose administrative sanctions related to monetary and banking sectors on the Target/ Acquirer.

Besides, subject to requirements under laws and charter, the approval from the general meeting of shareholders/ board of management/ members’ council may be required prior to the execution of these material agreements. Therefore, the lawyers should examine the laws and charter of the Target to understand if any material agreements of the Target are subject to such approval conditions and inquire the Target to provide relevant approvals.

Specifically, for agreements signed with Governmental authorities(especially sponsorship agreements), they should be reviewed to clarify whether they are executed in accordance with the laws or not, such as laws on anti-corruption and anti-money laundering. While domestic enterprises generally skip/ miss the review of such agreements before execution, they are frequently concerned by foreign investors, especially those adopting strict global policies on anti-corruption and anti-money laundering.

With respect to loan agreements, if the Target is issued with the IRC, the lawyers should note that the total loans with tenor more than one year borrowed by the Target may not be permitted to exceed the capped loan capital stated in the IRC. If such loans exceed the cap, the Target may be required to register for amendment of the IRC to reflect new investment capital, specifically the loan capital.

Registration for foreign loans with the State Bank of Vietnam may be required on a case by case basis. Foreign loans subject to this registration requirement include (i) foreign medium and long-term loans, (ii) foreign short-term loans (with loan tenor less than one year) which have been extended and the total loan term is above one year, or (iii) foreign short-term loans without agreements for extension but which still have principal outstanding at the first anniversary of the initial capital drawdown. This registration process is akin to an approval process as the foreign loan will not be able to release to the local borrower or repay the foreign lender if the registration confirmation from the State Bank of Vietnam for such a loan has not yet been obtained. In addition, the laws also require the local borrowers to prepare and submit quarterly reports on the status of implementation of their foreign short, medium, or long-term loans to the State Bank of Vietnam. In practice, many shareholder loans (loans provided by foreign owners/ shareholders/ members) are not generally registered with the State Bank of Vietnam, especially foreign short-term loans upon loan tenor extension to above one year or upon any outstanding principal after the first anniversary of the initial capital drawdown. Therefore, the lawyers should inspect whether the Target enters into any foreign loan agreements and whether the statutory requirements applicable to such foreign loans have been satisfied. Notably, failure to comply with the registration on foreign loans may lead to the administrative sanctions imposed on the Target and prolong the proposed transaction because of the foreign-loan registration procedure.

Chapter III – Business Conditions and Regulatory Compliance, Litigation, Intellectual Property, and Labour

Business Conditions and Regulatory Compliance

An essential aspect of the LDD is business conditions and regulatory compliance requirements that specifically apply to several business lines of the Target. Therefore, the lawyers need to delve into the specialized laws governing the Target’s business lines to explore the business conditions and/ or regulatory compliance requirements that the laws expect the Target to satisfy.

Firstly on business conditions, by laws, business conditions can be applied either in writing form or not. Business conditions in writing can be employed in a variety of forms such as license, certificate of satisfaction of conditions, practising certificate, certificate of professional indemnity insurance cover, and written confirmation.

For example about business conditions in the form of license: foreign-invested enterprises that conduct retail business are required to obtain a business license to retail some types of goods; enterprises that produce industrial liquors are required to have an industrial liquor production license.

For example about business conditions in the form of practising certificate: enterprises which produce industrial liquors must have professional and qualified technical personnel suitable to the liquor production business line (in the form of professional certificates or degrees of the technical personnel); securities enterprises must have at least three securities practitioners suitable for each licensed business operation (in the form of securities business practising certificates suitable for each licensed business operation of these securities practitioners).

Additionally, enterprises can be bound by business conditions that do not require confirmation or approval in the written form to carry out their business activities. For example, some educational institutions must ensure a certain proportion of learners per a lecturer and a floor area for a learner according to the laws on education.

Moreover, the specialized laws require enterprises to meet some specific conditions in environment and fire prevention and fighting…. Notably, for manufacturing enterprises, the environmental aspect becomes very crucial in the LDD process. Because the laws on environment require enterprises to satisfy and comply with many conditions such as preparing and obtaining approval for environmental impact assessment reports (usually referred to as EIA reports), preparing and obtaining confirmation for environmental protection plans, obtaining confirmation for completing environmental protection works, having waste treatment agreements, preparing registry of hazardous waste source owners, or registering permits for discharge wastewater into water sources. In fact, enterprises often fail to fully satisfy the environmental conditions, such as failure to revise the EIA reports when increasing the scale and capacity of the projects. Besides the environmental aspect, the lawyers also need to bear in mind the fire prevention and fighting matter, especially for enterprises having many offices, warehouses, and factories… Pursuant to the laws on fire prevention and fighting, enterprises must satisfy many regulatory compliance requirements, including approval of fire prevention and fighting design, acceptance of fire prevention and fighting works, and purchase of compulsory fire and explosion insurance.

Secondly, in terms of regulatory compliance, along with business conditions required in the specialized sectors, many enterprises also have to comply with the competent authorities’ reporting regime, such as enterprises established under the IRC or enterprises operating in certain business lines (such as education, securities, and animal feed production). Non-compliance with this reporting regime is an administrative violation and may especially breach enterprises’ commitments to the competent authorities when conducting these certain business activities. For example, on the IRC of some foreign-invested enterprises (specifically in Article 3 – provisions for the investor implementing the project), enterprises generally undertake to comply with the reporting regime with the competent authorities fully. Subject to the foreign investment and business activities of the enterprises, their reporting obligations vary, for example, report on investment (for foreign-invested enterprises), report on the production of animal feed (for enterprises having animal feed production facilities), and report on postal production, business, and service provision (for some enterprises providing postal services).

Consequently, in terms of business conditions and regulatory compliance obligations, the lawyers need to understand the Target’s business activities and study the specialized laws related to those business lines. Accordingly, the lawyers can make a list of business conditions and regulatory compliance obligations that the Target needs to satisfy to carry out these business activities and then require the Target to provide statutory supporting documents corresponding to these requirements.


One of the most popular questions of foreign investors when investing in enterprises in Vietnam is whether the Target has gone through any dispute or sanction recently or whether there is any ongoing or upcoming potential dispute in which the Target is a party. In reality, Vietnam does not officially have a public channel to provide complete and transparent information about disputes in courts or administrative sanctions of individuals and organizations. Currently, the Supreme People’s Court has published some court judgments and decisions at the Court’s Portal ( However, in such portal, information about the parties to the dispute is encrypted. This site also does not publish the judgments and decisions of cases heard by the Court in private, or cases having contents in the list of State secrets, or cases having no legal effect yet… Given this, information to be searched will not be complete. In addition to this website, there are also several non-Governmental websites providing court judgments and decisions, but they are also limited to uses for academic and research purposes. Thus, names and addresses of some individuals and organizations mentioned in these court judgments and decisions may have been changed and/ or omitted.

In light of the above, the lawyers will need to look up public sources to get information related to disputes and administrative sanctions of the Target (such as searching on the Internet) or through interviews with the Target’s authorized persons. For administrative sanctions, in addition to the mentioned methods, the lawyers may look through audited financial statements of the Target if sanctions for such violations are penalty.

Nevertheless, it will also be onerous for the lawyers and the Acquirer to identify disputes or sanctions related to the Target if the Target is unwilling to disclose this piece of information.

Intellectual Property

Regarding the intellectual property aspect, the lawyers need to check whether the Target has any assets that need to be registered or notified under the laws on intellectual property and e-commerce or not, for example, a trademark and website. For trademarks, the lawyers have to examine whether the trademark(s)used by the Target has been registered for protection. This concern can be resolved by checking at the website of the National Office of Intellectual Property of Vietnam ( If the Target uses trademark(s) of another enterprise (usually its related enterprise), the lawyers should verify whether the Target has a trademark licensing agreement with the enterprise owning the trademark or not. In respect of the domain name of the Target’s website, the lawyers need to check whether the Target is the domain owner. This check can be performed at websites of enterprises operating in domain name service accredited by the Vietnam Internet Network Information Center (a center directly under the Ministry of Information and Communications) as National Domain Registrar, such as

Additionally, a prevalent violation of intellectual property rights in many Vietnamese enterprises is the use of “pirated” software. This violation is also a worth-noting point when conducting the LDD.


When conducting the LDD in the field of employment, at first, the lawyers need to gather general information about employment usage of the Target by requesting it to provide a list of employees with key information about the employees’ nationality (Vietnamese or non-Vietnamese), position, type of labor agreements (seasonal/ definite/ indefinite employment agreements), date of signing/ renewing the employment agreements, and the number of their extensions. Based on this list, the lawyers can understand the Target’s employment situation and, at the same time, analyze its employment obligations (such as applying for work permits for their foreign employees or registering internal labor rules (ILR)).

After accessing information about the nationality of the employees, the lawyers can assess whether the Target employs any foreigner and whether such a foreigner (if any) possesses a work permit or a document certifying that such a foreign employee is not required to obtain a work permit and whether these documents are still valid. Failure to comply with these requirements may result in severe administrative consequences such as the expulsion of such foreign employees.

In case of having ten or more employees, the Target is required to register the ILR. The ILR is a legal corridor that provides fundamental regulations to govern the relationship between the Target and its employees, such as working hours, rest breaks, and occupational safety and hygiene in the workplace. The ILR is also the ground for disciplining employees. The lawyers need to check whether the ILR has been registered with the competent authorities and whether its contents are in line with the laws on employment or not.

Based on the type of employment agreements and the number of employment agreement extensions, the lawyers should note the expired and unextended agreements. According to the laws on employment, if the definite employment agreements are not extended, they will be converted into indefinite employment agreements. Also, the laws lay down that definite employment agreements can be extended only once. Issues related to the types and extensions of employment agreements will have a direct impact on the Acquirer’s employment usage after completing the acquisition and merger transactions.

Besides, the lawyers need to request the Target to provide employment agreement templates for each type of agreements (seasonal/ definite/ indefinite employment agreements) and employment agreements of senior positions to examine whether the contents therein are consistent with the ILR, the collective labor agreement (if any) and the laws on employment. In particular, for employment agreements of senior positions, the lawyers should pay close attention to non-competition and confidentiality clauses. These clauses are commonly described in employment agreements of senior positions, while the legality and enforcement of these clauses are still a big question mark in practice.

The Target (as an employer) and its employees must follow compulsory insurance policies, including social insurance, health insurance, unemployment insurance, and insurance for labor accidents and occupational disease. The lawyers should compare the number of insured employees with the number of employees provided by the Target to verify whether the Target has fully settled these compulsory insurances. Currently, the Criminal Code has criminalized the act of evading social insurance, health insurance, and unemployment insurance, so the lawyers need to inspect the Target’s insurance payment carefully.

If the Target has a collective labor agreement with its employees, the lawyers also need to examine whether the contents therein adhere to the laws and whether the Target has submitted this agreement to the competent authorities. In addition to the benefits for employees specified in the employment agreements, the ILR, and the collective labor agreement, the lawyers also need to identify other benefits that the Target offers to its employees, especially for senior positions (such as rewarding policies and tuition support for children) to give the Acquirer a heads-up about its obligations after the completion of the merger and acquisition transaction.

The final concern is regulatory compliance with the laws on employment, such as the obligation to report to the competent authorities on the employment of foreigners; occupational safety and hygiene activities; and technical inspection of occupational safety. Specifically, for enterprises using dangerous equipment, they need to ensure regulatory compliance with the conditions of occupational safety and hygiene, such as identification and assessment of hazardous and harmful factors at the workplace; and periodic inspection and maintenance of machines, equipment, factories, and warehouses. As such, the lawyers need to explore if the Target is subject to such compliance regulations./.

Bao Trang Le Ngoc
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