One of the common reasons that lead to the failure of M&A transactions is the insufficiency of the basic information about parties. To avoid risks, and enhance the success rate of M&A transactions, many companies pay huge attention to Due Diligence, especially Legal Due Diligence. Realizing the demand of companies on the Legal Due Diligence process, Apolo Lawyers (Hotline: (+84) 903.419.479) provides the Legal Due Diligence consulting service, which helps our clients get the success in Legal Due Diligence in particular and in M&A transactions

In general, there are many criteria when evaluating a business, including: Financial Due Diligence, Legal Due Diligence, Tax Due Diligence, and Intellectual Property Due Diligence,… But Legal Due Diligence plays an important role in Due Diligence.

1. Why do we need to implement Legal Due Diligence?

Legal Due Diligence aims to find out, review legal information and assess the legal risk of the business. As spoken above, Legal Due Diligence plays an important role in Due Diligence in particular and M&A transaction in general. Before the company signs any contract, it is necessary to understand the “health” of the partner to be able to make a decision whether to buy, cooperate or invest with that company or not? Is the business value offered by the seller reasonable? If not, what is the basis for negotiation and negotiation in the M&A deal?

No investors can risk pouring money into a business that lacks transparency. The discovery of legal loopholes in the business can greatly affect the investment process because it can prolong the time of agreement between the parties.

2. The necessary documents for Legal Due Diligence

The longer the business has been in operation, or the larger the company, the greater the number of documents that need to be verified.

The documents that companies need to focus on when performing Legal Due Diligence of partner businesses or customers:

2.1. Establishment and operation dossier

• Certificate of business registration
• Investment certificate/Certificate of investment registration/Approval to allow registration of the purchase of contributed capital/shares for foreign investors/Business license.
• Outward investment certificate (applicable to all countries and territories where the enterprise has investment activities – directly or indirectly)
• Certificate of operation registration of branch/representative office/business location.
• Enterprise charter
• List of shareholders/founding members of the enterprise
• Dossier for adjustment or change related to business registration information and contents:
  • Minutes of the Board of Directors / Board of Members / General Meeting of Shareholders;
  • Decision/ Resolution passed by the general meeting of shareholders/board of management/members council;
  • Relevant contracts and agreements;
  • Other relevant documents.
• Tax code registration certificate;
• Any other relevant documents (if any).

2.2. Capital and owner

• Minutes, agreements, capital contribution contracts between the founders/members / founding shareholders / existing shareholders;
• Agreements, contracts for purchase and sale - transfer of shares/contributing capital/bonds, convertible loan contracts and other relevant agreements related to the transfer/contribution/issuance of shares;
• List of members/ Register of shareholders/ Certificate of capital contribution/ Certificate of share ownership and equivalent documents (if any);
• Minutes of valuation of assets contributed as capital/Deed on valuation of assets contributed as capital;
• Documents proving the transfer transaction for the issue of capital contribution, share purchase/Written receipt or other equivalent certification in this regard;
• Any other relevant documents.

2.3. Property

• List of assets owned/rented or leased/otherwise used by the business.
• Registration documents/Certificates/Protection documents/Registration documents/Agreements related to intellectual property objects of the enterprise/business owner (including trademarks) , industrial designs, inventions, utility solutions, etc.).
• Contract/Invoice/Certificate of ownership/use and all documents related to the ownership of fixed assets of the enterprise.
• Loan/mortgage/guarantee/purchase/other arrangements affecting the ownership of enterprise of current and future assets (if any).

2.4. Management personnel and organizational structure

• List and personal information of:
  • Board of members / Board of Directors;
  • General Meeting of Shareholders;
  • Key personnel of the enterprise (manager level/head of department and above).
• Minutes, decisions, notices related to hiring/appointment/other forms of recruitment/removal/dismissal/disciplinary handling of personnel managing and operating the enterprise:
  • Chairman of the Board of Directors/ Chairman of the Council of Members;
  • Member of the Board of Directors/the Council of Member;
  • General Director/Director/Deputy Director;
  • Head of branch/representative office/business location;
  • Managing Director / Sales Director;
  • Chief Accountant/Finance Director;
  • Checker;
  • Directors, heads of other departments (from management level/head of department upwards).
• All meeting minutes, resolutions/decisions of the Board of Directors/Board of Members and the General Meeting of Shareholders on business matters.
• All meeting minutes of the Board of Directors, decisions of the General Director/Director (if any).
• Corporate internal policy documents, including (applicable to managers/heads of departments and above):
  • Work assignment mechanism;
  • Authorization and representation mechanism;
  • Principles of revenue and expenditure and reporting;
  • Management and operating mechanism of the enterprise;
  • Job description;
  • Commitment to responsibility, commitment to confidentiality (if any).
• Any other relevant documents (if any).

2.5. Labor

• Types of labor contracts of indefinite duration;
• Labor contract with definite term;
• Probationary contract;
• Agreement on labor transfer/labor hire;
• Vocational training contract/ Apprenticeship contract/ Agreement/ Other labor agreement in any form;
• Labor regulations;
• Collective labor agreement;
• Employee handbook/Work manual/Office rules and relevant internal personnel documents (if any);
• List when declaring/reporting employers;
• List of employees entitled to social insurance premiums and personal income tax deduction, together with certification from competent authorities;
• Registered salary scale and table;
• Invoices, vouchers or other documents proving the payment of salaries, allowances, other support regimes, social insurance and other insurances;
• Internal labor regulations:
  • Regulations on handling of labor discipline;
  • Confidentiality Regulations;
  • Regulations on bonus - allowance - support;
  • Regulations on rest and working regimes; Other regulations (if any).
• Operational regulations, establishment decision, list of Executive Committee, trade union members (Attached with personal information of each member);
• Documents certifying the fulfillment of the obligation to pay trade union dues, financial documents on trade union activities at the enterprise, other documents on trade unions (if any);
• Labor management book;
• Other decisions, policies and announcements related to the labor of enterprise;
• All documents and records on handling labor discipline, labor disputes, termination/suspension/adjustment of labor relations (if any).

2.6. Contract

• Contract of lease/cooperation in the use of premises/leasing/transfer of premises/other contracts related to land use rights and land-attached assets in the operation of the enterprise.
• Business cooperation contract;
• Contract in the form of service provision;
• Contracts in the form of goods sale and purchase;
• Other economic contracts/transactions (if any), including the following fields:
  • Agency;
  • Processing;
  • Import and export;
  • Promotion;
  • Carriage;
  • Rental activities.
• Written authorization/approval/appointment of personnel to sign/participate in the performance of respective contracts/transactions.

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2.7. Tax, and Accounting

• Set of annual financial statements.
• Value added tax declaration.
• Enterprise accounting book (general diary);
• Bank records;
• Output vouchers and beginning of years;
• Receipts, certifications, notices on the fulfillment of the annual tax payment obligation;
• Details of corporate debt;
• Documents, invitations, notices, decisions on the sanction, arrears, requests for explanation and other requests of functional agencies (if any);
• Documents and information on tax disputes and complaints (if any);
• Enterprise audit report from financial years (if any);
• Dossiers of official dispatches directing/incentives - exemptions and reductions directly applicable to enterprises and relevant decisions and announcements (if any).

2.8. Bank and credit

• List and details of bank accounts including personal accounts designated to receive payments (if any);
• Information of the registrant/name of another account of the Enterprise/Authorized person to manage;
• Official confirmation from the bank about the status of the business account and the statement of transactions of the business account in the last 3 financial years;
• All other credit contracts and agreements with the Bank/Organization designated by the bank/Other relevant organizations (if any).

2.9. Business conditions – License

• All licenses/certifications/approvals/certifications of notification obligations, other registrations for any type of business activity (licenses) or documents proving Business eligibility legal equivalent;
• List of registered business lines of the enterprise;
• Details of dossiers and documents of adjustment/supplementation/revocation related to the contents of the licenses;
• Other types of licenses depend on the type of business and business lines.

2.10. Sanctions, Disputes and Litigation

• List and documents related to the disputes of the Enterprise/Founding Shareholder/Founding Member. Court or arbitration proceedings, prosecutions or claims relating to the business, whether completed, incomplete or threatened;
• Minutes of decisions on sanctioning administrative violations/ inspections/ inspections applied by competent state agencies to enterprises and other relevant documents (if any);

In addition, during the appraisal, the enterprise may also need to present internal issues, such as internal disputes within the enterprise.

>>> Read more: General process of an M&A - Due Diligence (DD) Deal

>>> Read more: Legal advice on the transfer of investment project in Vietnam

3. How can Apolo Lawyers assist?

Apolo Lawyers is a law firm operating on the foundation of taking prestige and responsibility first. Our lawyers are high-professional and experienced, always working with dedication, enthusiasm, and efficiency. We always provide professional legal services with outstanding quality. We also keep the information of our clients completely confidential. We always bring our customers peace of mind and maximum benefits in each case.

• About Legal Due Diligence consulting service, we support our Clients to do no limit but including the following tasks:
• Conduct legal review and appraisal of important legal documents, documents and documents signed and issued during the establishment and operation of the target company
• Check financial status, organizational structure, business registration content, employment status, transaction contracts, disputes and proceedings of the company, etc.
• Prepare a legal due diligence report with details of the content mentioned by the investor.
• Consulting, building an information confidentiality agreement for the parties before proceeding to the next stages of the M&A transaction.
• Consulting, offering solutions for cases where there are factors affecting the legal feasibility of the transaction.

If you have any difficulties or questions about the procedure for the merger in Vietnam as well as other issues, please contact Apolo Lawyers via email at contact@apolo.com.vn or Hotline – (+84) 903.419.479 for the best legal advice and support.

For further information, please contact us: Apolo Lawyers

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