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The division, separation of a limited liability company or joint stock company under the enterprise law 2020

The 14th National Assembly approved the Enterprise Law 2020 which will come into effect on 01/01/2021. The enterprise law 2020 regulates the procedures of division, separation of a limited liability company (LLC) or joint stock company as follows:

The  division, separation are one of the forms of re-organization of an enterprise. Accordingly, the division, separation of enterprises are only performed by a limited liability company or joint stock company.

1. Form of division, separation of enterprises:
Limited liability companies and shareholding companies may divide their assets, rights and obligations, members or shareholders of the existing company (hereinafter referred to as the company being divided) in order to establish two or more new companies.[1]  

Limited liability companies and shareholding companies may be separated by transferring part of the assets, rights, obligations, members or shareholders of the existing company (hereinafter referred to as the company being separated) to establish one or more new LLCs or shareholding companies (hereinafter referred to as the separated company) without terminating the existence of the company being separated. [2]

2. The procedures of division, separation of a limited liability company and joint stock company prescribed as follows:

2.1  The procedures of division of a limited liability company and joint stock company

According to Article 198.2 Law on Enterprise 2020, the procedures of division of a limited liability company and joint stock company as follows:
 
  • The Member’s Council, the company owner or General Meeting of Shareholders of the divided company shall pass a resolution or decision on division of the company in accordance with the provisions of Law on Enterprise and the company's charter. 
    • The resolution or decision shall contain the main details as follows: the name and address of the head office of the company being divided; names of companies to be established; the principles, methods and procedures for division of assets of the company; the plan for employment of employees; methods of distribution, the time-limit and procedures for transfer of capital contribution portions, shares and bonds of the company being divided to the newly-established companies; the principles for dealing with the obligations of the comp any being divided; and the time-limit for implementing the division of the company.
    • The resolution or decision on division of the company shall be sent to all creditors and notified to employees within fifteen (15) days from the date of issuance of the decision or passing of the resolution;
  • Members, company owner or shareholders of newly-established companies shall pass the charter, elect or appoint the chairman of the Member’s Council, chairman of the company, the Board of Management, director or general director and carry out enterprise registration in accordance with the Enterprise Law 2020. The enterprise registration application of the new company shall be enclosed with the approved division resolution/decision.
2.2 The procedures of separation of a limited liability company or joint stock company

According to Article 199.3 Law on Enterprise 2020, the procedures of separation as follows:
  • The Member’s Council, the company owner or the General Meeting of Shareholders of the company being separated shall pass a resolution or decision on separation of the company in accordance with the provisions of this Law and the charter of the company. 
    • The resolution or decision on separation of the company shall contain the following main details: the name and address of the head office of the company being separated; the names of separated companies to be established; the plan for employment of employees; method of separation of the company; the value of assets, rights and obligations to be transferred from the company being separated to the separated company; and the time-limit for implementing the separation of the company.
    • This resolution or decision shall be sent to all creditors and notified to employees within 15 days from the date of issuance of the decision or passing of the resolution.
  • Members, company owners or shareholders of the separated companies shall pass a charter, elect or appoint a chairman of the Member’s Council, chairman of the company, the Board of Management, director or general director, and implement enterprise registration in accordance with the  Law on Enterprise.
3. Rights and Obligations of enterprise when conducting division, separation
  1. For division[3]:
  • The number of members or shareholders and the number and ratio of ownership of shares or capital contribution of members or shareholders and charter capital of new companies shall be stated accordingly in accordance with methods of division and transfer of capital contribution or shares of the company being divided to new companies in accordance with the resolution or decision on division of the company.
  • The company being divided ceases to exist after the new companies are issued with ERCs. The new companies must be jointly liable for unpaid obligations and debts, labour contracts and other property obligations of the company being divided or shall agree with creditors, customers and employees in order for one of such companies to perform such obligations.
  • The Business Registration Office (BRO) shall update the legal status of the company being divided on the national enterprise registration database upon issuance of ERCs to new companies. If the head office address of a new company is located outside the province or city under central authority where the company being divided has its head office, the BRO in the locality where the new company has its head office must notify the enterprise registration for the new company to the BRO in the locality where the company being divided has its head office in order to update the legal status of the company being divided on the national enterprise registration database.
  1. For separation[4]:
  • The company being separated must register any change to the charter capital and the number of members or shareholders corresponding to their capital contribution portions or shares and the number of members or shareholders reduced (if any), and at the same time, implement enterprise registration for separated companies.
  • After enterprise registration, the company being separated and the separated company(ies) must be jointly liable for unpaid obligations and debts, labour contracts and other property obligations of the company being separated, unless otherwise agreed as between the company being separated, the separated company, creditors, customers and employees of the company being separated. The separated companies automatically inherit all the lawful rights, obligations and interests which were separated pursuant to the resolution or decision on separation of the company.
[1] Article 198.1 Law on Enterprise 2020
[2] Article 199.1 Law on Enterprise 2020
[3] Article 198.3, Article 198.4, and Article 198.5 Law on Enterprise 2020
[4] Article 199.2 and Article 199.4 Law on Enterprise 2020
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