Business separation and things to know

Business separation is one of the most common types of corporate reorganization in the business process. To help enterprises better understand this procedure, Phan Law Vietnam would like to present the basic content of the procedures for business separation.

What is business separation?

Limited liability companies and joint-stock companies may be separated by transferring a part of the assets, rights and obligations of the existing company (hereinafter referred to as the separated company) to establish one or several new limited liability companies or joint-stock companies without terminating the existence of the separated company.

What kinds of companies can be separated?

Limited liability companies and joint stock companies may be separated.

Methods to separate a company:

• A part of capital contributions and shares of members and shareholders together with assets corresponding to the value of capital contributions and shares are transferred to new company/ companies according to ownership ratio in the separated company and the value of the assets transferred to the new company/ companies;
• The whole of capital contributions and shares of one or several members and shareholders together with assets corresponding to the value of contributions and shares are transferred to the new company/ companies;
• Combination of both the cases.

Legal consequences of business separation:

• The operation of the separated company is not terminated.
• The separated company must re-register its charter capital and the number of board members.
• The separated company and the newly established company/ companies shall be jointly liable for unpaid debts, labor contracts and other property obligations of the separated company, unless the separated company, the newly established company/ companies, creditors, customers and employees of the separated company agreed otherwise.

Procedures for business separation

• The Board of Members, the company owner(s) or the General Meeting of Shareholders of the separated company shall pass a resolution on the separation of the company in accordance with the provisions of this Law and the Charter of the company.
• The resolution on the separation of the company must contain these main contents: name and address of the head office of the separated company; the name of the newly established company/ companies; employment plan; the method to separate the company; the value of the assets, rights and obligations transferred from the separated company to the newly established company/ companies; The time limit for company separation.
• The resolution on the separation of the company must be sent to all creditors and notified to the employees within 15 days from the date of the adoption of the resolution;
• The Board members, company owner(s), or shareholders of the separated company shall pass Company Charter; elect or appoint Chairman of the Board of Members, Chairman of the company, Board of Management, Director or General Director; and conduct business registration in accordance with the provisions of this Law. In this case, the enterprise registration dossier must include the resolution on the separation of the company.

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