Corporate reorganization
Two companies of comparable size want to come together, but neither accepts being “merged into” the other — on brand, shareholder psychology, and negotiating position. The legal solution for this situation is consolidation: both companies cease to exist to form an entirely new company, inheriting everything the two old companies left behind. It sounds like a merger, but the legal consequences are fundamentally different — from tax codes and sub-licenses to the business registration method. This article clarifies the full legal framework of business consolidation in Vietnam.
What is business consolidation?
Under Article 200 of the Law on Enterprises 2020, two or more companies (the consolidated companies) may consolidate into a new company (the consolidating company), while the consolidated companies cease to exist. The formula: A + B → C — no old company “wins”; a new legal entity is born.
Like a merger, consolidation operates on universal succession: the consolidating company automatically inherits all rights, obligations, and lawful interests of the consolidated companies. No “picking” good assets and leaving bad debts — everything goes as one package.
Consolidation vs. merger
| Criteria | Consolidation (Art. 200) | Merger (Art. 201) |
|---|---|---|
| Outcome | A + B → C (brand-new company) | A + B → A (one old company survives) |
| Fate of old companies | All cease to exist | Only the absorbed company ceases |
| Tax code | New tax code for the consolidating company | Keeps the surviving company’s tax code |
| Business registration | New establishment registration (Art. 25 Decree 168/2025/ND-CP) | Change registration (Art. 55 Decree 168/2025/ND-CP) |
| Sub-licenses | Must be re-obtained from scratch under the new name | Principally remain valid (review needed) |
| Deal psychology | Equal — neither side is “swallowed” | Clear surviving and absorbed sides |
The biggest practical difference lies in post-deal compliance costs: because the consolidating company is a new entity with a new tax code, the company must redo almost all its “identity papers” — bank accounts, digital signatures, e-invoices, sub-licenses, labor contracts (re-signed under the new name), and notifications to all counterparties. With a merger, the surviving company keeps its “identity”, so the administrative workload is significantly lighter. See also corporate merger in Vietnam.
Consolidation conditions
- Company type: consolidation applies to limited liability companies and joint stock companies — the same subject scope as mergers, splits, and separations.
- Competition Law: like mergers, consolidating companies must comply with the Competition Law. If the transaction reaches economic concentration notification thresholds, the parties must complete procedures with the National Competition Commission before implementing.
Consolidation procedure
Step 1 — Prepare the consolidation contract
The companies involved jointly build the consolidation contract and the draft charter of the consolidating company. The consolidation contract’s principal contents include: names and head office addresses of the consolidated companies; consolidation procedures and conditions; labor utilization plan; methods, procedures, time limits, and conditions for asset conversion and conversion of capital contributions, shares, and bonds of the consolidated companies into those of the consolidating company; and the consolidation implementation timeline.
Step 2 — Approval and notification
Members, owners, or shareholders of the companies involved approve the consolidation contract. The consolidation contract must be sent to all creditors and notified to employees within 15 days of approval — the same transparency duty as in mergers.
Step 3 — Register the consolidating company’s establishment
Unlike a merger (change registration), consolidation leads to new establishment registration of the consolidating company. The dossier follows Article 25 of Decree 168/2025/ND-CP on business registration dossiers for companies formed by consolidation, including the consolidation contract and the approving resolutions of the consolidated companies. The business registration authority simultaneously updates the legal status (termination) of the consolidated companies on the National Business Registration Database.
Protecting creditors and employees
The protection mechanism mirrors mergers: creditors receive the consolidation contract within 15 days to know who their new debtor is; the consolidating company inherits all debt obligations. For employees, the labor utilization plan is a mandatory content of the consolidation contract; where many workers’ employment is affected, the company must build a labor utilization plan and consult the employee representative organization under the Labor Code 2019. Practical note: because the consolidating company is a new entity, all labor contracts are technically “taken over” by a new subject — the company must update employer information with social insurance authorities and review internal labor regulations and collective labor agreements.
Tax consequences
- Tax incentives: under Article 18(1) of the Law on Corporate Income Tax 67/2025/QH15, new-project CIT incentives (Articles 13, 14) do not apply to consolidations (along with mergers, splits, separations, owner conversions, company type conversions). The consolidating company — though inheriting the old companies’ operations — does not automatically continue new-project tax incentives; other incentives must be re-assessed under specific conditions.
- VAT refunds: from 01/7/2025, there is no longer a VAT refund mechanism for business consolidation; uncredited input tax is handled through inheritance.
- New tax code: the consolidating company must fully perform tax registration, e-invoice registration, and digital signature registration under the new tax code — an easily missed administrative task.
See also tax advice for FDI companies.
When to choose consolidation over merger?
- Equal parties: neither side wants the stigma of being “merged” — consolidation creates a new, equal entity.
- Building a new brand: wanting to enter the market under a completely new name and identity instead of keeping one old side’s name.
- Both old companies have “scars”: when both old entities have complex histories (disputes, tax debts being handled), creating a new entity helps separation — though obligations are still wholly inherited.
Conversely, if one side already has a stable license system, tax code, and banking relationships and the other has nothing particular to preserve, a merger is usually more economical because it avoids the “redo from scratch” workload.
Common risks
- Underestimating post-consolidation procedures: sub-licenses, bank accounts, counterparty contracts — all must transfer to the new entity’s name.
- Operational disruption: the gap between old companies’ termination and the new company’s completed licenses can disrupt business without a transition plan.
- Change-of-control contract clauses: key contracts of the old companies may allow counterparties to terminate upon reorganization.
- Valuation disputes: the conversion ratio of the two companies’ capital contributions/shares into the new company needs fair valuation, or minority shareholder claims will arise.
How FLAT LAW FIRM supports consolidations
We advise on choosing between consolidation and merger based on the deal’s commercial objectives; draft the consolidation contract and the new company’s charter; handle economic concentration procedures; build the labor utilization plan; review tax consequences; carry out the consolidating company’s establishment registration and the old companies’ termination; and catalog all licenses and contracts needing conversion to the new entity so nothing is missed. See also M&A and corporate restructuring services.
Frequently asked questions
How does consolidation differ from a merger?
Merger (A + B → A): one old company survives, the other ceases. Consolidation (A + B → C): all old companies cease, a brand-new company with a new tax code is formed. The biggest practical consequence: consolidation requires redoing almost all licenses, accounts, and contracts under the new entity’s name.
Is the consolidating company liable for old companies’ debts?
Yes. The consolidating company automatically inherits all rights, obligations, and lawful interests of the consolidated companies — including unpaid debts, labor contracts, and other property obligations. So the consolidated companies must be thoroughly diligenced before implementing.
Can a consolidation keep the old tax code?
No. The consolidating company is a new entity and gets a new tax code. This is a fundamental difference from mergers, where the surviving company keeps its tax code.
Do old companies’ sub-licenses remain valid after consolidation?
Principally, licenses attached to old entities do not automatically transfer to the new entity. Companies need to review each license type and re-apply/adjust under the consolidating company’s name. Catalog licenses at the planning stage to avoid operational disruption.
When should consolidation be chosen over a merger?
When two parties are of equal standing and want the deal to reflect equality; when building a completely new brand; or when neither old entity has anything particular to preserve in “identity” (tax code, licenses, credit history).
Useful links
You should talk to a lawyer if:
- Two equally positioned companies want to join without either being “merged”.
- You have not fully assessed the redo workload when forming a new entity.
- You need to draft a consolidation contract and a fair conversion valuation.
- You worry about hidden debts of the consolidated companies.
Talk to a FLAT LAW FIRM lawyer
Send information about the companies planned for consolidation and the deal’s objectives — we will assess the plan, roadmap, and risk points to handle.
Send a legal consultation requestWebsite content is for general information only and does not replace legal advice for specific matters.
Legal regulations, state agency competence, and administrative procedures may change over time, by locality, and by file. You should consult a lawyer before making decisions or transactions.
