Company Division in Vietnam

What is company division?

Under Article 198(1) of the Law on Enterprises 2020, limited liability companies and joint stock companies may divide the assets, rights, obligations, members, and shareholders of the existing company (the divided company) to form two or more new companies. The divided company ceases to exist after the division completes.

The key point: division is “one becomes many” and the original company disappears. Everything the divided company had — assets, debts, contracts, employees — is allocated to the new companies under the division resolution. Nothing “falls through the cracks”: anything not clearly allocated becomes a dispute.

Division vs. spin-off

In short: division is “dissolving to be reborn as many”, while a spin-off is “cutting off a piece while the trunk stands”. Choosing the wrong form leads to entirely wrong business registration procedures. See also company spin-off in Vietnam.

The company division resolution

The Members’ Council, company owner, or General Meeting of Shareholders of the divided company approves the division resolution under the Law on Enterprises and the company charter. Under Article 198(2)(a), the division resolution must include these principal contents:

• Names and head office addresses of the divided company; names of the companies to be formed;
• Principles, methods, and procedures for dividing company assets;
• Labor utilization plan;
• Methods, time limits, and procedures for converting capital contributions, shares, and bonds of the divided company into those of the newly formed companies;
• Principles for settling the divided company’s obligations;
• Division implementation timeline.

Of these, the two hardest and most dispute-prone are how assets are divided (valuation at what price — book value or market value?) and obligation settlement principles (which debt goes to which new company). A sloppy division resolution on these two points almost certainly leads to post-division disputes.

Notification duty: the division resolution must be sent to all creditors and notified to employees within 15 days of the decision or resolution approval. This is a hard statutory deadline — violations can affect the procedure’s validity.

Joint liability of the new companies

This is the most important creditor-protection rule of the division regime: the newly formed companies are jointly and severally liable for the obligations, unpaid debts, labor contracts, and other property obligations of the divided company — unless the new companies, creditors, customers, and employees agree otherwise.

Practical meaning: the divided company’s creditors do not “lose their debtor” — they can demand full debt payment from any new company. So a division procedure cannot be used to “shift bad debts to an empty company and abandon it”. Any internal debt-allocation agreement among the new companies is only internally effective, unenforceable against creditors unless creditors agree.

Business registration after division

Members, owners, or shareholders of each new company approve the charter, elect or appoint managers, and carry out business registration. The registration dossier for a company newly formed on the basis of division follows Article 25 of Decree 168/2025/ND-CP, with the distinctive document being a copy of the company division resolution. Member/shareholder counts, ownership ratios, and charter capital of the new companies are recorded correspondingly to the capital contribution/share conversion under the division resolution.

Tax and labor consequences

• Tax: 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 company division; other incentives must be re-assessed under specific conditions. From 01/7/2025, there is also no VAT refund mechanism for company division. Asset allocation among new companies must be reviewed for arising tax obligations (e.g., tax on asset transfers).
• Labor: the labor utilization plan is a mandatory content of the division resolution. Employees assigned to a new company have their labor contracts inherited by that company; the new companies are jointly liable for the divided company’s labor contracts.

When to divide a company?

• Irreconcilable shareholder conflict: shareholder groups want to go separate ways but do not want to dissolve the company (to preserve each line’s operating value).
• Separating business lines: a company with unrelated lines wants each line as an independent entity for easier management, fundraising, or future sale.
• Preparing a transfer: dividing the line to be sold into a separate company so the transfer is “clean”.
• Regulatory compliance: some specialized laws require activity separation (e.g., in finance, securities).

Common risks

• Unfair asset valuation: one side gets good assets, the other gets debts — disputes are almost unavoidable without independent valuation.
• Missed obligations: obligations not listed in the division resolution still exist and the new companies are jointly liable — debt review must be thorough.
• Sub-licenses: new companies must re-obtain entity-attached licenses.
• Counterparty contracts: anti-assignment or change-of-control clauses may be triggered.

How FLAT LAW FIRM supports company division

We advise on division plans fitting the parties’ objectives; organize fair asset and obligation valuation and allocation; draft the company division resolution with full contents under Article 198; build the labor utilization plan; review tax consequences; carry out business registration procedures for the new companies; and support handling post-division disputes. See also M&A and corporate restructuring services.

Frequently asked questions

Useful links

You should talk to a lawyer if:

• Shareholders want to part ways but not dissolve the company.
• You need fair asset and obligation valuation and allocation among parties.
• You are unsure how to handle debts, contracts, and employees in a division.
• You worry about post-division disputes.