A company has several business lines, but the buyer only wants one — how do you “package” that line into an independent legal entity for sale? Vietnamese law offers two tools: company division and company split. They sound alike but their consequences are entirely different, and choosing wrong can cost you the parent company. The quick rule: to keep the parent, split (Article 199); to accept the old company’s termination, divide (Article 198).
1. The key distinction: division “kills” the old company, split keeps it alive
Company division (Article 198 of Enterprise Law 59/2020/QH14): the divided company ceases to exist (clause 4, Article 198), while two or more new companies are formed. All assets, rights and obligations are allocated among the new companies.
Company split (Article 199 of the Enterprise Law): the split company continues to exist, separating only part of its assets, rights and obligations to form additional new companies (the resulting companies).
For the goal of “selling one line while keeping the parent”, split (Article 199) is clearly the better fit: the business line to be sold is packaged into the resulting company, while the parent survives with the remaining lines. Division only suits cases where you accept the “dissolution” of the old entity for a full restructuring — e.g. dividing one company into two independent companies and then selling one of them.
2. Division procedure under Article 198
Step (a) — Division resolution. The Members’ Council/General Meeting of Shareholders adopts a company division resolution with the 8 principal contents under clause 2a, Article 198 (name and address of the divided company; names of the new companies; employee settlement plan; method of asset division; timeline and method for converting assets, capital contributions and shares; principles for settling obligations; timeline for the division…). In parallel, the company must send the resolution to creditors and notify employees — both within 15 days of adoption.
Step (b) — Enterprise registration for the new companies. The enterprise registration dossiers for the new companies must be accompanied by the division resolution; dossier contents are specified in Article 24 of Decree 168/2025/ND-CP (the decree replacing Decree 01/2021 on enterprise registration, effective 1 July 2025). Once registered, the new companies formally exist and the divided company ceases to exist.
Note: there is no “permission” procedure for dividing a company — it is an internal corporate decision (adopting the resolution) plus enterprise registration, not an approval from a state authority.
3. The biggest trap: joint liability for debts (clause 4, Article 198)
This is where buyers must be especially vigilant in due diligence: under clause 4, Article 198, the newly formed companies from a division are jointly liable for the unpaid debts of the divided company — unless otherwise agreed with the creditors.
The practical weight is significant: you buy a newly divided company (holding the business line you want), yet it can still be pursued jointly by creditors of the old company together with the other new companies. Unless the allocation of debt obligations has been agreed with each creditor, this risk does not disappear on its own.
Advice for buyers: diligence all obligations of the company before division (bank debts, tax debts, supplier payables, latent disputes…), and negotiate so that the debt allocation is accepted by creditors in writing — do not rely solely on the internal allocation in the division resolution.
4. After division/split: share deal or asset deal
Once the business line sits neatly inside an independent entity (a new company after division, or the resulting company after a split), the seller has two deal structures:
- Share deal: selling the capital contribution/shares of the new company — simple, but the buyer inherits the entity’s full legal history and obligations (including the joint-liability risk in section 3);
- Asset deal: selling the assets/business rights of the line — more complex to transfer each asset, but the buyer cherry-picks what it takes.
For foreign investors acquiring, additional procedures apply under Article 21 of Investment Law 143/2025/QH15 (registration of capital contribution/share acquisition before changing members/shareholders in the cases prescribed by law).
5. Do not confuse “company division” with other kinds of “division”
In practice, “company division” is often confused with:
- Dividend distribution: distributing profits to shareholders — no change to the corporate structure;
- Asset distribution on dissolution: liquidating remaining assets after dissolution — the company ceases to exist and no new entity is created for sale.
Only a company division/split under Articles 198/199 of the Enterprise Law creates an independent new entity that can serve as the “package” for transfer in an M&A deal.
Frequently asked questions
To keep the parent company, should I divide or split?
Split (Article 199) — the split company continues to exist. Division (Article 198) terminates the divided company.
Does dividing a company require state approval?
No. Division is an internal decision (resolution) plus enterprise registration for the new companies; there is no permission procedure.
Does the buyer of a post-division new company bear the old company’s debts?
Potentially yes: the new companies are jointly liable for the divided company’s debts (clause 4, Article 198), unless otherwise agreed with creditors. Buyers must diligence all obligations first.
What does the registration dossier for post-division companies include?
The enterprise registration dossier accompanied by the division resolution; details per Article 24 of Decree 168/2025/ND-CP.
Sources
- Enterprise Law 59/2020/QH14 (article numbers cross-checked against the text following the 2025 amending law — Law 76/2025/QH15): Article 198 (company division: division resolution with 8 principal contents — clause 2a; 15-day creditor/employee notice; divided company ceases to exist — clause 4; joint liability for debts — clause 4); Article 199 (company split: split company continues to exist);
- Decree 168/2025/ND-CP — Article 24 (registration dossiers for post-division new companies; replacing Decree 01/2021, effective 1 July 2025);
- Investment Law 143/2025/QH15 — Article 21 (procedures for foreign investors acquiring capital).
Related articles
- Corporate Division and Spin-Off in Vietnam: Procedures and Tax
- Merger and Consolidation of Companies in Vietnam: Procedure
This article is for reference only and does not constitute legal advice. The content was drafted by AI and will undergo quality review by the AI Legal Council of FLAT Law Firm before any approval for publication; it is not the legal opinion of a licensed human lawyer. Laws and regulations may change; verify the current legal texts before applying them.
Planning to sell a business line? Contact FLAT Law Firm to design the right division/split structure.