In every company purchase agreement, the longest and hardest-negotiated part is usually not the price but the schedule of seller representations and warranties. This is where the seller states in writing the whole picture of the business at signing and at closing, from shares being validly owned to no undeclared tax liabilities existing. If a statement proves untrue, the indemnity machinery attached to it decides how much the buyer recovers, and for how long.
The Legal Framework You Need
Vietnamese law has no standalone statute governing representations and warranties in M&A; they are a purely contractual mechanism built by the parties on civil and enterprise law foundations, centred on the share or capital purchase agreement. The warranty architecture usually has two tiers: fundamental warranties on the company existence, signing authority, share ownership and fully paid capital, which are rarely time or liability limited; and operational warranties on finance, tax, assets, contracts, labour, legal compliance and disputes. The seller may soften warranties through a disclosure letter listing specific exceptions revealed to the buyer.
The practical force of the warranty system depends on three attachments. First, the definition of indemnifiable loss, covering direct loss, state authority assessments and reasonable handling costs. Second, the financial limits: a liability cap usually set as a percentage of the price, a deductible threshold filtering out small claims, and a per-claim minimum. Third, the claim periods, usually tiered by warranty type: tax and ownership warranties run longer than ordinary operational ones. The whole mechanism is only worth its paper when paired with a payment security such as an escrow or a guarantee, because an indemnity right with no assets behind it is notoriously hard to collect in practice.
Applying the Rules to a Real Deal
A standard warranty set for buying a Vietnamese company should cover nine areas: seller and company organisation and authority; charter capital, shares and the absence of undisclosed options or conversion rights; financial statements giving a true picture with no material adverse change since their date; taxes declared, paid and free of pending disputes; land use rights and assets validly owned or leased; material contracts in force and unbreached; labour and social insurance compliance; licences and sector compliance; and no material disputes or inspections beyond those disclosed.
When a breach occurs, the standard sequence is a buyer claim notice within the period, describing the breach and estimated loss; a seller response window and, for curable breaches, a chance to fix the consequences; and final loss settled in cash or set off against escrow if any. The subtle negotiation point is buyer knowledge: sellers argue that risks visible in diligence should no longer be indemnified, while buyers want warranties to stand independent of what they found themselves. The balanced solution records expressly in the contract which diligence findings count as disclosed, leaving warranties fully protective for everything else.
Illustrative example: A Thai buyer acquired a building materials company in Long An with warranties backed by a 10 percent escrow and a two-year general claim period. In month fourteen, diligence-missed related-party contracts surfaced under which the company had been buying raw materials well above market price from the sellers brother firm. The buyer quantified the overpayment loss over the contract remaining term, claimed under the contracts and compliance warranties, and recovered most of the loss from the escrow without commencing arbitration, because the claim notice and evidence package matched the contractual procedure exactly.
Procedure and Documents to Prepare
First: build the warranty schedule across the nine standard areas, mapped to the legal diligence risk findings. Next: negotiate the disclosure letter: list every exception the seller reveals and price its impact or adjust deal terms. After that: lock the indemnity mechanics: loss definition, liability cap, deductible threshold and per-claim minimum. Then: tier claim periods by warranty type, with tax and ownership running longer than operational warranties. Finally: attach the indemnity to a payment security such as escrow, a parent guarantee or a price retention.
- build the warranty schedule across the nine standard areas, mapped to the legal diligence risk findings.
- negotiate the disclosure letter: list every exception the seller reveals and price its impact or adjust deal terms.
- lock the indemnity mechanics: loss definition, liability cap, deductible threshold and per-claim minimum.
- tier claim periods by warranty type, with tax and ownership running longer than operational warranties.
- attach the indemnity to a payment security such as escrow, a parent guarantee or a price retention.
Common Risks and How to Prevent Them
The first risk is a warranty schedule copied from a foreign template, missing Vietnam-specific areas such as annually rented land and social insurance. The second risk is claim periods shorter than the tax authority assessment cycle, so protection expires before the risk appears. The third risk is an indemnity right with no payment security, where the buyer wins the claim on paper but collects nothing. The safeguard is drafting warranties from actual diligence findings, tiering periods by risk, and always tying indemnity to a reachable source of money.
The strongest representations and warranties are the ones drafted from the actual findings of due diligence, with survival periods tiered by risk and the indemnity tied to a fund that can genuinely be reached. A warranty that wins on paper but collects nothing is, in the end, still a warranty that lost.
Frequently Asked Questions
What do seller representations and warranties cover when I buy a Vietnamese company?
A complete warranty set usually has nine groups: organisation and signing authority; capital and ownership of shares or capital contributions; financial statements and post-balance-sheet changes; tax; land use rights and assets; material contracts; labour and social insurance; licences and sector legal compliance; and disputes and inspections. Each group is written as specific, verifiable statements, supported by a disclosure letter listing exceptions. For a Vietnamese company, the statements on land, tax and social insurance deserve the buyer closest attention, as these are the three most common sources of post-deal clawback risk.
If a representation is breached, how does the seller compensate?
When a representation proves untrue, the seller must indemnify the loss the buyer or the company suffers because of that untruth, under the agreed contract mechanics: a claim notice within the period, determination of actual loss such as an assessment, penalties or cure costs, and payment in cash or by set-off against escrow or a retention. Recovery is capped by the liability ceiling and filtered by the agreed deductible. If the seller will not pay voluntarily, the buyer enforces through arbitration or court under the dispute resolution clause, which is why the indemnity should always travel with a security source rather than a lawsuit.
How long is the claim period for breaching a representation?
Claim periods are not fixed by law at one common number; the parties agree them per warranty type. Practice in Vietnamese deals: ordinary operational warranties run 12 to 24 months after closing; tax warranties usually track the period during which the tax authority may still assess under tax administration law; fundamental warranties on ownership and authority run longest or unlimited. A foreign investor should refuse any proposal applying one short period to every warranty type, because tax and land risks in Vietnam typically surface much later than operational ones.
This article has been quality-reviewed by the FLAW AI Legal Council