A Chinese investor wants only the US-export business of a Vietnamese company — not the loss-making domestic segment. Solution: carve out the company in two, then buy the company holding the US business. Sounds neat; execution is full of traps: how is debt split, do US customer contracts “follow”, which employees go where? This article guides a carve-out + acquisition structure under Vietnamese law.
What is a carve-out and why is it complex?
Company division (under Enterprise Law): the existing company splits into two — one keeping the US-export business (assets, contracts, related staff), one keeping the rest. The Chinese investor then acquires the “US-business” company. Complex because division isn’t “cutting paperwork” — it’s splitting every legal relationship: bank debt, customer contracts, employment, licences, tax duties.
Four carve-out traps and fixes
Trap 1 — Debt: banks lent to the old company — after division, who repays? By law, post-division companies are jointly liable for the divided company’s obligations (absent other creditor agreements). Fix: agree with banks upfront (debt allocation, or buyer guarantees) — never inform banks after dividing. Trap 2 — US customer contracts: export contracts may bar assignment on division (change of control) — division can trigger customer termination rights. Fix: review every key contract, get US customers’ prior consent. Trap 3 — Employees: division changes the employer — notification duties and seniority-related rights apply. Fix: a workforce plan inside the division file, union dialogue. Trap 4 — Licences: IRCs and sub-licences (environment, fire safety…) don’t auto-“follow” — new companies must re-apply or amend. Fix: a licence inventory with a per-item action plan.
Deal structure: the right sequence
Step 1: Framework agreement (seller commits to divide per the approved plan). Step 2: Review and consents (banks, US customers, licensing authorities). Step 3: Execute the division (enterprise registration, IRC adjustments). Step 4: The Chinese investor buys the capital of the “US-business” company (transfer contract + investment approval if required). Step 5: Settle transfer taxes (seller’s capital-transfer tax). Competition note: if the deal hits economic-concentration thresholds under Competition Law, notify before closing. Principle: a carve-out succeeds when the buyer receives a “clean US business” — no bad debt, no disputes, no missing licences.
Legal due diligence — “scanning” before buying
The legal DD checklist — 10 areas
(1) Standing: enterprise registration, charter, shareholder/member registers (who really owns?). (2) Land: land-use certificates (genuine? mortgaged? correct purpose?). (3) Licences: complete? (environment, fire safety, construction) — any expiring? (4) Contracts: major contracts (customers, suppliers) — any change-of-control clauses (can customers terminate on ownership change?). (5) Labour: wage/social-insurance arrears? Labour disputes? (6) Tax: tax debts? Back-tax risks? (7) Litigation: being sued? Unenforced judgments? (8) IP: trademarks/patents owned by the company (not the individual owner)? (9) Debt: what loans? What collateral? (10) Compliance: administrative violations (environment, tax)?
Common “pits” — three
Pit 1 — Land: state-leased land with unpaid rent (budget arrears — post-purchase you pay). Pit 2 — Labour: years of unpaid social insurance (unpaid by the company — post-purchase the insurer collects from you). Pit 3 — Contracts: a major customer contract with “termination on change of control” — post-purchase the customer leaves (buying the “shell” without the “core”).
Reading the DD report — how?
Don’t read 100 pages of detail — read the “executive summary” (5 pages): what issues? How severe (red/yellow/green)? What’s the price impact? How to handle (seller warranties? price cuts? conditions precedent?). Principle: DD isn’t for “not buying” — DD is for “buying at the right price” (knowing pits means deducting money or making sellers fill pits first).
From DD to deal terms — the translation step
DD findings must become contract protections: (1) red issues → conditions precedent (seller fixes before closing — e.g., settling tax arrears); (2) yellow issues → warranties + indemnities (seller promises no hidden problems, pays if they surface); (3) unquantifiable issues → price adjustments (escrow holdbacks — part of the price held back 12–24 months). Reality: DD reports that don’t translate into SPA clauses are expensive paper — the value of diligence is measured in contract protections, not pages.
Demerging to sell the US-export arm — the structure
Goal: carve the US-export business into a standalone company → sell to the Chinese investor (the buyer wants only the US arm). Steps: (1) value the carved business (assets + contracts + staff); (2) demerge (corporate split — registration procedures); (3) transfer contracts/labour (counterparty consent?); (4) sell the new company. Risks: tax (is the demerger taxable?), creditor objections.
US tariff angle — why the buyer wants the arm
Understand the buyer’s motive (it shapes price): (1) tariff engineering (Vietnam-origin exports face different US duties than China-origin — the spread is the prize); (2) supply-chain diversification (US customers demanding non-China sourcing — the arm satisfies them); (3) standalone viability (the arm must survive separation — shared services, shared customers, shared IP need untangling). Price the tariff advantage explicitly (don’t let the buyer capture all the spread — the seller created the Vietnam platform). Transitional services (the seller supports the arm for 6–12 months — priced, time-limited).
Carve-out + US-business acquisition checklist
(1) Detailed division plan (assets, debt, contracts, staff, licences — where each goes); (2) upfront bank agreement on debt allocation; (3) change-of-control review in US customer contracts + consents; (4) workforce plan, union dialogue; (5) licence re-application/amendment inventory; (6) economic-concentration notification check; (7) capital transfer contract + investment approval; (8) transfer-tax settlement. Principle: buying the “US business” means receiving a clean company — every unfixed trap becomes your real purchase price.
Contact us
FLAT Law Firm advises Chinese investors in Vietnam across the full lifecycle: investment structuring, IRC/ERC procedures, tax, labour, intellectual property and dispute resolution. Contact us for advice tailored to your case.
This article has been quality-reviewed by the FLAW AI Legal Council
