SUBSIDIARY ESTABLISHMENT IN VIETNAM

Businesses' investment requirements are increasing at the moment. Large companies and economic groups, in particular, frequently operate under the parent company - subsidiary company model in order to be most effective. However, not all organizations are familiar with the procedures for forming subsidiaries and the relationships that exist between them. As a result, Law Doanh Tri would like to refer customers to the article "Subsidiary establishment in Vietnam" in order for them to better understand this model.

I, Legal basis

- Law on Enterprises No. 59/2020/QH14;

- Decree No. 122/2020/ND-CP about single-window cooperation in processing applications for registration of enterprises, branches, representative offices; declaration of personnel; social insurance participation; use of invoices by enterprises;

- Decree 01/2021/ND-CP on business registration;

- Decree 47/2021/ND-CP guiding the Enterprise Law.

II, General regulations

A company is considered the parent company of another company if it falls into one of the following cases:

- Owning more than 50% of the charter capital or total ordinary shares of that company;

- Having the right to directly or indirectly decide to appoint a majority of all of the members of the Board of Directors, the Director or the General Director of that company;

- Have the right to decide on the amendment and supplementation of the charter of that company.

Note:

- Parent company, a subsidiary company is not a type of enterprise.

- Subsidiaries are not allowed to invest in buying shares or contribute capital to the parent company. Subsidiaries of the same parent company may not concurrently contribute capital or purchase shares for cross-ownership.

III. Rights, obligations, and responsibilities of the parent company towards its subsidiaries

The parent company has the following rights, obligations, and responsibilities towards its subsidiaries:

- The parent company exercises its rights and obligations as a member, owner, or shareholder in the relationship with the subsidiary in accordance with the respective provisions of the Enterprise Law 2020 and other relevant laws.

- Contracts, transactions, and other relationships between the parent company and its subsidiaries must be established and carried out independently and equally under the same conditions as independent legal entities.

- The parent company must be held liable for the company's losses if it is interfered with outside of its authority and forces the subsidiary to conduct business in a way that is contrary to normal business practice or to engage in illegal activities. Profits without reasonable compensation in the applicable fiscal year, causing harm to the subsidiary. It should be noted in this case:

+ The parent company's manager is jointly responsible for the damage with the parent company.

+ If the parent company fails to compensate the subsidiary, the creditor, member, or shareholder who owns at least 1% of the subsidiary's charter capital has the right to make a request in his/her own name or in the name of the subsidiary company. The parent company compensates the subsidiary for damage. + If a subsidiary's business activity benefits another subsidiary of the same parent company, the beneficial subsidiary must return the benefit to the parent company jointly. The subsidiary was harmed.

III. Subsidiary establishment dossier

To operate under the parent company - subsidiary model, the parent company will typically appoint a representative and contribute capital to the establishment of a subsidiary.

The application for the establishment of a subsidiary is handled in the same way as the registration procedure for the establishment of a new business, according to Decree 122/2020/ND-CP and Decision 1523/QD-BKHDT.

In addition to the above documents, the parent company must submit the following additional documents:

- Decision of the owner/chairman of the Members' Council/Board of Directors on appointing capital contributors or managing subsidiaries.

- 01 true copy of ID card/CCCD/Passport of the person appointed and managed by the parent company.

- 01 copy of the business registration certificate of the parent company.

IV. Procedures for setting up a subsidiary

Step 1: Submitting dossier

Enterprise founders or authorized persons shall make enterprise registration with the Business Registration Office by the following methods:

- Register your business directly at the Business Registration Office;

- Business registration via postal service;

- Business registration via an electronic information network.

Step 2: Follow and get the result

The business registration agency shall consider the validity of the application for enterprise registration and grant the enterprise registration within three (3) working days of receipt of the application.

If the application is deemed invalid, the business registration agency must notify the applicant in writing of the contents that must be amended or supplemented. In the event of a refusal to register an enterprise, the reason will be stated in writing.

The above information is about the "Subsidiary establishment in Vietnam." For more information and advice on this issue, please contact Doanh Tri Law Firm directly via:

Hotline: (+84) 911.233.955 - (024) 6293 8326

Email: [email protected]

Doanh Tri Law Firm is pleased to accompany our Customers!