Various avenues are available to the international investor seeking to penetrate the Vietnamese market. You could choose to either establish a new company or take over one already in operation, both choices having their own merits and demerits. In the past, our discussions have covered how to set up a company in Vietnam extensively. In this discourse, we will shift focus- to acquiring a company in Vietnam. We’ll explore the two most commonly adopted methods: Purchasing an existing company or acquiring a shelf company in Vietnam. Which is the superior approach? Read on to discover.
Operating Companies and Shelf Companies
A shelf corporation, alternatively called a shelf company or aged corporation, is a dormant entity that was established but never became operational. This corporation, in essence, has been ‘put on the shelf’ to ‘age’ and can be purchased by an individual or group looking to launch a business without the hassle of initiating a new corporation from scratch.
Opting for a shelf company can be advantageous when the age of the business carries weight when seeking to attract clients or where specific industry norms require businesses to have a certain lifespan to be eligible for tendering or bid participation. In certain situations, acquiring sub-licenses also necessitates the company to have at least a one-year lifespan. Therefore, purchasing a shelf company can effectively expedite a business’s time to market.
Conversely, an ‘operating company’ represents a currently active business with a track record of business transactions or records. The company maintains its team, generates revenue, remains active in its network, and holds diverse resources.
In many instances, business owners choose to sell their operational business for personal or professional reasons. The process of closing a business can be complex and time-consuming, potentially stretching over months or even years. Selling the business presents a quicker path for owners to disengage from the responsibilities of running the business.
What Sets Apart The Acquisition Of A Shelf Company From That Of An Operating Company?
Yes, there is a difference, but also, there isn’t.
Procedure:
The process of owning a shelf or an operational company entails quite similar steps and paperwork. This is often referred to as the “Transfer of ownership,” which is then filed with the DPI of the region where the company had its initial registration.
The Timeline:
While the bureaucratic process of purchasing a shelf company or an operational company remains the same, the time spent preparing beforehand can differ significantly. With a shelf company, there is less worry about its past activities as they are generally without business records and transactions. This results in a shorter period for due diligence. On the other hand, acquiring an existing company with a business history requires a more thorough investigation of all relevant information to determine its acquisition suitability. This includes checking for outstanding tax liabilities, debts, legal claims, etc. In some purchases, a full audit may be required, which could extend the completion timeline.
Associated Costs:
Though the expenditures for the Transfer of Ownership process might not vary considerably, the inclusion of an in-depth audit and due diligence could escalate costs when acquiring an existing company. Additionally, the seller of an operational company may demand a higher price reflective of its resources, assets, and generated profits.
Indeed, the purchase of an existing company can yield numerous advantages that would appeal to any investor. Let’s delve further into these primary reasons.
Four Key Reasons To Acquire An Established Company In Vietnam
1/ Leveraging Existing Assets
Venturing into the acquisition of an active company goes beyond just securing its brand or ownership. It means acquiring a wealth of its current resources, encompassing its team, network, machinery, partners, suppliers, and more.
This opportunity gives you the advantage of integrating an already functioning business operation, saving significant time and resources instead of starting everything from scratch.
For instance, you inherit a dedicated and seasoned team of professionals. These are individuals already versed with the business operations, relieving you of the burden of training new staff.
Additionally, you gain a well-established network and business connections that the company has fostered over time. This network includes devoted customers, strategic associates, and reliable suppliers.
Lastly, the acquisition of a company implies inheriting its assets like equipment, cutting down on costs and time. You also reap the advantage of a ready-to-launch operation outfitted with tailored tools for specific business needs.
2/ Reduce Your Initial Expenditure
Embarking on the entrepreneurial journey in Vietnam? Consider the strategic advantage of acquiring an existing enterprise. Not only does this provide an established business framework, but it also negates any setup costs.
Think of the hefty expenses you’d encounter when starting anew, including technology, infrastructure, human resources, marketing, and other fundamental investments.
When you own an operating company, these components are already functioning, affording you significant time savings and allowing you to concentrate on daily operations.
However, while purchase of an operational business certainly offsets upfront setup costs, it doesn’t erase routine operational expenses. These ongoing costs, such as salaries, utilities, and regular maintenance, will still need to be factored into your financial planning. Despite this, the savings on setup costs present a substantial benefit.
3/ Expedite The Process Of Building Business Credit
Acquiring a thriving company in Vietnam allows you to leverage the substantial business credits and esteemed reputation previously established by the company. This legacy can significantly ease your startup journey, smoothing your path in the Vietnamese market.
In commerce, reputation is invaluable. The acquisition of an established company enables you to adopt a brand that is already recognized and trusted, facilitating customer retention and attracting new clientele in the Vietnamese market.
4/ Secure Valuable Intangible Assets
One of the key benefits is the acquisition of significant intangible assets, such as intellectual property rights, which could include patents, proprietary technology, and product- or service-related knowledge. These rights, already owned by your new company, save you the expenditure of time, money, and effort in securing them.
For example, the Vietnamese construction industry mandates certain qualifications for projects, often requiring a Certificate of Eligibility (CE) from companies, both domestic and international. This CE, essential for government projects and infrastructure work, varies based on the project’s scale.
By acquiring an established company, you can effectively skip the entry-level CE, saving significant time and resources, and position your company for more lucrative projects earlier.
In a similar vein, ThaiBev, a Thai enterprise, procured over 50% of Sabeco, thereby commandeering one of Vietnam’s most iconic beer brands. This move saved significant time in establishing and developing a brand presence in Vietnam, thanks to the acquired intellectual property, technology, and existing infrastructure of Sabeco.
What Should You Keep In Mind Before Initiating A Purchase Decision?
When you’re contemplating buying an existing establishment, consider the following critical aspects:
- Implement comprehensive due diligence on the enterprise
- scrutinize its financial condition rigorously
- Adhere to the required procedures during the acquisition of the company
- Track the timeline meticulously
- Be aware of the obligations after the transfer
Approach the enterprise acquisition process meticulously and with great attention to every detail. With these pivotal aspects in mind, you’re set to steer the process effectively and make educated decisions for a seamless transaction.
HOW CAN IRIS INTERNATIONAL SUPPORT YOU?
As a holistic solutions provider in Vietnam, Iris International leverages its wide-ranging proficiency spanning multiple business areas, to aid numerous investors in launching their enterprises in Vietnam efficiently and professionally. Our bespoke support covers a wealth of services, from undertaking rigorous due diligence to securing company transfers and performing exhaustive financial audits to assess their health, debts, and liabilities. We simplify the legal procedures for a lucid purchasing process and provide consistent post-purchase secretarial services, bookkeeping, compliance reporting, recruitment, and more.
Browse our extensive catalog of active companies across the country, covering a multitude of industries to provide you with a plethora of options. Take advantage of complimentary document checks and consultations, equipping you with the necessary knowledge to make well-informed decisions regarding your investment prospects.
Embark on your business journey in Vietnam today by arranging a consultation with our expert.
EN 
VI