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As Vietnam integrates more deeply with the global economy, Initial Public Offerings (IPOs) have become an important trend for companies seeking to raise capital, expand their scale, and enhance their market position. The IPO process requires strict compliance with legal regulations and professional support from consulting experts. Therefore, the role of lawyers in the IPO process in Vietnam is crucial and indispensable.
These lawyers not only help businesses prepare the documentation needed for the initial public offering but also provide strategic advice, handle legal risks post-IPO related to information disclosure, and periodic reporting. This contributes significantly to the success of the IPO process.
This article delves into the specific roles of consulting lawyers throughout the IPO process in Vietnam, from planning, and announcing the issuance of securities to supporting companies in post-issuance transactions.
Introduction to IPO
An IPO (Initial Public Offering) is the process by which a company issues shares to the public for the first time. This is a significant milestone for any business looking to raise substantial capital from the stock market. In Vietnam, the IPO process involves many complex steps, requiring thorough preparation and strict compliance with legal regulations, especially since the 2019 Securities Law was introduced with more stringent conditions for IPOs to enhance the quality of IPO companies’ stocks.
To prepare for the IPO process, a company needs to conduct a comprehensive assessment of its financial situation, business operations, and the condition of the stock market at any given time. This process includes determining the value of shares to be offered, obtaining shareholder approval, and preparing issuance and capital use plans. This helps the company understand its current position and instills confidence in potential investors about the company’s sustainable development potential.
In some cases, restructuring the company is necessary to meet stock market requirements regarding capital and governance. This may involve reorganizing capital structure, changing the governance model, or improving internal processes. Along with this, developing a clear and detailed IPO strategy is an important step to help the company set objectives, issuance plans, and offer prices for shares.
Once a specific plan is in place, the company needs to prepare IPO documentation, valuate securities, verify financial reports, conduct the offering, and announce the event to the public. After receiving approval from the committee, the company must officially announce this information through a prospectus, detailing the distribution schedule and related information. Post-IPO, the company’s shares will begin trading on the stock exchange. At this stage, the company must maintain transparent information disclosure and comply with exchange regulations. Corporate governance should also be emphasized to build credibility and trust with investors.
Throughout these stages, professional consulting support, particularly from lawyers, is essential. Consulting lawyers play a critical role in ensuring the company’s success from the pre-IPO phases through contract signing and working with regulatory agencies to addressing post-IPO legal risks.
Legal Framework for IPO in Vietnam
The IPO process in Vietnam is governed by a detailed legal framework to ensure transparency, protect investors, and maintain market stability. Key regulations include:
Securities Law 2019
The Securities Law 2019 No. 54/2019/QH14 (“Securities Law 2019”) is the core legal foundation for the securities market in Vietnam, setting important requirements for companies wishing to conduct an IPO.
Firstly, the Securities Law 2019 outlines the conditions that companies must meet to qualify for an IPO. These conditions include specific requirements regarding the paid-up charter capital and profitable business operations for a certain number of years before the IPO. This regulation ensures that only companies with a solid financial foundation and stable business operations are allowed to participate in the stock market, thus protecting investor interests, particularly those new to the market.
Secondly, the law imposes strict registration and issuance procedures, requiring companies to file registration documents with the State Securities Commission. This documentation includes audited financial statements, ensuring the transparency and honesty of the information provided to potential investors.
Finally, the Securities Law 2019 clearly defines the reporting and information disclosure obligations of companies post-IPO. Companies must fully, honestly, and timely disclose information about their operations and financial status, including periodic financial reports and information on significant events that may affect share prices. This is to maintain transparency and protect the rights of investors in the market.
Decree No. 155/2020/ND-CP
Decree No. 155/2020/ND-CP details the regulations of the 2019 Securities Law. This decree clearly defines the conditions for issuance, including provisions on public offering, issuance of securities, and public tender offers, submission and supplementation of registration dossiers, standards for financial reporting, and corporate governance. This ensures that companies conducting IPOs comply with stringent regulations, contributing to the transparency and stability of the securities market.
Additionally, the decree sets forth specific regulations on the activities of public companies post-IPO. These companies must adhere to disclosure obligations, implement effective corporate governance, and protect shareholders’ rights. This ensures that public companies operate transparently and responsibly towards investors.
Lastly, the decree clearly defines the authority of the State Securities Commission in reviewing and approving issuance registration dossiers, as well as overseeing the activities of public companies. This ensures that the State Securities Commission has sufficient power and tools to monitor and regulate the securities market, thereby protecting investors’ rights and maintaining market stability.
Circular No. 118/2020/TT-BTC
Circular No. 118/2020/TT-BTC provides detailed guidance on the implementation of the provisions of Decree No. 155/2020/ND-CP, particularly regarding public offering, issuance of securities, public tender offers, share buybacks, and registration of public companies.
This circular provides specific guidance on the preparation and presentation of financial statements according to Vietnamese accounting standards, ensuring transparency and consistency in the financial information provided by companies. This is crucial to ensure that investors can trust the disclosed financial information, thereby making informed investment decisions.
Additionally, the circular details the content, timing, and format of information disclosure by public companies. This includes disclosure on the company’s electronic information portal and mass media, ensuring that information is widely and promptly communicated to investors.
Lastly, the circular outlines the procedures and measures for handling violations of information disclosure and corporate governance regulations. This helps maintain market discipline, ensuring that companies fully comply with legal regulations and act transparently and responsibly.
The Role of Legal Advisors in the IPO Process in Vietnam
The role of legal advisors in the initial public offering (IPO) process is not limited to ensuring compliance with legal regulations but also extends to various strategic and operational aspects, including:
Advising on Legal Structure
To prepare for a company’s IPO, legal advisors must ensure that the company meets the necessary legal requirements for an IPO. One of the critical tasks is checking the legal status of the company to ensure that it does not violate any legal regulations that could affect the IPO process, addressing potential legal risks before the IPO. Moreover, legal advisors will assist the company in aligning its internal policies, regulations, and procedures with the requirements for public companies to establish a compliant corporate system.
The company may choose to combine raising additional capital through a public offering with becoming a public company, based on evaluations of the company’s status (financial condition, governance, personnel). Legal advisors will assess and provide opinions based on legal regulations before the company decides on its first public offering. If there are risks, legal advisors will recommend necessary changes, such as restructuring or altering ownership forms to meet regulatory requirements.
Preparing Legal Documents
In preparing the dossier and legal documents, the preparation and review of legal documents are critical, requiring the active participation and extensive expertise of legal advisors. Two particularly important types of documents are the prospectus and advisory and issuance contracts.
Specifically, the prospectus is considered the most important document in the IPO process, providing a comprehensive view of the company to potential investors. It includes detailed information about business operations, financial condition, management structure, related risks, and the company’s future prospects.
Legal advisors are responsible not only for ensuring that all information complies with the law but also for ensuring the transparency and accuracy of the information disclosed in the prospectus. This includes rigorously checking financial figures, verifying the accuracy of business operation information, and ensuring that all potential risks are clearly and fully disclosed.
This not only protects the rights of investors but also builds public trust in the company.
In addition to the prospectus, advisory and issuance contracts are crucial legal documents in the IPO process. These contracts define the relationships and responsibilities between the issuing company and related parties, such as investment banks, underwriters, and other advisory entities. For example, in a contract with an underwriter, the legal advisor must ensure that terms regarding underwriting fees, responsibilities of the parties, and issuance conditions are clearly and fairly stipulated. This helps avoid potential legal disputes and ensures the smooth progress of the IPO.
Legal Due Diligence
Legal due diligence is an essential step in the IPO process, aimed at identifying and evaluating potential legal risks that the company may face. This phase requires active and in-depth involvement from legal advisors to ensure that every legal aspect of the company is thoroughly examined, thus protecting investors’ rights and ensuring transparency during the IPO process.
One of the most critical tasks of legal advisors in the due diligence process is to meticulously review and assess legal documents, licenses, contracts, litigation history, and the company’s compliance status with the law.
Legal advisors must scrutinize any ongoing legal issues or pending litigation to ensure they are disclosed in the prospectus to prevent lack of transparency and misleading investors. Specifically, advisors need to examine the lawsuits the company is facing, including labor disputes, commercial conflicts, and other legal matters. They must assess the severity of these lawsuits and their potential impact on the company’s operations.
Beyond current lawsuits, advisors also need to identify potential legal disputes the company may face in the future, such as evaluating the likelihood of conflicts in business operations and legal aspects concerning potential partners.
Effective due diligence not only protects the interests of investors but also enhances the company’s reputation and standing in the capital market. Any errors or discrepancies discovered during due diligence can lead to delays in the IPO process or, in the worst case, even the cancellation of the IPO, causing reputational damage and financial losses to the company.
In summary, due diligence in an IPO is a rigorous and indispensable process to ensure transparency, compliance, and investor protection. Companies must meticulously adhere to these requirements and closely collaborate with legal and financial experts to successfully execute the IPO process.
Corporate Governance and Information Disclosure Consulting
Contrary to the common belief that business owners handle or resolve company management issues, lawyers can also assist and advise business owners on governance and information disclosure matters.
Corporate governance is a key factor in maintaining transparency and operational efficiency for a public company. Legal advisors play an important role in ensuring the company fully complies with public corporate governance regulations, including establishing an appropriate governance structure, developing operational regulations, and especially protecting shareholder rights, which is crucial for any joint-stock company.
Information disclosure is one of the most important legal requirements for public companies, ensuring transparency and fairness in the securities market. Legal advisors help companies comply with information disclosure regulations by guiding periodic disclosures, extraordinary disclosures, ensuring accuracy and timeliness.
Handling IPO-related Disputes and Anticipating Risks
Legal advisors help mitigate risks related to disputes, reducing the need for issuers to be undervalued. Legal counsel also protects the company from litigation related to information disclosure during the disclosure process. Having a lawyer throughout all stages helps the company feel more secure about legal risks, and they also assist in handling investor complaints about errors in reports and public information.
Conclusion
The IPO process is a significant yet challenging milestone for any company. Legal advisors play an indispensable role in ensuring this process runs smoothly and complies fully with legal regulations.
From advising on legal structures, preparing legal documents, conducting legal due diligence, to guiding compliance with regulations and corporate governance, lawyers help companies navigate legal challenges and maximize the opportunities that an IPO presents. In the context of Vietnam’s increasingly developing and integrating securities market, consulting legal experts helps businesses achieve maximum goals when conducting an IPO and assert their position.
ASL Law is a leading full-service and independent Vietnamese law firm made up of experienced and talented lawyers. ASL Law is ranked as the top tier Law Firm in Vietnam by Legal500, Asia Law, WTR, and Asia Business Law Journal. Based in both Hanoi and Ho Chi Minh City in Vietnam, the firm’s main purpose is to provide the most practical, efficient and lawful advice to its domestic and international clients. If we can be of assistance, please email to [email protected].
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