Operating Company Vs. Shelf Company, which one is better to buy in Vietnam

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There are several ways for a foreign investor to enter the Vietnamese market. Consider starting a company from scratch or acquiring an existing one; each option has pros and cons. We have discussed many topics before on how to set up a company in Vietnam. In the following discussion, we’ll delve into the other direction – Buying a company in Vietnam. Within this area, we will discuss the two most popular approaches: Buying an Existing company or buying a Shelf company in Vietnam, which one can be more beneficial? Let’s read more to find out. 

Shelf Company Vs. Operating company?

A shelf corporation, also known as a shelf company, or aged corporation is a company or corporation that has had no activity. It was created and left with no activity – metaphorically put on the “shelf” to “age”. The company can then be sold to a new owner who wishes to start a new company without going through all the procedures of creating a new one.

Typically, one may need a shelf company if the year (or age) of the business is important to attract customers. Certain industry sets standards for businesses to participate in bidding or tender activity and the company age is one of the requirements. A few sub-licenses also require the company must be at least 1 year old to apply. Hence, buying a shelf company is a good solution to shorten the time to market for many businesses.

On the other hand, “an operating company” is a business that is currently operational, with a history of business transactions or records. The company still has its team, has revenue streams, stays active in its business network, and possesses various resources.

In most cases, the business owners, for personal or professional reasons, do not want to operate the business anymore, and closing the business is a complicated process that can take months or even years to complete. Hence, they decide to sell the business as a fast track to exit the responsibility. 

Is there a difference between purchasing a shelf company and an operating company?

The answers: yes and no.

Procedures: Buying a shelf or operating a company will involve similar steps and paper procedures. Both are called the “Transfer of ownership” which will be submitted to the DPI of the department where the company was registered. 

Timeline: 

The application process with the government for acquiring either a shelf company or an operating company remains the same, but the preparation timeline prior to processing can vary. In the case of a shelf company, there’s less concern about its history since, in most instances, shelf companies do not have business records and transactions. Consequently, due diligence time is minimal. Conversely, acquiring an existing company with a business history necessitates more time to scrutinize all pertinent information to ensure its viability for acquisition. This involves verifying the absence of pending tax obligations, debts, legal charges, etc. In certain acquisitions, a comprehensive audit of the company may be required, further extending the timeline until completion.

Costs involved: 

The expenses for the Transfer of Ownership process might remain consistent, but the inclusion of an extended audit and due diligence could increase costs in the acquisition of an existing company. Additionally, the seller is likely to set a higher price for the existing company, reflecting its associated resources, assets, and profits.

In fact, buying an existing company still brings lots of benefits that any investor would desire, let’s explore in detail what the main reasons are.

4 reasons why one should buy an operating company in Vietnam
1/ Taking advantage of existing resources

Acquiring an operating company entails more than just obtaining its brand or ownership. It involves gaining access to its current assets, including staff, network, equipment, partners, suppliers, and more.

This provides the benefit of inheriting established operational activities, saving valuable time and resources compared to building from the ground up.

For example, you acquire a committed and experienced team of staff. These are the people who are already familiar with the business operations, saving you the hassle of training new employees.

Next, you gain an established network and business relationships that the company has nurtured over the years. This includes loyal customers, strategic partners, and trustworthy suppliers.

Moreover, acquiring a company means inheriting its assets, like equipment, saving costs and time. You also benefit from a ready-to-go operation with optimized tools tailored to business needs.

2/ Save up  your set-up costs

In the journey of doing business in Vietnam, purchasing an operating company is a strategic move. Inherit a business framework without setup costs. Benefit from an established setup.

Imagine the lofty initial expenses involved in starting from scratch; investments in technology, infrastructure, human resources, marketing, and other essential components.

With an operating company, these elements are already in place and functioning, enabling you to save a lot of time and focus on ongoing operations.

However, it’s important to note that while acquiring an operating company does offset the initial setup costs, it does not eliminate operational costs. These are the routine costs of running a business, such as salaries, utility bills, and regular maintenance. So, while the setup cost savings are a significant advantage, operational costs will still factor into your financial planning.

3/ To save time for building corporate credit

Acquiring an operating company in Vietnam enables you to tap into the rich business credits and esteemed reputation already built by the company. Inheriting such a legacy can significantly reduce your startup struggle, allowing you to navigate the Vietnamese market with ease.

In the business world, reputation is everything. Buying an operating company allows you to take over a brand that is already known and trusted, making it easier for you to retain existing customers and attract new ones in the Vietnamese market. 

4/ To acquire intangible assets

One of the prime benefits is acquiring important intangible assets. An existing business comes with pre-established intellectual property rights, which may include patents, proprietary technology, and any product or service-specific knowledge. No need to spend time, money, effort, and legalities in acquiring and securing these rights – they already belong to your new company!

For instance, the construction industry in Vietnam requires companies, both local and foreign-owned, to meet specific qualifications for construction projects. A Certificate of Eligibility (CE) is often requested by project owners as proof of capability.

The CE is crucial for government projects and infrastructure work, with varying levels based on project scale. Newly established companies typically start with level 3 or 4 CE and progress to higher levels over time.

By purchasing an operating company, you can bypass the lower level of CE and start preparing for the higher-level certificates. This can save a significant amount of time and resources, allowing your company to bid on and secure higher-value projects sooner.

In another notable instance, ThaiBev, a Thai company, acquired more than 50% of Sabeco, solidifying its ownership of one of Vietnam’s most renowned beer brands. This saves tons of time for them to incorporate, set up, and build a brand name in Vietnam by acquiring the intellectual property, technology, and existing infrastructure of Sabeco.

What factors should you consider before making a purchase decision?

To aid in your decision-making process when purchasing an existing business, here are some key considerations to ponder:

  • Conduct thorough due diligence on the company
  • reviewing its financial status diligently
  • Follow the necessary steps when acquiring the company
  • Monitor the timeline closely
  • Pay attention to post-transfer requirements

Make sure to approach acquiring a company with thoroughness and attention to detail. By following these key considerations, you can navigate the process successfully and make informed decisions for a smooth transition.

How can VNBG support you with acquiring an operating business in Vietnam?

Being a comprehensive solutions provider in Vietnam, we leverage our extensive expertise across various business domains to assist numerous investors in commencing their ventures in Vietnam seamless and professionally. Our tailored support encompasses a spectrum of services, ranging from due diligence to ensuring the safety of company transfers and conducting thorough financial audits to evaluate their well-being, debts, and obligations. We streamline the legal paper work for a transparent purchasing process and extend post-acquisition secretarial services, accounting, bookkeeping, compliance reporting, recruitment, and more.

Explore our extensive database of operating companies nationwide, spanning diverse industries to offer you many choices. Benefit from complementary document verification and consultations, empowering you to make informed decisions with certainty about your investment opportunities.

Start your entrepreneurial journey in Vietnam today by scheduling a consultation with our expert.

 

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Micheal Dinh

Marketing Manager

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