Many businesses believe that Initial Public Offerings (IPOs) officially start when the company offers shares to the public or lists them on the stock exchange. However, from the perspective of legal and corporate governance, IPOs actually started a long time ago. Even for many large-scale enterprises, the preparation process can take from two to three years before the date of submission to the State Securities Commission. Because when IPO, businesses not only sell shares to investors but also have to prove to the market that they are transparent enough, compliant enough and have enough management capacity to become a public company.
One of the common mistakes many businesses make is to focus too much on the stock valuation and distribution story and neglect the assessment of internal legal health.
In Vietnam, many IPOs or listings have had to be significantly prolonged due to problems related to land, shareholder structure, financial obligations or internal governance system. In other words, the value of a business before an IPO is determined not only by revenue or profit, but also by how "clean" it is legally.
The first thing is to review the business itself
One of the common mistakes many businesses make is to focus too much on the stock valuation and distribution story and neglect the assessment of internal legal health.
In major IPOs around the world, the legal due diligence process is usually implemented right from the pre-IPO stage. In Vietnam, this trend is also increasingly popular. Underwriters, institutional investors, and investment funds all want to know if the business is facing any potential legal risks that could affect its business in the future.
Many businesses only when entering the IPO stage discover problems that existed many years ago. There are cases where the capital contribution dossier of the founding shareholder is incomplete. There are cases where the contributed assets have not completed the procedures for transfer of ownership. There are also businesses that have found that previous capital increases have not been fully implemented in accordance with the legal order.
Experience from many deals shows that reviewing and handling legal problems early often helps businesses save significant time and costs compared to fixing when the IPO dossier has been implemented.
Shareholder structure is a complex issue
Investors who buy stocks are not only interested in how much money the business makes, but also who really controls the business. That is why shareholder structure is always one of the most scrutinized contents in the IPO process.
Many Vietnamese businesses are formed from the family business model. In the early stages, this can provide an advantage in terms of decision-making speed. However, when IPOs, investors often question the transparency of the ownership structure, transactions with related parties, and the possibility of conflicts of interest.
A notable example is that many businesses before listing had to undergo ownership restructuring to reduce the rate of transactions with companies involving major shareholders or managers. This is not just a compliance requirement but also a way to improve the attractiveness of the business to institutional investors.
For foreign-invested enterprises, the review must also be extended to issues such as foreign ownership limits, market access conditions and agreements between foreign investors and founding shareholders. Many provisions that were once considered normal in the stage of venture capital or private investment have to be adjusted when the business is about to become a public company.
Many IPOs face difficulties because of land
If I had to point out the group of legal risks that appear the most in IPOs in Vietnam, land is probably one of the top candidates. Especially for manufacturing, real estate, logistics or infrastructure enterprises, the value of land use rights often accounts for a significant proportion of total assets.
In fact, many businesses only when preparing for an IPO conduct a review of the entire land portfolio and discover shortcomings that have lasted for many years. There are cases where the actual usable area is different from the legal documents. There are cases where the property on the land has not been fully certified. Some enterprises are still in the process of fulfilling financial obligations on land or adjusting land use purposes. These issues are particularly sensitive because they can directly affect the determination of business value.
The story of many equitized state-owned enterprises in the previous period is a clear demonstration. In many cases, the equitization or listing process has to be prolonged because issues related to land, land lease rights or land use plans after equitization have not been completed.
Up to now, this is still one of the contents that regulators are particularly interested in when considering IPO documents.
Corporate governance is a factor that is being increasingly appreciated by the market
If more than ten years ago, investors often focused mainly on financial indicators, now the quality of corporate governance has become an equally important criterion.
In fact, many businesses have positive business results but still face difficulties in attracting institutional investors because the governance model does not meet modern standards.
IPOs force businesses to transition from a governance model based on personal beliefs to a governance model based on processes and control mechanisms. This requires enterprises to develop or complete a system of charters, internal governance regulations, transaction control processes with related parties and conflict of interest management mechanisms.
With many IPOs in Southeast Asia and Vietnam, the appointment of independent board members is not only to meet legal requirements but also to signal that businesses are ready to accept modern governance standards.
Many investment funds now even consider the quality of the board of directors as one of the factors that determine whether or not to participate in the IPO.
Source: Finance and Investment Newspaper
"Small" disputes can become big problems
A business may be growing well, but that doesn't mean all legal risks are under control. During an IPO, existing disputes are often scrutinized. It is worth noting that the extent of the impact of the dispute is assessed not only on the merits of the lawsuit but also on the potential impact on future business activities.
For instance, a labor dispute with an ordinary employee may be insignificant. However, if it is a dispute with a key group of workers or involves a systematic violation of labor laws, the risk may be viewed completely differently.
Similarly, a contract dispute that is not of great value but involves a strategic customer or the core technology of the business can also significantly affect the investor's assessment.
Therefore, before an IPO, businesses often need to build an overall picture of existing disputes, assess the possibility of liability and prepare an appropriate handling plan.
ESG is gradually becoming a "soft ticket" to access quality capital flows
A notable shift in recent IPOs is the growing investor interest in ESG issues. Although Vietnamese law does not currently consider ESG as a mandatory condition for IPOs, many international institutional investors have incorporated environmental, social, and governance criteria into the investment due diligence process.
This is especially evident for businesses operating in sectors that have a large impact on the environment or employ large numbers of workers.
Today's investors are not only interested in whether the business is profitable or not, but also want to know how that profit is generated, how the business manages environmental risks and whether there is an effective anti-corruption mechanism.
This trend is causing many Vietnamese businesses to start building sustainability reports, ESG policies and risk management systems right from the pre-IPO period.
IPO is actually a legal "big surgery"
From the outside, an IPO can be seen as a capital raising transaction. However, from the inside of the business, this is often a comprehensive restructuring process in terms of legal, governance and compliance.
Businesses that succeed in IPOs are often not the ones that start preparing when the market is most favorable, but those that have spent years handling legal issues, perfecting governance structures, and building a transparent platform.
In the context of Vietnam's growing capital market and increasing investor requirements, legal preparation for an IPO is no longer a procedural task. This has become a strategic factor that has the potential to have a direct impact on transaction progress, corporate valuations, and market confidence.
Lawyer Nguyen Van Phuc
HM&P Law Firm
Read more: IPO - Cần chuẩn bị kỹ hồ sơ pháp lý
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