The important role of law firms in IPO activities of enterprises in the Vietnamese stock market

An Initial Public Offering (IPO) is an important milestone in the development journey of a business, marking the transition from a private company to a public company. In Vietnam, the capital market is developing rapidly, with exchanges such as the Ho Chi Minh City Stock Exchange. Ho Chi Minh City (HOSE) and the Hanoi Stock Exchange (HNX) play a central role in supporting businesses to raise capital through IPOs. However, the IPO process is not only a financial activity but also a complex legal process, requiring strict compliance with the provisions of Vietnamese law and international standards (if the IPO has foreign elements). In this context, the role of law firms becomes essential to ensure businesses overcome legal challenges, optimize processes, and achieve capital raising goals effectively.

1. Overview of IPOs in Vietnam

1.1. Concept and Meaning of IPO

An IPO is the process by which a company first issues shares to the public to raise capital through the stock market. In Vietnam, IPOs are usually carried out when businesses want to list on the HOSE or HNX, or in some cases, on the UPCoM market (the stock exchange market of unlisted public companies). IPOs not only help businesses access large capital but also improve their reputation, increase transparency, and create opportunities to attract talent through stock bonus programs for employees.

However, IPOs in Vietnam are governed by many legal regulations, including the Law on Securities 2019, the Law on Enterprises 2020, and related decrees and guiding circulars. These regulations require enterprises conducting IPOs to meet the conditions of charter capital, profit, shareholder structure, and information disclosure. Compliance with these regulations requires support from experienced legal professionals, especially law firms specializing in capital markets.

1.2. Context of the IPO market in Vietnam

The IPO market in Vietnam has witnessed significant growth in recent years. According to HOSE's report, in the period 2020-2024, dozens of enterprises have successfully carried out IPOs, with a total capital mobilization value of billions of USD[1]. Industries such as finance, real estate, technology, and consumer led the IPO trend. However, the market also faces many challenges, including:

• Complex legal environment: IPO regulations in Vietnam are regularly updated, requiring businesses to monitor closely to ensure compliance.
• Transparency challenges: Many Vietnamese businesses, especially small and medium-sized enterprises, are not used to disclosing financial information and operating according to public company standards.
• International competition: With the trend of integration, some Vietnamese businesses aim for IPOs in international markets (such as Singapore, Hong Kong, the United States), requiring compliance with both domestic and international regulations.

In this context, law firms act as a bridge, helping businesses navigate through complex legal requirements and build an effective IPO strategy.

2. The role of law firms in the IPO process

Law firms play a central role in every stage of the IPO process, from initial preparation to when the shares are listed and traded. Here are the main roles of law firms in the Vietnamese stock market:

2.1. Legal consultancy and preparation of IPO documents

The IPO process begins with the preparation of registration documents for public offering of securities, which are submitted to the State Securities Commission (SSC). The law firm supports businesses in the following tasks:

• Preparation of registration documents: IPO documents include prospectus, audited financial statements, company charter, and documents related to corporate governance. The law firm ensures that these documents comply with the requirements of the amended and supplemented Securities Law 2019 and relevant regulations.
• Legal Due Diligence: Law firms conduct due diligence to identify potential legal risks, such as legal disputes, important contracts with related parties, or intellectual property issues. The appraisal results help businesses overcome problems before submitting documents to SSC.
• Legal structure consulting: The law firm assists businesses in restructuring (if necessary) to meet IPO conditions, such as converting from a limited liability company to a joint stock company, or adjusting the charter capital structure.

2.2. Ensure compliance with legal regulations

Compliance with legal regulations is a key factor for a successful IPO. Law firms play the following roles:

• Consulting on information disclosure regulations: According to the Securities Law, enterprises must disclose transparent and accurate information about their financial situation, business activities, and risk factors. Law firms can coordinate with securities companies to help draft prospectuses,  ensure that the content meets the requirements of the SSC and protect businesses from legal risks related to the disclosure of false information.
• Support interaction with SSC: The law firm represents businesses working with SSC, responding to comments or requests for additional information, ensuring that the application is approved on time.

2.3. Consulting on corporate governance

When becoming a public company, businesses must adhere to strict corporate governance standards. Law firms can assist businesses:

• Developing a corporate governance framework: Consulting on the establishment of committees (audit, salary and bonus) and appointing independent directors in accordance with the provisions of the Law on Enterprises and guiding documents.
• Internal policy drafting: Policies such as insider trading policies, compensation policies, and related party transaction policies are drafted by law firms to ensure compliance and protection of shareholders' interests, comply with strict legal requirements in protecting the interests of not only major shareholders but also minority shareholders.
• Prepare for reporting obligations: Guide enterprises to make periodic reports (quarterly and annual financial statements) and extraordinary reports according to SSC's regulations.

TCB shares have several drivers to reach the VND 45,000/share price range; however, investors should manage their expectations. Source: Finance Magazine

2.4. Support in negotiating and drafting contracts

During the IPO process, the law firm assists businesses in:

• Underwriting agreement: The contract between the enterprise and the underwriting organization (usually a securities company) is drafted by a law firm, ensuring that terms such as guarantee fees, legal liabilities, and obligations of the parties are clearly regulated.
• Lock-up agreement: The law firm advises and drafts a lock-up agreement, restricting major shareholders, directors, and employees from selling shares for a period of time (usually 6-12 months) after the IPO.
• Contracts with related individuals and partners: Ensure that important contracts (e.g. contracts with suppliers, customers) are publicly announced or exempted according to SSC's regulations. At the same time, support the drafting of agreements with major shareholders,  strategic shareholders of the company.

2.5. Mitigation of legal risks

IPOs have many potential legal risks, from shareholder disputes to violations of information disclosure regulations. With our experience and knowledge, law firms can assist businesses in:

• Risk identification and management: Through legal due diligence, law firms identify potential risks and propose remedial solutions, such as resolving pre-IPO disputes or adjusting contracts with sensitive clauses.
• Protection against liability: Advising on the protection provisions in the prospectus, such as disclosure of risk factors to minimize the risk of litigation from shareholders if there is an error or the business results are not as expected.
• Assistance in case of disputes: If a dispute arises related to an IPO, the law firm represents the business in negotiations or proceedings.

3. Challenges in providing services of law firms in the Vietnamese market

3.1. Challenges of the Vietnamese market

It is easy to see that Vietnam's legal system is a developing system. Regulations on IPOs in Vietnam are regularly updated, leading to difficulties in ensuring full compliance. A series of new regulations are introduced to adjust and supplement current regulations with many new and complex requirements, which is a significant challenge for businesses and even law firms operating in the field of capital market in Vietnam. Moreover, many Vietnamese enterprises, especially small and medium-sized companies, lack experience in preparing financial statements according to international standards (IFRS) or meeting the requirements of a public company in accordance with Vietnamese law. Limited resources, especially insufficient and inexperienced legal personnel, are a significant challenge for small and medium-sized enterprises.

3.2. How law firms adapt to the Vietnamese market

With a small and fledgling capital market like Vietnam, perhaps the role of law firms is still quite modest. However, the proactive organization of seminars and consultations by law firms to raise awareness of the IPO process and the legal requirements of this process is a necessary strategy to raise awareness and capacity of businesses. In addition, the application of modern technologies of law firms in the process of IPO consulting for businesses is very necessary. As this is a complex and lengthy process. The use of digital legal tools to manage documents, track IPO progress, and ensure accuracy in information disclosure will help law firms effectively manage their work and service quality. Another important point that law firms should do is to strengthen the expertise of their human resources. Law firms recruit and train lawyers specializing in capital markets, with a deep understanding of both Vietnamese and international law. In addition, considering cooperation with the world's leading law firms, which have extensive experience in this field, is also something that Vietnamese law firms should consider.

4. Typical IPOs in Vietnam with the participation of law firms

Although there are still many limitations of Vietnamese law and the awareness of businesses about the role of law firms in IPO activities in Vietnam. However, the past time has also witnessed many large IPOs in Vietnam with the participation and important contribution of Vietnamese law firms. Deals such as Vinhomes (2018), an IPO of a real estate company under Vingroup, raised more than 1.3 billion USD, is one of the largest IPOs in Vietnam. Techcombank (2018), With a raised value of more than 900 million USD from IPO activities, Techcombank has taken advantage of the advice of law firms to restructure shareholders and prepare financial statements according to international standards. Nova Consumer (2022) is also an IPO on HOSE supported by law firms in developing governance policies and negotiating underwriting agreements.

These examples show that law firms not only ensure legal compliance, but also play a strategic role in building a transparent and trustworthy image for businesses in front of domestic and foreign investors.

In Vietnam, law firms play an indispensable role in supporting businesses to carry out successful IPOs. From preparing documents, ensuring regulatory compliance, building a corporate governance framework, to mitigating legal risks, law firms help businesses navigate the complex process and achieve their capital raising goals. In the context of Vietnam's increasingly integrated and competitive stock market, the role of law firms will continue to be strengthened, especially when businesses aim for IPOs in the international market. To optimize the IPO process, businesses need to choose a law firm with experience, a highly specialized team, and the ability to cooperate with international organizations, thereby ensuring success and sustainability in the journey to become a public company and beyond, to be listed on prestigious stock exchanges in Vietnam and internationally.