Recommendations for Managing Disputes in M&A Transactions Prior to Deal Completion

Mergers and acquisitions (M&A) are strategic tools for corporate restructuring, expansion, and operational optimization. However, due to their inherently complex, lengthy, and high-value nature, M&A transactions carry a significant risk of disputes between the parties involved. To effectively manage and mitigate these risks, businesses must adopt a comprehensive strategy supported by legal governance mechanisms throughout the transaction lifecycle. This article outlines practical and actionable recommendations to help enterprises establish an effective dispute management framework during M&A transactions.

Recommendations for Managing Disputes in M&A Transactions Prior to Deal Completion

1.Drafting a Comprehensive and Well-Structured M&A Agreement

One of the most common causes of disputes is an inadequately drafted agreement. An M&A contract should be logically structured and comprehensive, covering all key provisions, including:

• Representations and warranties regarding the legal, financial, tax, asset, human resource, and dispute status of the target company, etc;
• Covenants and undertakings, such as non-compete obligations, non-solicitation of employees, and confidentiality commitments during the pre- and post-closing phases;
• Conditions precedent that must be fulfilled for the transaction to be legally effective;
• Indemnity and limitation of liability clauses, including mechanisms for determining liability, claim periods, and damage caps.

Legal counsel specializing in M&A should be engaged from the outset to ensure that the contract is robust and risk-mitigating.

2.Conducting a Comprehensive and Systematic Legal Due Diligence

Legal due diligence is indispensable in any M&A transaction. It enables the purchaser to assess the legal status of the target company and identify potential risks early. To be effective, due diligence should be conducted by a qualified legal advisor and cover the following areas:

• Legal status, charter documents, and ownership structure;
• Key contracts and contingent obligations;
• Assets and land use rights;
• Taxation, finance, and insurance matters;
• Labor, human resources, and social security issues;
• Ongoing or potential legal disputes;
• Regulatory compliance.

The due diligence findings should be reflected in the contract negotiation process and incorporated into provisions that safeguard the buyer’s interests.

3.Strict Compliance with Applicable Laws and Regulations

To avoid legal disputes or the risk of transaction invalidation, parties must strictly comply with all relevant legal requirements, including:

• The Law on Investment and the Law on Enterprises: Relating to investment conditions, foreign ownership limits, and procedures for capital contribution registration and share acquisition;
• Competition Law: Obligations to notify economic concentration where applicable;
• Tax Law: Governing the obligations to declare, pay, and finalize taxes on the transfer of ownership (including corporate income tax and personal income tax);
• Disclosure regulations, especially where parties include public companies or credit institutions.

4.Developing a Structured Post-Merger Integration (PMI) Plan 

Many post-closing disputes arise from the lack of a coherent integration plan. Businesses should prepare a clear and structured PMI strategy, including:

• Organizational restructuring;
• Integration of financial, accounting, and human resources systems;
• Consolidation of technology platforms and data systems;
• Internal communication and cultural alignment;
• Monitoring synergy targets and post-closing financial commitments.

PMI planning not only maximizes deal value but also prevents internal conflicts and supports long-term growth after the merger.

5.Engaging Legal Counsel Throughout the Transaction Lifecycle 

Lawyers not only play a role in contract review, but also serve as key advisors in structuring the legal framework of the transaction, assessing potential risks, negotiating critical terms, and addressing issues that arise during the execution of the deal. In particular, for cross-border transactions or those with a high risk of dispute, involving legal counsel from the early stages can help:

• Design an optimal legal and tax structure;
• Proactively address potential disputes;
• Handle legal matters such as charter amendments, minority shareholder rights, and disclosure obligations, etc.

Involving legal counsel from the start empowers businesses to safeguard their legitimate interests throughout the transaction lifecycle.

Disputes in M&A transactions are almost inevitable in the context of deepening global integration and economic competition. However, most of these disputes can be effectively managed or even prevented from the outset if enterprises adopt sound legal governance principles and engage experienced legal advisors. Establishing a well-structured contractual framework, implementing a comprehensive due diligence process, selecting an appropriate dispute resolution mechanism, and executing a systematic post-merger integration plan form the foundation for ensuring legal stability and long-term sustainability throughout and beyond the M&A process.

This article, titled “Recommendations for Managing Disputes in M&A Transactions Prior to Deal Completion” is provided by TNTP. For legal advice or assistance regarding M&A transactions or related disputes, please do not hesitate to contact us.

Sincerely,