TAXATION: SHOULD YOU SELL YOUR COMPANY OR WAIT?
Today, more than ever, the business owner is faced with a choice that could be described as Cornelian. Should he sell his company today or wait for better days to sell?
The frantic pace of tax measures adopted in recent months does not bring peace of mind! Four amending finance laws in the last half of 2011, followed by a 2012 amending law barely two months after the 2012 finance law was published. Then a change in the presidential majority that already announces a major tax reform to be voted on this summer. All this creates a climate of unprecedented instability that requires professionals to constantly update their knowledge.
In addition to the financial crisis which has destabilized the financial market and weakened the economic context, we have seen a clear slowdown in business transfer operations in recent months. The managers, used to take quick and informed decisions, are more than ever mistreated by the different decisions of our politicians which come in successive layers to neutralize their good entrepreneurial initiatives. Investors wishing to take over a company know that the context is not necessarily favorable to obtain financing under good conditions. Moreover, the new rectifying law for 2012 reinforces the idea of postponing the acquisition after August 1st, 2012 because of the implementation of a much lower registration fee.
For their part, sellers are aware of this and do not hesitate to delay the sale of their business in the hope that the future will be more promising. But will it really be? ….
The most significant tax provisions directly related to the transfer of businesses for valuable consideration concern the capital gain on the sale of securities and registration fees.
It is easy to imagine the extent of the disappointment of sellers after the final vote by the National Assembly, which pulverized the progressive deduction system provided for on capital gains on securities after a minimum holding period of five years. This measure was intended as an incentive to reward the risk-taking of holders inherent in investing in the capital of companies. From now on, the capital gain will be subject to a tax rate of 19% plus social security contributions, i.e. 32.50% and 34.50% as of July 1, 2012, unless the seller opts within 36 months to reinvest 80% of the capital gain, net of social security contributions, in a subscription of at least 5% of the capital of an SME, which would entitle him/her to a tax deferral…
The manager of an SME who intends to sell his company before reaching retirement age will be tempted to avoid a straightforward sale because of the confiscatory tax rate and will be more inclined to resort to a range of optimization schemes (contributions followed by reinvestments in other companies, gifts and disposals) which currently make it possible to defer, or even erase, the taxation of the taxable gain.
Regarding registration fees, until December 31, 2011, transfers of shares and corporate units were subject to a 3% registration fee. As of January 1, 2012, the 2012 Finance Law modifies the rules for calculating the registration duty until August 1, 2012.
– For transfers of shares, the law replaces the single proportional rate with a sliding scale:
Amount of Tax Rates
Up to 200 000 € : 3% %.
Fraction greater than €200,000 and less than €500 million: 0.5
Fraction exceeding €500 million: 0.25
At the same time, the previous ceiling of €5,000 for registration fees is abolished.
In unlisted companies, the duty is payable even in the absence of a deed.
In addition, the law also extends its application to sales made abroad of companies having their registered office in France. Nevertheless, a tax credit equal to the tax paid abroad is chargeable against the tax due in France up to the amount of the latter in order to avoid double taxation,
– For transfers of shares (SARL, civil companies…), these remain subject to the 3% duty whether or not they are recorded in a deed.
– A deduction equal to the ratio between the sum of 23 000 € and the total number of shares of the company will then be applied on the value of each share.
As of August 1, 2012, a new rate of 0.10% will be applicable, which will be aligned with the rate of the financial transaction tax.
To clarify our remarks, let us take the case of a limited liability company whose capital is divided into 1,000 shares. Mr X, a partner, sells 500 shares for a price of €250,000.
If the SARL is not transformed into a SAS, the tax base will be as follows:
€250,000 – (€23,000 x 500 shares sold / 1,000 shares constituting the share capital) = €238,500. The tax due will amount to 238,500 x 3% = €7,155.
If the SARL is transformed into a SAS and sold before August 1, 2012, as it is a joint stock company, the duties due would amount to:
(200,000 x 3%) + (50,000 x 0.5%) = €6,250
If the SARL is transformed into a SAS and sold after August 1, 2012, the registration fees will amount to:
250.000€ x 0,10% = 250 €!
In this context, the transformation of a SARL into a SAS prior to a transfer, remains in most cases a relevant solution until August 1, 2012 (for any transaction exceeding 223,394 € for 100% of the shares).
As of August 1st 2012, this transformation will be in all cases relevant … but, it is perhaps not prudent to wait until the new government comes to blow other tax rules calling into question this device!
We believe that in the future, other restrictive measures will inevitably complement these provisions. In this context of instability, it seems useless to wait to transmit. Optimization solutions exist. Nevertheless, they cannot be implemented in a hurry. This is why you need to call on professionals who will advise you and accompany you in your transfer process.
Actoria can help you find the most optimal solution!
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FAQ
What services does Actoria provide?
Actoria specializes in mergers and acquisitions advisory for small and mid-sized businesses. Our services include company sales, succession planning, buy-side and sell-side mandates, business valuation, financial diagnostics, investor sourcing, negotiation support and full transaction execution until closing.
Who does Actoria work with?
We support SME owners, family-business leaders, shareholders, entrepreneurs, private investors, and corporate groups seeking to acquire or divest businesses in Europe and North Africa.
In which countries does Actoria operate?
Actoria has local teams in Switzerland, France, Belgium, Luxembourg, Morocco and Tunisia, and manages cross-border deals across Europe, Africa and the Middle East through an international buyer network.
How many potential buyers are in Actoria’s network?
Our proprietary network includes more than 6,500 qualified industrial buyers, strategic acquirers and financial investors, allowing us to match sellers with high-quality counterparties.
Does Actoria support confidential business sales?
Yes. Confidentiality is fundamental to our process. All discussions, documentation and buyer approaches are handled discreetly to protect the interests of the seller and the business.
What industries does Actoria cover?
We advise companies across multiple sectors, including industrial production, manufacturing, services, IT and digital, healthcare, logistics and distribution, construction, and specialized B2B services.
What is the typical size of businesses Actoria represents?
We primarily advise SMEs with revenues generally ranging from CHF/EUR 2 million to 100 million, depending on jurisdiction and market.
How does Actoria determine the value of a business?
We perform detailed financial and strategic analysis using multiple valuation methods, including discounted cash flows, market multiples, asset-based methods, and sector benchmarking.
How long does a business sale process take?
A standard transaction typically takes 6 to 12 months depending on market conditions, buyer interest, company complexity and diligence requirements.
Why choose Actoria as an M&A advisor?
With over 20 years of experience, a senior advisory team, a structured methodology, and an extensive network of qualified buyers, Actoria delivers independent advice, tailored execution and strong transaction results for SME owners.
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Actoria has swiftly identified the inefficiencies in our company’s processes, proposed optimizations, and implemented them effectively. Furthermore, Actoria has provided outstanding support throughout all stages of our company’s transfer to a group within our industry. This includes preparing our company, identifying potential buyer partners, and negotiating up to the point of the partner’s capital entry. Actoria delivered expert negotiation skills and secured a valuable partner for us.
We were quite anxious to find a solution, as my health was deteriorating rapidly. Actoria’s consultant played a crucial role in the successful completion of my company’s sale. Their involvement was essential in executing this delicate project, as it impacted our daily operations. This project, which was close to my heart and increasingly necessary, was made possible thanks to the decisive momentum provided by Actoria.
First, Actoria conducted a thorough assessment of our company’s strengths and weaknesses, and then suggested incorporating these insights into our management approach to enhance our company’s value. Actoria led this project alongside my entire management team, enabling the involvement of all key personnel, and swiftly implementing a solution that allowed an investor to enter our capital. This was complemented by the inclusion of some of my company’s executives and a bank.
I couldn’t be happier with the result, but I am especially pleased with my decision to work with Actoria. The success of this mission was the direct result of Actoria’s hard work and sophisticated professionalism on my business. From our first meeting through the reasonable preparation process, all phases of the transfer, legal and financial operations were managed by the Actoria team. Their skills were even more evident when the complexities of this transaction were at its peak.
Hiring Actoria made the difference to achieve my original goal and move on to my next professional challenge. Selling a company like AMR in this market has not been an easy task. Actoria has demonstrated perseverance in identifying good buyers with knowledge of my industry in order to continue the development of my business, and has provided professional advice throughout the process.
The company’s sales process was a lengthy and challenging journey. The professional support from Actoria made this endeavor much more manageable. I would like to extend special thanks to the consultants from Switzerland and France for their highly effective collaboration. Your consultants proposed creative solutions during the negotiations, which effectively overcame significant obstacles in order to finalize the agreement. Their experience, knowledge, and professionalism played a crucial role in the success of this transaction.
Panorama International Cession and Takeover of Companies