Transferring a business to a third party

WHAT MIGHT BE THE MOTIVATIONS FOR SELLING A BUSINESS TO A THIRD PARTY?

A smaller financial contribution to take control

It is not necessary to acquire 100% of a company’s capital to take control of a business. In the case of a limited liability company, it is sufficient to have more than 50% of the shares to decide on management policy and profit allocation. If a person holds 75% of the shares, he or she has control.
Depending on the financial capacity of the person, it is possible to increase the shareholding over time.

SALE OF SHARES MEANS “BLOCK SALE”

Unlike the purchase of a business, the buyer of a company cannot choose what he takes over. The owner of a company then has rights in proportion to his or her share in the company’s capital to receive profits or to meet past or present debts.

WHAT IS THE PRICE OF SELLING A BUSINESS?

The value of the SME to be sold is more difficult to determine than a fund because it is based on the valuation of the assets and liabilities of the business.

When you want to sell a company, it is usual to call on a consulting firm to carry out this valuation. The consultancy firm will be able to calculate the value of the business at the disposal stage using different methods adapted to the business in question.

ARE THERE ANY LEGAL GUARANTEES?

There are few legal guarantees. Indeed, the purchase of shares does not give any particular rights on the business owned by the company. If there are no specific commitments, the buyer can hardly act against the seller of a company in the transfer phase.

The purchaser can take action against the seller if he proves that :

• The company is deprived of its assets
• The seller has acted in such a way as to vitiate the buyer’s consent

THE GUARANTEE OF LIABILITIES HAS BECOME MANDATORY

As the legal guarantees are weak when selling a company, it is necessary to provide a contractual guarantee: the guarantee of liabilities.

This guarantee protects against any liabilities of the company during the sale or transfer phase that are not recorded in the balance sheet and whose origin is prior to the transfer. It is necessary to state explicitly and precisely the events whose cause is prior to the transfer of the SME which enable this guarantee to be triggered. These events may be a tax or social security adjustment, or liability claims, for example.

There are two types of clauses: the pure liability guarantee and the price revision clause.

The pure liabilities guarantee

The seller of the business undertakes to pay off creditors revealed after the transfer or to repay debts revealed after the transfer so that the company can pay off its liabilities.

The price revision clause

This clause is generally used when the payment of the price is staggered over time. The seller of the company undertakes to reimburse the buyer directly for the difference in value of the shares linked to the liabilities disclosed, which amounts to a reduction in the price.

FORMALITIES FOR THE TRANSFER OF A COMPANY: STEP BY STEP

The transfer of shares is recorded in a single deed. However, it is necessary to draw up several documents before signing. During the negotiation period, both parties have an obligation of loyalty and if one of the parties improperly breaks off the negotiations, it is liable.

During the audit period, it is advisable to sign a memorandum of understanding which sets out the terms of the purchase and the guarantees (explained above). If the shares are paid for with joint funds, the spouse must give his or her agreement and mention it in the deed.
If not, the spouse can request the nullity of the deed within 2 years from the knowledge of the deed.
Depending on the type of company, the approval of the other partners must be obtained, in principle a majority of the partners representing half of the shares.

The transfer of the business is recorded in a private deed or a notarial deed.

Publicity for the transfer

In order for the deed to be enforceable, it is necessary to carry out certain legal advertisements. Firstly, the deed must be signed by the company in the presence of a bailiff. Secondly, two copies of the deed must be filed with the clerk of the commercial court and the Trade and Companies Register.