Takeover of assets in a business acquisition

In this case of a business purchase, the purchase of a business avoids any link with the previous liabilities and therefore with the risks that are incumbent on it. The transferor is responsible for them. Consequently, it corresponds to an asset takeover.

It is made up of intangible elements (the clientele, the right to the lease, the sign, the commercial name, the intellectual property rights: patents, licences, brands, etc.) and tangible elements (equipment, tools, goods in stock).

The purchase of a business is a form of business purchase that allows the buyer to choose the elements he wants to take over. However, the buyer will be obliged to keep certain contracts which are automatically transferred with the purchased business:

• the commercial lease
• Insurance contracts (the buyer can terminate them)
• Publishing contracts
• Employment contracts (under the conditions provided for)

With regard to employment contracts, in this case of purchase of a business, the buyer can be claimed sums due by the seller with regard to the employees currently working in the business. However, the transferor will have to reimburse him unless there is a clause to the contrary.

Other contracts will be assigned in this case of a business purchase. Indeed, the contracts necessary for the continuation of the business will be retained. Each of the contracts will be studied in detail so that the buyer knows their precise purpose.

AT WHAT PRICE? HOW TO VALUE A BUSINESS?

In the case of a business purchase, the value of each tangible and intangible element must be determined in order to arrive at an overall value.
The value of a business is set at the market price by comparison with similar businesses.

The value of tangible elements is set at their market value.

For intangible elements in this case of a business purchase, it is possible to refer to real estate agencies and professional scales to calculate a price range. The presentation price is refined according to the characteristics of the business.

THE PROCEDURAL RULES TO BE OBSERVED

The purchase of a business in this case is carried out in two stages:

• the preliminary contract
• the final contract

The first stage allows each party to gather the necessary elements (administrative documents for the seller and bank authorisations for the buyer, for example). This preliminary contract may take the form of a unilateral promise to purchase a business or a preliminary sales agreement (or synallagmatic promise to sell).

The business sale agreement signifies the willingness of both parties to commit themselves at the same time. However, a withdrawal clause may be included in this preliminary contract allowing the buyer to break the commitment with financial compensation determined beforehand in favour of the seller.

The unilateral promise to sell a business indicates the seller’s willingness to sell. The outcome of this unilateral promise depends on the willingness of the buyer. If the sale does not take place, the buyer pays the seller an immobilisation indemnity. The promise must be registered within 10 days of signing or it will be null and void.

At the end of this preliminary contract, the two parties in this case of purchase of a business, establish a deadline for signing the contract. This contract will be registered and legally advertised.

If payment is agreed to be made in instalments, the seller has a legal lien on the business and is entitled to request further security (pledge). For more than three months in this case of a business purchase, the seller will receive nothing financially. The money will be blocked to purge the liabilities.

LEGAL GUARANTEES MADE BY THE SELLER

In this case of a business purchase, there are two legal guarantees that protect the buyer of a business: the guarantee for hidden defects and the obligation of non-recovery.

The warranty of latent defects does not need to be noted in the deed in order for it to protect the buyer from hidden defects that :

• prevent the use of the land
• change the value so significantly that the buyer would not have bought the business or would have bought it at a lower price

The non-recovery obligation in this case of business purchase is usually supplemented by the non-competition clause allowing the buyer to protect itself against any act of the seller resulting in a loss of customers. This clause must be limited in time and/or space.