What are the reasons for selling a company to a third party?

Less financial input to take control: It is not necessary to acquire 100% of the capital of a company to take control of a business. For a limited liability company, it is sufficient to have more than 50% of the shares to decide on the management policy and the allocation of profits. 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 his or her participation over time.

The sale of securities means “the sale in block”.

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 proportional to his participation in the company’s capital to receive profits or to meet previous or current debts.

At what price to sell a company?

The value of the SME to be sold is more difficult to determine than a fund because it is based on the evaluation of the assets and liabilities of the company. When one wishes to sell a company, it is usual to call upon a consulting firm to carry out this valuation. The consulting company will be able to calculate the value of the company during the transfer phase according to different methods adapted to the company concerned.

Are there any legal guarantees?

The legal guarantees are weak. Indeed, the purchase of shares does not give any particular rights on the business owned by the company. In case there are no specific commitments, the buyer can hardly act against the seller of a company in transmission 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 purchaser’s consent

The guarantee of liability has become mandatory

As the legal guarantees are weak to transfer 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, not recorded in the balance sheet, 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 allow to trigger this guarantee. 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 liability guarantee: the seller of the company undertakes to pay off creditors revealed after the transfer or to reimburse debts revealed after the transfer so that the company can pay off its liabilities. This clause is generally used when the payment of the price is staggered over time. The seller of the business undertakes to reimburse directly to the buyer the difference in value of the securities related to the revealed liabilities, which amounts to a reduction of the price.

Formalities for the transfer of a company: step by step

The transfer of the securities is established by a single act. However, it is necessary to draw up several documents before the signature. During the negotiation period, both parties have an obligation of loyalty and if there is a wrongful breach of the negotiation by one of the parties, this one engages its responsibility.

During the audit period, it is advisable to sign a memorandum of understanding that sets out the terms of the purchase and the guarantees (explained earlier). A modality to foresee in the case where shares are paid with common funds, the spouse must give his agreement and mention it in the deed. Otherwise, the spouse can request the nullity of the deed within 2 years from the knowledge of the deed. Another modality is necessary according to the type of company, it will be necessary to obtain the approval of the other associates, in principle the majority of the associates representing the half of the social shares.

The transfer of the company is recorded by a private deed or notarial act.

Advertising of the transfer

In order for the deed to be enforceable, it is necessary to proceed with certain legal publicities. On the one hand, the deed must be signed by the company in the presence of a bailiff. On the other hand, two copies of the deed must be filed with the clerk of the commercial court and with the Trade and Companies Register.