Type of transaction

Several types of transactions can be distinguished in the (sale) purchase of a company, the two most common types being: the share transaction and the asset-liability transaction.

Equity transaction

In an equity transaction, the shares in a company (for example, a B.V. or N.V.) are sold. The buyer thereby acquires ownership of the company with everything associated with it, including all assets (think real estate), all liabilities (think debts), all contracts and all obligations. An advantage of a share transaction is that the business that the company runs remains unchanged. A disadvantage can be that the buyer also assumes all risks and liabilities of the company, including any debts, claims or legal disputes unknown to the buyer in advance.

Asset-liability transaction

In an asset-liability transaction, only certain portions of a business are acquired, such as the real estate, and/or the machinery and/or the inventory. The asset-liability transaction offers the buyer more flexibility because only those assets and liabilities are acquired that the buyer actually wants to take over. The disadvantage for the seller is that the business is dismantled in parts and the remaining assets and liabilities (including, for example, debts) remain with the seller.

Acquisition procedure

The procedure surrounding a business acquisition involves several stages. In the research phase, the desirability and feasibility of a takeover are examined. Seller and buyer examine what they want to achieve with the acquisition. It is especially wise for the seller to have the buyer sign a confidentiality agreement during this phase, so that confidential information that is shared is not made public.

Letter of Intent

Next, it is wise to agree on a letter of intent. In the declaration of intent, the seller and buyer lay down the main points of the (preliminary) results of the negotiations and thus of the sales agreement to be concluded, but also, for example, agreements on exclusivity (it is not allowed to negotiate with another potential buyer at the same time), any resolutive conditions, and agreements on compensation (for damages) in the event that the transaction is not successful. Think of compensation for costs of, for example, consultants.

Due diligence

A very important part of the acquisition procedure is the so-called “due diligence” investigation. During this investigation, the buyer checks the legal, fiscal, financial and operational aspects of the company to be acquired or parts thereof. The buyer checks all contracts with, for example, customers, suppliers, employees and landlords, but also whether there are any legal disputes and whether the company has the correct permits and whether laws and regulations are complied with. Based on the results of the due diligence, the parties may decide to continue negotiations, adjust the terms or abandon the acquisition.

Purchase Agreement

If, after due diligence, the seller and buyer decide to proceed with the transaction, a purchase agreement must be drawn up. In it, the final agreements between buyer and seller are recorded, including at least the purchase price and payment terms, time and conditions of the transfer of ownership, warranties and indemnities of the seller, any resolutive and suspensive conditions and, of course, always which law applies (if, for example, seller or buyer is a foreign party) and which court has jurisdiction to hear disputes.

With warranties and indemnities, the seller assures the buyer that the information provided is accurate, such as the company’s financial position, and that no information relevant to the buyer has been withheld. If it later turns out that these warranties are not accurate, the buyer can hold the seller liable, or perhaps even rescind or void the purchase agreement.

Employees and taxes

When taking over a business with employees, employee law issues may come into play. The Transfer of Business Act stipulates that employees automatically transfer to the new owner with retention of their terms of employment. Tax aspects also play an important role. For example, an acquisition may result in tax obligations such as transfer tax, corporate income tax or sales tax.

Actual transfer

Then the actual transfer of the company takes place. This can be the moment when the shares are transferred at the notary or the moment when the assets and liabilities are transferred. This is also the time to inform employees, customers and suppliers and the time to transfer contracts and permits, for example.

Conclusion

The above is only a very brief summary of what is involved in the sale or purchase of a business. Legal expertise is therefore indispensable when buying or selling a business. By following the right steps in the different phases of the acquisition process and by drafting the right legal documents, the risks for both buyer and seller can be minimized.