As an acquisition consultant, I regularly speak to business owners who want to sell a business, but are unsure about the right form of transfer. Do I opt for an equity transaction or an asset/liability transaction after all?
The answer is rarely black and white. Each situation requires customization. Still, it is essential to understand the differences well and where the risks and opportunities lie. In this expert contribution, I share the key insights I give entrepreneurs on this subject.
What does an equity transaction involve?
In an equity transaction, you sell the shares of your limited liability company. The buyer thereby takes over the entire business: from assets and contracts to debts and personnel. You sell the "shell" of the company, as it were, including everything in it. Big advantage: the structure remains intact and the company continues to operate.
But there are also risks involved. For the buyer, the danger lies in possible "hidden defects": legal claims, old tax risks or other obligations that are not immediately visible. That's why proper due diligence (bookkeeping) is crucial. As a seller, you must prepare yourself for questions and evidence, and often provide guarantees about the financial and legal state of the business.
What is an asset/liability transaction?
With an asset/liability transaction, it's different. You're not selling shares, but specific business assets. Think machinery, inventory, a building or even just customer records. So the buyer chooses what to take over and, more importantly, what not to take over. This form of transaction is common in the acquisition of parts of a business, for example in a sole proprietorship or in a partial business sale.
For you as the seller, it means more work: each component must be described and transferred separately. In addition, it can have tax consequences, such as direct taxation on the book profit. For the buyer it is attractive because he runs less risk and does not take over unwanted liabilities.
But beware: if you are also taking over staff, there may be a "transfer of undertaking". As a buyer, you automatically take over all rights and obligations of those employees, including terms of employment, contract duration and accrued rights.
When do you choose what?
In practice, I see that when selling an entire limited liability company, a share transaction is usually chosen. It is legally simpler and often fiscally more advantageous for the seller. In contrast, an asset/liability transaction is interesting when a buyer only wants to take over certain parts of the business or for acquisitions outside the BV structure.
Yet it's not just about the legal form. The choice also depends on trust, negotiating power and tax considerations. As an adviser, I always look at the big picture: what fits best with the entrepreneur's situation, both now and in the long term?
My advice to business owners
Are you planning to sell your business? Then start on time. Have your organization thoroughly examined and identify possible risks. Determine together with an advisor which form of sale best suits your business and your goals.
For buyers, always do good research. Don't just be guided by what looks attractive on paper. Ask around, look critically and make sure you know what you are buying; whether it is shares or a selection of assets.
A business transfer is not an everyday occurrence. Therefore, get guidance from specialists who know what to look out for. The difference between a good and a failed transaction is often in the preparation.
