For many entrepreneurs, the sale of their business is the culmination of years of building, investing and doing business. In practice, however, the company structure is often only critically assessed when such an intention becomes more concrete, for example because a potential buyer presents itself.
This is understandable, but rarely optimal from a transaction perspective. It often turns out that the structure is not 'ready for sale' at that time - legally and fiscally not set up in such a way that the company can be transferred to a third party efficiently and without undesirable consequences.
A company structure, such as a BV structure, cannot be optimized overnight. Last-minute adjustments not infrequently lead to immediate tax settlement, additional risks in the due diligence process or a less favorable negotiating position. This is precisely why preparing a company for sale should ideally begin well before there are any concrete plans to sell.
This article discusses a number of common points for consideration when preparing a company for sale, particularly from a tax perspective. Depending on the specific structure and circumstances, additional considerations may of course be relevant.
The legal structure as a starting point
In the vast majority of cases, a buyer prefers the purchase of shares in a legal entity, such as a BV, NV or cooperative (hereinafter: BV structure), rather than the purchase of a "tangible company" such as a sole proprietorship or VOF, or certain activities and assets of one particular BV through an asset/liability transaction. Indeed, through a BV structure, the business (or part of it - see the section below) can be transferred in one package, without the need for separate assets and liabilities to be legally delivered. This makes the transaction more orderly and manageable, and also in many cases more fiscally optimal.
A BV structure is also often more attractive for the seller, provided it is set up correctly for tax purposes. A common setup is the so-called holding company structure, in which the entrepreneur has a personal holding company with an operating company under it in which the business is run. When the shares in the operating company are sold, the sale profit at the holding company is in most cases exempt from corporate income tax under the participation exemption. Taxation then occurs only when the profits are distributed to the entrepreneur. A "loose" sale of assets and liabilities, on the other hand, leads in most cases to a direct taxed sale profit at the entrepreneur.
Thus, if a BV structure does not yet exist, consideration can be given to setting one up. However, converting a "material" corporate structure to a BV structure is a drastic and time-consuming process. Prior coordination with the tax authorities is often required and such processes no longer allow themselves to be initiated shortly before a sale.
Even with already existing BV structures - for example, when all activities have been placed in one BV - restructuring may be desirable. By means of a demerger, split-off or share merger, a marketable operating company can be created.
These forms of restructuring basically lead to a tax settlement moment. However, by making use of tax facilities, this settlement can be omitted. This is subject to specific conditions. Such restructurings therefore require careful preparation in order to avoid undesirable tax or legal consequences. Furthermore, for most approvals for such a restructuring without direct taxation, in principle there must be no concrete intention to sell. In addition, a sale within a number of years after obtaining the approval is almost always a point of attention and possible discussion.
What is sold - and what is not?
The next essential question is what the entrepreneur wants to sell and whether this is possible within the current structure. Businesses often consist of multiple activities and (valuable) assets, where possibly not everything should or can be sold. Consider, for example, different branches of the business, certain intellectual property or patents, or real estate.
In such cases, it can be attractive to place activities, assets or intellectual property in separate BVs. This creates flexibility for both buyer and seller: it can be determined for each BV whether it is part of the transaction. Again, a "holding structure" can be used here, with associated benefits for the seller (an exempt sale of shares under the participation exemption, as opposed to a taxed "separate" sale of assets and liabilities). A well-designed restructuring can make the transaction significantly more attractive for both buyer and seller than the initial situation.
For real estate within the structure, it is advisable in many cases to accommodate it in a separate real estate BV, for example through a three-stage structure (personal holding company - real estate BV - operating company). This gives the buyer the choice of acquiring the company with or without real estate. After all, the co-financing of real estate, including transfer tax, regularly represents a threshold. For the seller, the real estate can also remain an interesting investment after the sale of the company. A more important consideration here is the potential liability for transfer tax.
The structuring mentioned above is often achieved through a company merger or (de)demerger. As also mentioned earlier, such restructurings often require the application of a tax facility to avoid direct tax settlement. The chosen route, and the associated tax conditions therefore deserve emphatic attention; proper preparation is essential.
Do the benefits outweigh the additional costs?
As a rule, each additional BV leads to additional compliance costs, such as for administration, annual figures, and tax returns. However, the intended structure must fit the entrepreneur and the business. In practice, unnecessarily complex structures with many private limited liability companies and complex interrelationships are sometimes set up, resulting in high compliance and advisory costs, and at some point even losing sight of what the structure was intended for. However, the benefits of restructuring must be in proportion to the additional costs.
Such a complex structure can also be a consideration to restructure with a view to sale (simplify the structure again); a potential buyer is usually not keen on unnecessarily complex structures either.
Final points of attention
Last (but not least) the following points deserve attention:
- Does a fiscal unity exist within the structure for corporate income tax purposes, or is one desired? If so, it is advisable to assess whether it breaks up in the event of a sale, and when selling which part of the structure, and whether this leads to adverse consequences.
- Are there internal transactions and relationships within the structure? Or do these arise as a result of the restructuring mentioned above, for example (this is often the case)? Then it is important to record this correctly in mutual agreements.
- Are there still undistributed profits in the operating company? Then it may be worthwhile to start distributing these profits to the holding company prior to a sale. This keeps accumulated profits with the entrepreneur and makes the underlying structure more affordable to a buyer.
A sale-ready structure is not created by a last-minute intervention, but by timely and well-considered structuring. Those who start this early increase the chances of a smooth sales process and an optimal outcome.
