Are you about to sell a business? Then good legal preparation is essential, because buyers don't want any surprises.
Hidden liabilities, vague contracts or tax risks can complicate a deal and reduce the value of your business. By putting your affairs in order in time, you increase your chances of a smooth and profitable sale.
Provide a strong legal basis
A buyer wants certainty. Are the articles of association up to date? Do they contain provisions that make a sale difficult, such as a blocking provision? Also check whether the shareholders' agreement places restrictions on the transfer of shares.
The tax structure is also important. Sometimes restructuring is necessary to avoid tax disadvantages or to make the sale more attractive. This can be done, for example, by dividing assets and liabilities differently between a holding company and operating company. Have a tax professional assess this in a timely manner.
Check contracts and obligations
A buyer not only takes over your business, but also current liabilities. Are all contracts transferable or do they contain a "change of control" provision? This means that permission from the other party is required first. Also assess whether agreements contain long notice periods or restrictive terms, such as employment contracts, supplier and customer contracts, and rental or lease agreements.
Permits and licenses must also be in order. This is especially true in industries where compliance is essential, such as finance and medicine. In addition, look at warranties and service contracts. Do these obligate the buyer to certain costs or performance? This can affect the selling price or even the buying decision.
Keep administration in order
During due diligence, a buyer assesses the financial, tax and legal situation. The better everything is documented, the smoother this will go. Make sure:
- Financial statements and tax returns are up to date;
- Statutes and Chamber of Commerce registrations are correct and up to date;
- Current obligations are well established;
- Debts and securities are transparent;
- Having the right insurance policies in place.
Transparent administration not only speeds up the sales process, but also inspires confidence. Lack of clarity can lead to additional questions, longer negotiations or a lower sales price.
Determine the right form of transaction
Think carefully in advance about the structure of the transaction. Will you opt for a share transaction or an asset/liability transaction?
In an equity transaction, the buyer takes over the entire entity, including rights and obligations. In an asset/liability transaction, part of the business may be sold, for example, only specific assets or contracts.
Choosing between the two forms has implications for:
- Liability - In an equity transaction, the buyer assumes all existing liabilities. In an asset/liability transaction, the seller may leave most of them behind.
- Taxes - A stock transaction does not result in corporate tax on the sale proceeds, whereas an asset/liability transaction may.
- Contracts - Some contracts contain a change of control provision, allowing them to be terminated in an equity transaction. In an asset/liability transaction, contracts often need to be renegotiated.
The choice between the two options is complex and has legal and fiscal consequences. Get proper advice on this.
Conclusion: a well-prepared business sells better
A smooth sale starts with a legally well-prepared business. By optimizing your structure, checking contracts and keeping your administration in order, you will avoid problems and increase the value of your business.
