Increasingly, in acquisitions, a portion of the share purchase price is financed with debt capital. For most buyers, financial institutions are willing to finance the purchase price of the shares with a bank loan, participate in alternative solutions such as crowdfunding or have the bank loan supplemented with a subordinated vendor loan.
This leaves the buyer owing a portion of the purchase price to the seller. However, such a seller's loan is subject to a number of important conditions.
A bv or nv that wants to buy back its own shares and cannot finance this, might be tempted to have third parties buy the own shares and provide financial support for this in the form of a vendor loan or a security deposit. However, in order to protect creditors, who might be harmed by this, there was a ban on this form of financial support. Loans for the purchase of own shares were permitted only under strict conditions.
Seller loans allowed at e.g.
Since the entry into force on October 1, 2012 of the Act simplifying and flexibilizing BV law, the prohibition of financial support has lapsed. In practice, a strict application of this prohibition was in fact not desirable. In SMEs, vendor loans are therefore no longer subject to the prohibition on financial support for the acquisition of the company's own shares and vendor loans are permitted.
However, it is advisable to pay close attention to the tax developments surrounding the vendor loan. For example, the tax deduction of interest on borrowed capital has been under pressure for some time. In addition, the tax authorities are of the opinion that vendor loans as earn-out could fall under the participation exemption, as a result of which any write-off loss on the vendor loan would not be deductible and the interest received would not be taxed.
4 conditions for seller loans at nv
In the case of financial support for the buyer of shares in an SA, however, a number of conditions must be observed. First of all, the main rule is that a vendor loan is only possible if the board decides to grant the loan and this board decision has been approved in advance by the general meeting of shareholders. In addition, a loan may only be granted to the buyer for the acquisition of shares if the following conditions are met.
1. Business terms
The seller loan must be provided on market terms: at arm's length interest rates and collateral customary in the market.
2. Bonded equity condition.
The equity less the amount of the loan may not be less than the paid-in and called capital plus the tied reserves. This prevents a portion of the free reserves that have already been used from being used again for a vendor loan (or a distribution).
3. Creditworthiness of parties
The creditworthiness of the parties involved in the seller loan must have been closely examined.
4. Fair price
The price at which a third party acquires the shares through a transaction with the SA must be reasonable and fair.
Have sales loan reviewed by legal adviser
Of course, if financial problems arise after the transaction, a director does not want to be held liable for mismanagement. Therefore, always have a seller's loan reviewed by a legal adviser. This way, you can be sure that the seller's loan meets the necessary conditions and you won't be taken by surprise for tax purposes.
For example, the Enterprise Chamber of the Amsterdam Court of Appeal previously ruled in such a case that the management board had not in itself pursued an incorrect policy, because it had relied on the advice of the legal experts hired for this purpose when granting the vendor loans. So take the safe bet!
