Share transaction and asset liability transaction
There is a lot involved in a business acquisition. It makes a difference whether a buyer is taking over a sole proprietorship or VOF versus taking over a BV. Taking over the former can simply involve agreeing the purchase by taking over the assets and liabilities. This form of takeover is not form-based and not legally defined. A BV has its own legal personality and therefore there are two options for taking over a BV. This can be via a share transaction and via an asset liability takeover. Below, we explain both: share transaction and asset liability transaction.
As mentioned, the BV is a legal entity. The BV itself can own assets and have debts. The ownership of the BV is in the hands of the holder(s) of the shares. In a share transaction, the shares in the company are sold. These shares then get a new owner.
So the debts and assets, as well as all rights and obligations, contracts with suppliers, staff and customers, licences and permits and, for example, debts to the tax authorities, remain the property of the BV. The company remains entirely intact and only the owner of the BV changes. The difference between a share transaction and asset liability transaction is that in an asset liability takeover, the assets of a company (or part of it) are sold.
Finalising the transfer of shares
The transfer of shares must always be done by a notary. The notary examines whether the seller is the owner of the shares and whether he is authorised to sell them. A BV’s articles of association usually contain a blocking clause. This means that a shareholder cannot simply sell his shares. The notary draws up a deed regulating the share transaction. Next, the BV’s shareholder register is updated so that it is clear who owns (or owns) the issued shares. Again, the share transaction and asset liability transaction differ. When taking over assets and liabilities, going to the notary is not mandatory.
Besides the notarial deed of share transfer, it is wise to record further agreements between the various shareholders in a shareholders’ agreement. You can view a shareholder agreement example here.
Advantages of share transfer
The advantage of the share transaction versus an asset liability transaction is that with this one (notarial) act, all rights and obligations of the BV are transferred to the new owner at once. But beware: all (hidden) liabilities also transfer, i.e. also all debts. It is therefore very important to have a good understanding of the obligations of the BV before the shares are taken over.
If the BV owns registered property, there may still be an advantage (provided this is less than 70% of the balance sheet total). Because these are automatically included in the business acquisition, no transfer tax needs to be paid.
Is a buyer entitled to investment deductions?
Compared to the share transaction and asset liability transaction, the purchase of shares by the new owner has a fiscal disadvantage. This is because there is no right to investment deduction; the goodwill paid may not be amortised on the balance sheet. In an asset liability takeover, the goodwill paid can be amortised over, say, 10 years, creating a tax-deductible expense.
There are other tax advantages and disadvantages between the acquisition forms. To this end, Fruytier Lawyers in Business works with a number of tax specialists with whom we can give you a complete picture in a proposed business acquisition and advise you on the transfer.
Change of control clause
Some contracts with suppliers and buyers contain a change of control clause. This allows one of the parties to terminate the agreement if the other party’s control changes. This is the case, for example, in a share transaction. When acquiring a company, pay close attention to whether this type of provision is included in contracts. This can mean termination of contracts after an acquisition, which often affects the price people are willing to pay. The difference between an equity transaction and asset liability transaction is that in an asset and liability acquisition, the buyer will often have to renegotiate contracts and terms with buyers and suppliers.
Sale of assets
The equity transaction and asset liability transaction differ specifically in what or which business units are actually acquired in a purchase. In an asset sale, a company’s assets (or part of them) are sold. These include, for example, machinery, inventory, stock and staff. Ownership of these is transferred from one BV to another. So the new owner does not just take over everything. Only the items listed at the time of the sale pass, this must be clearly defined.
There are different types of assets, both current assets (think raw materials and stocks) and fixed assets (long-term assets, such as real estate or fixed special machinery) can be taken over in an asset transaction. In addition to asset sales, there is sometimes also acquisition of liabilities. These involve the company’s debts. These may include loans, bank balances, debtors and creditors.
Advantages and disadvantages of asset liability takeover
It is quite laborious to describe all things correctly in an asset transaction. This must be done carefully to avoid discussion afterward. Due to the change in ownership, existing contracts cannot simply be continued. New arrangements have to be made with the relevant contracting parties, and the buyer of the business in this situation cannot build on the built-up relationships of the selling party. A prominent and laborious distinction between the share transaction and asset liability transaction.
Special rules apply to the takeover of staff and a lease of premises, which must be taken into account within an asset-liability takeover. For the takeover of personnel, the rules for the takeover of the company apply. For the takeover of a lease, the rules on substitution apply.
Share transaction and asset liability transaction
Several advantages and disadvantages of share transactions and asset liability transactions have been outlined above. A seller will often opt for a share transaction, in order to transfer all his rights and obligations to the buyer in one go. Thus, if the seller has a strong position, the business takeover will be quicker via a share sale. In case a buyer has a stronger position, and he does not wish to take over all parts of the company, an asset-liability takeover will be more appropriate. Finally, there are also tax advantages and disadvantages that factor into the decision to transfer shares or asset transactions. The choice is not made lightly and has legal and economic consequences.
During a business acquisition, it is always wise to have a due diligence investigation carried out. In popular parlance, this is also called a book review, but due diligence includes more. It also looks at the legal, financial, fiscal and commercial aspects of the company or companies involved. This gives you the most complete picture possible of what you are buying and the associated risks and opportunities.
Fruytier’s corporate lawyers have extensive experience in mergers and acquisitions, both at large companies and within SMEs. Feel free to contact us without obligation.