Share transaction and asset liability transaction

There is a lot involved in a company takeover. It makes a difference whether a buyer takes over a sole proprietorship or a general partnership (VOF) as opposed to taking over a private limited company (BV). Taking over the former can be done simply by reaching agreement on the purchase and taking over the assets and liabilities. This form of takeover is not subject to any formal requirements and is not laid down in law. A private limited company has its own legal personality, which means there are two options for taking over a private limited company. This can be done through a share transaction or through an asset and liability takeover. Below, we explain both: share transaction and asset and liability transaction.

Share transaction

As mentioned above, a BV is a legal entity. A BV can own assets and have debts. Ownership of the BV lies with the holder(s) of the shares. In a share transaction, the shares in the company are sold. These shares then get a new owner.

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, therefore 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 an asset and liability transaction is that in an asset and liability takeover, the assets of a company (or part thereof) are sold.

Completing the transfer of shares

The transfer of shares must always be carried out by a solicitor. The solicitor checks whether the seller is the owner of the shares and whether he is authorised to sell them. The articles of association of a BV usually contain a blocking clause. This means that a shareholder cannot simply sell his shares. The solicitor draws up a deed regulating the share transaction. The BV’s register of shareholders is then updated so that it is clear who owns (or who the owners are) of the issued shares. Here too, there is a difference between a share transaction and an asset and liability transaction. In the case of a takeover of assets and liabilities, it is not mandatory to go to a solicitor.

In addition to the notarial deed of share transfer, it is wise to record any further agreements between the various shareholders in a shareholders’ agreement. You can view an example of a shareholders’ agreement here.

Advantages of transferring shares

The advantage of a share transaction over an asset and liability transaction is that with this single (notarial) act, all rights and obligations of the private limited company are transferred to the new owner in one go. But please note: all (hidden) obligations are also transferred, including all debts. It is therefore very important to have a good understanding of the obligations of the private limited company before the shares are acquired.

If the BV owns registered property, there may be an additional advantage (provided that this is less than 70% of the balance sheet total). Because this is automatically included in the business takeover, no transfer tax needs to be paid.

Is a buyer entitled to an investment deduction?

Compared to the share transaction and asset and liability transaction, there is a tax disadvantage to the purchase of shares by the new owner. There is no right to an investment deduction; the goodwill paid may not be depreciated on the balance sheet. In the case of an asset and liability acquisition, the goodwill paid can be depreciated over a period of ten years, for example, which results in a tax-deductible expense.

There are other tax advantages and disadvantages between the types of acquisition. Fruytier Lawyers in Business works together with a number of tax specialists to provide you with a complete picture of a proposed business acquisition and to advise you on the transfer.

Change of control clause

Some contracts with suppliers and customers contain a change of control clause. This gives one of the parties the option to terminate the agreement if control changes to the other party. This is the case, for example, in a share transaction. When acquiring a company, pay close attention to whether such provisions are included in contracts. This may mean that contracts are terminated after an acquisition, which often affects the price that people are willing to pay. The difference between a share transaction and an asset and liability transaction is that, in the case of an acquisition of assets and liabilities, the purchaser often has to renegotiate contracts and conditions with customers and suppliers.

Sale of assets

The share transaction and the asset and liability transaction differ specifically in terms of which business units are actually acquired in a purchase. In an asset sale, the assets of a company (or part thereof) are sold. These include, for example, machinery, inventory, stocks and personnel. Ownership of these assets is transferred from one company to another. The new owner does not simply take over everything. Only the items specified in the purchase agreement are transferred, and this must be clearly described.

There are different types of assets, both current assets (such as raw materials and inventories) and fixed assets (long-term assets, such as real estate or specialised machinery) can be acquired in an asset transaction. In addition to the sale of assets, liabilities are sometimes also taken over. These are the company’s debts, which may include loans, bank balances, accounts receivable and accounts payable.

Advantages and disadvantages of asset and liability transfers

It can be quite laborious to describe all items correctly in an asset transaction. This must be done carefully to avoid disputes later on. Due to the change of ownership, existing contracts cannot simply be continued. New agreements must be made with the relevant contracting parties and, in this situation, the purchaser of the company cannot build on the relationships established by the selling party. This is a prominent and laborious distinction between a share transaction and an asset and liability transaction.

Special rules apply to the transfer of personnel and a lease agreement for business premises, which must be taken into account in an asset and liability transfer. The rules for the transfer of a business apply to the transfer of personnel. The rules on substitution apply to the transfer of a lease agreement.

Share transaction and asset and liability transaction

Various advantages and disadvantages of share transactions and asset and liability transactions have been outlined above. In most cases, a seller will tend to favour a share transaction in order to transfer all of his rights and obligations to the buyer in one go. If the seller is in a strong position, the business takeover will therefore take place more quickly through a sale of the shares.

If the buyer has a stronger position and does not wish to take over all parts of the company, an asset and liability takeover will be more appropriate.

Finally, there are also tax advantages and disadvantages that need to be taken into account when deciding whether to transfer shares or carry out an asset transaction. The choice is not made lightly and has legal and economic consequences.

Due diligence investigation

When acquiring a company, it is always wise to have a due diligence investigation carried out. This is commonly referred to as an audit, but due diligence involves more than that. It also examines the legal, financial, tax and commercial aspects of the company or companies involved. This gives you as complete a picture as possible of what you are buying and the risks and opportunities involved.

How can you get advice on choosing the right form of acquisition?

Our solicitors can provide you with specific advice on the choice between a share transaction and an asset-liability transaction by working with you to analyse which form is best for you. We will map out for you what actually needs to be transferred, which obligations you do or do not want to take on, and how contracts, permits and personnel will be transferred. This will prevent you from unknowingly taking on hidden debts or losing valuable customer relationships. Tax aspects are also taken into account in the advice.

Fruytier’s corporate law solicitors have extensive experience with mergers and acquisitions, both for large companies and SMEs. Please feel free to contact us without obligation.