You want to sell your business and may even have already found a buyer. However, you’re not sure which type of transaction to carry out, and don’t know the difference between selling your company’s shares and selling your business.
Who does it?
In the case of a sale of shares, you, as an individual, are selling the shares in a company that you own. If the shares sold are owned by another company, such as a holding company, it is this company that will sell the shares.
Conversely, in a business sale, the company sells its business.
This has tax and other consequences. In the first case, it is the person selling the shares who will be taxed. In the other case, the company selling the business will be taxed.
What exactly am I giving up?
In a business sale, you only sell the assets of your business. This means that you retain any debts that may have arisen prior to the sale agreement. In all likelihood, you will then have to deduct from the sale price the amount needed to repay the company’s debts.
With a sale of shares, you sell the entire company, with its assets and liabilities. This is riskier for the buyer, whose liabilities may turn out to be greater than anticipated at the time of sale. In most cases, therefore, a transfer of shares is accompanied by so-called “asset” or “liability” guarantees, enabling the seller to be held liable in the event of any unpleasant surprises.
That’s the main difference between the two.
The fate of current contracts
Buying a company necessarily means taking over all its activities, and therefore all its current contracts.
On the other hand, the purchaser of a business may, under certain conditions, not take over certain contracts. This applies to both employment and commercial contracts. For example, the sale of a business may provide an opportunity to break with an unreliable supplier.
Price payment
In the case of a tax sale, payment of the price is immediate, making the operation seem quicker. In reality, if guarantees are given, the transfer of securities can have much longer-term effects.
At the same time, the sale of a business usually requires that the proceeds of the sale be placed in escrow, to be released to the seller only after the expiry of a period known as the “opposition period”, during which the business’s creditors can request payment from the proceeds of the sale. The seller often has to wait at least three to five months before receiving the proceeds of the sale.
DESRUMAUX AVOCATS can support you in the sale of your business, as well as in an acquisition.
