The seller of a business has certain obligations, the most important of which is to hand over the business. But how does this obligation materialize? And what are the seller’s other obligations?
1. The obligation to deliver goodwill
The sale of a business involves the transfer of ownership of the business in its entirety. It is the seller’s responsibility to ensure that all the components of the business are transferred and easily accessible to the buyer. For example, he must ship any equipment not located on the premises, and hand over the keys to the storage facilities.
When selling a business, the seller’s obligation to deliver concerns :
- Tangible items such as equipment, furniture, tools, etc. are not included.
- Intangible assets such as leasehold rights, brand names, trade names, clientele, employment contracts, intellectual property rights and patents, etc., are not included.
To avoid any subsequent disputes, and to guard against possible penalties for non-compliance with the obligation to deliver, it is advisable to draw up a precise inventory of the items transferred as part of the sale of the business, and to have this signed by the transferee.
2. What other obligations does the seller of a business have?
In addition to the obligation to deliver, the sale of a business requires the seller to assume the responsibilities associated with the guarantee of eviction and the guarantee of hidden defects.
The eviction warranty can be likened to a non-competition clause set out in the French Civil Code. The seller of a business is prohibited from establishing a similar activity in the vicinity of the business sold. This obligation also extends to the seller’s close relations and to former usufructuaries of the business.
The eviction warranty is compatible with your freedom of establishment and is therefore not absolute. If you plan to re-establish yourself after the sale of your business, you should discuss this with your lawyer to assess the feasibility of the project and limit the risk of recourse by the transferee.
As for the warranty against hidden defects, this requires the seller to inform the transferee of all defects and deficiencies concerning the items sold. This applies to defects of which he is aware or of which he cannot be unaware.
To hold the seller liable for latent defects, the purchaser of the business must demonstrate (i) that the defect existed prior to the sale, (ii) that it was not apparent, and (iii) that its existence complicates, or even renders impossible, the operation of the business.
3. Does the seller have any obligations to third parties?
The seller’s obligations are not limited to his relationship with the transferee. In the event of the sale of a business, the seller’s obligations are not limited solely to the buyer. The seller is also obliged to respect his commitments towards his employees and the municipality.
When selling a business, the seller has a duty to inform its employees. He must inform them of the sale of the business if the company meets certain conditions, in particular if it does not have a Social and Economic Committee (CSE), has fewer than 250 employees, and generates sales of less than 50 million euros or has a balance sheet of less than 43 million euros. All employees must be informed, whether by posting with acknowledgement of receipt, e-mail with acknowledgement of receipt, hand-delivery or bailiff’s deed. This obligation does not apply in the event of a sale to a family member or the opening of collective proceedings.
What’s more, in certain cases, the local council has a right of pre-emption over the business. This means that the municipality of the commune where the business is located can buy it in priority to any other buyer. In order for the town council to exercise its right of pre-emption, the seller must inform it of the sale of the business. The mayor then has two months to indicate whether or not he intends to acquire the business, in order to protect local shops and crafts. This right of pre-emption is often included as a condition precedent in the sales agreement.
Are you planning to sell or buy a business? We can support you from negotiation through to sale, including post-sale formalities.
