“You wouldn’t buy a pig in a poke…”. A great saying which can be applied to business capital. Buying business assets is often synonymous with a new professional life. From the seller’s point of view, it represents new opportunities or investments. So that this takes place in optimal conditions, and doesn’t become a nightmare, caution and patience should be exercised. Here are 6 essential questions to ask.
Firstly: what is meant by business assets?
Business assets are things of value that are used in a business. The assets are of two types:
- Tangible assets, like business vehicles, equipment, supplies, and buildings
- Intangible assets, like copyrights, patents, and trademarks.
Business assets can be transferred (sold) to a third party, who is then called the “transferee”. The seller, the party transferring the business capital, is called the “transferor”.
Business assets can vary based on the type of business. However, some of them are systematically included. For example:
- the customer base;
- material elements required to operating the business capital (tooling, goods, etc.);
- ongoing contracts (supply);
- sums due based on the commercial activity;
- and finally, the lease, which is an essential element (premises)
In principle, debts are not transferred with the capital and remain attached to the trader/seller.
Questions to ask yourself
1. Find out what the business assets comprise
It is essential to know exactly what is for sale, to perform a “diagnosis” of the business assets. For this purpose, the seller generally prepares various legal and accounting documents allowing the buyer to assess the risks of acquiring the business.
Of course, the seller may provide the buyer with this, but we would strongly discourage giving the buyer the originals. Consider making copies of the documents.
2. Which contracts are related to the business assets?
This is extremely important. In fact, various contracts can be attached to the business assets and form an integral part thereof.
“Current” contracts, such as supply contracts, are a priori automatically transmitted with the business assets. If the parties want to exclude them from the sale, the end of contracts must be specified and organised.
The same applies to employment contracts, which cannot be excluded. Staff must retain the same working conditions. It is essential to bear in mind that the former and new employer are both jointly responsible for paying the wages due on the date of the business assets’ transfer.
When the seller is a tenant in the building where the business is carried out, there is the question of the transfer of the commercial lease. If all the business assets are sold, the lessor can only oppose the transfer of the lease contract in certain cases strictly defined by the law. In addition, they must be informed of the sale by registered letter or by a court officer for this to be actionable.
When the lease contract is sold at the same time as the business assets, the buyer benefits from the same rights, and is subject to the same obligations as the seller towards the lessor.
3. What is the price of the business assets? What are the payment terms?
The price is an essential element of the sale of business assets. It must, at the very least, be determinable so that both parties can assess and give their agreement. There is nothing to stop a variable proportion being agreed on based on subsequent elements.
When it comes to payment terms, there are several possibilities. Either the buyer pays the whole price on the day of the business assets’ sale, or the buyer pays the price in several instalments.
In the first case, a condition precedent for obtaining credit must be proven in order to protect the buyer. In the second case, the seller will need guarantees to be certain of receiving the price or recovering the business capital in case of non-payment by the buyer.
There are three types of possible guarantees:
- Firstly, the parties may make use of a retention of title clause. The seller then remains the owner of the business assets until full payment of the price.
- Secondly, the parties may agree that the buyer will provide the seller with a bank guarantee. This guarantee ensures payment to the seller.
- Finally, the parties may include a resolutory clause. If the buyer doesn’t pay, the sale will be cancelled as if it had never existed.
4. Are certificates required? Can the buyer request them?
Yes, there are certificates guaranteeing the absence of social and fiscal debts relating to the business assets. The buyer may ask the seller to procure them (they are essential and practically an obligation). These certificates are issued by the tax, VAT and social security administrations and the social security funds within 30 days of the request. If the competent organisation refuses to issue the certificate, this should be a warning sign for the buyer!
In fact, in the absence of certificates, the buyer is severally liable for payment of the seller’s debts, particularly fiscal debts.
In addition, each of these organisations must be informed of the change of ownership of the business assets. This notification is extremely important since, within 30 days of this, these organisations can take provisional or enforcement measures to guarantee their rights.
It is sufficient to provide a certified copy confirming the transfer. The transfer only becomes enforceable regarding these organisations 30 days after this notification. When the certified copy is accompanied by certificates, the 30-day deadline and the joint liability does not apply in fiscal terms.
5. Should I be considering guarantees or protection?
As with any sale, the seller guarantees the buyer against any hidden defects, against the eviction of third parties, etc. A non-compete provision may also be included. It is also a good idea to put this obligation in writing, specifically to specify the geographical territory covered and the length of the obligation.
6. Can business assets be transferred with a handshake?
In principle, yes. The transfer of business assets is a contract which “arises” from the consent of the parties. However, we strongly recommend using a written contract. This will avoid any subsequent disputes, but will also set out all the points covered above. It is also important to notify the competent authorities of the transfer.
In addition, in terms of buildings, they are, in principle, excluded from the transfer. If the parties want to include them in the transaction, this must be specified in writing in the deed of assignment and the transfer of the buildings must be the subject of an authenticated deed.
In terms of intellectual and industrial property rights such as the trade name, logo, patents, designs and models or even the brand, even if they form part of the business capital, they must be the subject of a specific registration. Therefore, their transfer must be formalised in writing and notified.
Conclusion
It is always a good idea to prepare both yourself and the business assets. Generally speaking, we can confirm that the written form is essential when setting out the situation of the parties and for the various notices required.