Acquisition of a business fund with or without debt: avoid paying twice

Acquisition of a business fund is, in principle, without taking over debts such as outstanding suppliers or bank credits. Special attention is needed for (1) debts toward 5 public administrations (VAT, direct taxes, social insurance fund, RSZ, Flemish Taxes) (2) possible lien on the business (lien on business assets) (3) the right of priority of the landlord of the business premises.

Avoid the Risk of Double Payment of the Purchase Price

Are you as an independent entrepreneur standing before the takeover of a business? It's crucial to understand which elements are transferred in such a transaction.

When transferring a sole proprietorship or the business (or business fund of a company), this includes:

• The clientele
• The trade name, possible brand names
• The logo
• Phone, website, and domain name
• Equipment, furnishings, and inventory
• Continuation of the commercial lease

Not transferred are the bank account, bank credits, cash, receivable and payable invoices, and current accounts. These fall outside the transfer of the business fund.

In the takeover of a business fund, it is essential to get certainty about the seller's fiscal and social debts. In the acquisition of a business, there's a risk that you may end up paying more than the purchase price. A buyer can be held liable for the seller's fiscal and social debts. It's possible that the seller still has outstanding debts with the tax authorities (VAT, direct taxes), social security (social contributions, RSZ), and the Flemish Tax Administration at the time of transfer. If the purchase price has already been paid entirely or partially to the seller and there are still outstanding debts, the buyer risks having to pay these debts, up to the amount already paid to the seller for the business fund. In fact, the buyer risks paying the purchase price twice!

2 Scenarios for Certainty About Debts

1. The seller provides five recent certificates concerning fiscal and social debts, namely VAT, direct taxes, social contributions, RSZ, and the Flemish Tax Administration. These certificates must be no more than one month old at the time of transfer.
2. The buyer waits with paying the purchase price until the prescribed period has passed after the registered sending of a certified copy of the transfer agreement of the business fund to the relevant authorities, namely VAT, direct taxes, social insurance fund, RSZ, and the Flemish Tax Administration. The buyer must keep a copy of this dispatch, as well as proof of registered sending.

The prescribed period is the first of the second month following the dispatch. During the first month following the notification, the tax authorities can act as if no transfer has taken place and, for example, seize certain assets of the business. As a buyer, you have an interest in notifying the transfer as soon as possible. A practical example of compliance with the period: If you sign a sales agreement on September 10 and send copies between September 15 and 20 to the relevant authorities, these authorities have the entire month of October to respond. If the buyer has not received any notification by November 1, he can pay the purchase price without risk that the involved authorities can still make claims.

It's important to understand that only the seller is authorized to request these certificates, confirming that there are no fiscal and social debts at the time of the request. These certificates must be requested from the relevant authorities for the seller's residence or registered office. It is also important to note that these certificates remain valid for only 30 days after issuance.

• Debt certificate: Art. 50 WMGI. You request this certificate from the competent Collection Team and get a combo VAT and Taxes
• Certificate of no RSZ debts regarding employed staff (at RSZ - Article 41quinquies RSZ law of June 27, 1969)
• Certificate of no outstanding social contributions as a self-employed person (at your social insurance fund - Article 16ter KB No. 38 of June 27, 1967 social statute of the self-employed) example application form Liantis. This certificate must be requested for the natural self-employed person and/or each director in the Company (so if there are 5 directors each with a different SI fund there must be a separate certificate for each director. This certificate must also be requested for the company for the corporate contribution.
• 2nd request needed at the Social insurance funds Article 95Bis of the KB dated 15.3.1993 This article pertains to the "joint and several" liability of the company to pay the social contributions of its directors if/when those directors have defaulted.
• Certificate of no outstanding tax debts at the Flemish Tax Administration. Article 3.12.1.0.14 Flemish Codex Taxation (tax Flemish Region) example application form.
  To avoid that you, in the absence of certificates, as a buyer, besides the purchase price owed to the seller, also have to bear the seller's debts, it is best to conclude the agreement under the condition of obtaining these certificates. At the very least, the agreement should state that the price will only be paid after the expiry of the period.

Lien on the Business (Lien on Business Assets)

Furthermore, there must be certainty that no third party can claim any rights to the entirety or certain components of the acquired business fund.
The buyer, in any case, has an interest in including a statement from the seller in the acquisition agreement, in which he declares and guarantees:

• that the business fund is free and unencumbered,
• that no privileges encumber the constituent parts of the business fund or have been pledged in any form.

The acquired business fund may potentially be encumbered with a registration in favor of a financial institution (formerly called business fund pledge – since the change in the law, it is called a lien on business assets). Moreover, certain components (machines, equipment, rolling stock such as cars or trucks) can be pledged or encumbered with the priority of unpaid sellers. Thus, the buyer risks that the acquired business fund or parts of it can be seized or sold if the seller has not paid all his debts to the financial institution in whose favor the registration was made or the lien is established.

Registration on the business fund follows the business fund and not the owner. Only a mortgage investigation at the address of the relevant business fund can provide clarity on whether a registration has been made. The request must be directed to the mortgage office of the district under which the business fund falls. Any interested party can request a statement of the registrations on a business fund.

If the business fund is free and unencumbered, there is no danger that a financial institution can seize the acquired business fund.

However, if there are registrations on the business fund, the buyer must ask the seller for a document issued by the financial institution that benefits from the registration, stating the conditions under which it is willing to release its registration in its favor. In principle, this will be the payment of all outstanding debts of the seller to the involved financial institution.

If the seller has sufficient liquidity, he can pay the debts and obtain a document from the financial institution confirming that the release of the registration is in progress or that the registration has become irrelevant.

If the seller does not have sufficient financial resources, he must agree to pay (a part of) the purchase price to the relevant financial institution.

Transfer of Commercial Lease Agreement

Procedure The entrepreneur who wants to transfer the commercial lease agreement (or sublease the property) must notify the owner-landlord by registered mail.

If the landlord does not object within 30 days, he is deemed to have given his consent. In case of a dispute, the magistrate decides.

After the transfer of the business, the buyer of the business fund becomes the new tenant under the same lease conditions, but the seller remains liable to the owner-landlord for the obligations arising from the commercial lease agreement concluded by him until the next due date.

The new operator of the business takes over all the rights arising from the commercial lease agreement: enjoyment rights, the right to undisturbed and peaceful possession, lease renewal, etc.

The landlord cannot oppose the transfer of the business and need not give explicit permission. Such a transfer of the commercial lease agreement without the explicit agreement of the landlord does mean, however, that the original tenant remains liable for the lease obligations. Only when the landlord expressly releases the former tenant from his obligations and explicitly accepts the transferee (of the commercial lease agreement) as the new tenant, he can no longer turn to the original tenant to demand compliance with obligations.

For the transfer of the lease agreement, the landlord does not need to give explicit approval. However, it goes without saying that you are better off involving the landlord in the transfer. To make the transfer legally valid, it is preferable to draft a written agreement between all involved parties, buyer, seller, and landlord (he is not obligated to intervene in this).

If you did not involve the landlord in the written lease transfer agreement, you must notify the landlord of the transfer by registered mail. The lease transfer can be asserted against the landlord as soon as he has been notified. Compared to other persons (besides the landlord), there often arise difficulties regarding the date of the lease transfer (which can be important in a bankruptcy procedure). Therefore, always register this (transfer) agreement at the Registration, as well as the transfer of the business, which must be done within 4 months after the transfer.

TIP 1 Always ask for explicit agreement from the landlord for the transfer/sublease or conclude a new commercial lease agreement or ensure a completely new commercial lease agreement to replace the existing one.

TIP 2 Request confirmation that there are no rental arrears at the time of transfer of the business. The landlord has a priority on the inventory of the rented property.

In short, when taking over a business fund, it is crucial to thoroughly investigate the financial and fiscal situation of the seller to avoid double payments and unforeseen debts. It is also advisable to precisely record the transfer and potential debt repayments in the acquisition agreement to avoid legal issues. It is always wise to seek legal advice to ensure the transfer of the business fund goes correctly and without unpleasant surprises.