The pros and cons of a share deal or an asset deal

A transfer of a business is typically achieved through two possible routes: a share deal or an asset deal. The choice depends on your specific objectives, risk tolerance, and the wishes of both parties (buyer and seller).

1. Share deal

The seller transfers all rights and obligations linked to their shares, and therefore the company. The legal entity remains unchanged, with the same business number, maintaining full continuity. All existing contracts continue (unless a specific contract explicitly links consequences to a change in the share structure).

Such a transfer almost always involves due diligence on the business operations and financial status. If the share deal includes certain risks, these are investigated and possibly covered by guarantees for the buyer. This is standard practice and does not necessarily mean the end of a potential deal.

Belgium offers an exceptionally favorable tax regime for individuals selling shares. Even when a company sells shares, the capital gain is often tax-exempt (conditions: the selling company sells a share package of at least 10% or the purchase value is at least 2.5 million euros).

Advantages

• Continuity: The unbroken continuation of the company is usually simpler in a share deal, as all assets and liabilities are transferred along with the business.
• Simple Transfer: There's generally less administrative hassle, as the company's shares change hands without individual asset transfers.
• Tax Advantages: In many cases, there’s a tax exemption!

Disadvantages

• Hidden Obligations: Buyers assume all existing obligations, including potential hidden risks or liabilities.
• Limited Selectivity: Buyers have less control over the assets and liabilities they take on, as they are buying the entire company.

2. Asset deal

Here, the seller transfers specific assets. Debts are not transferred.

These specific assets (the business fund) include all tangible and intangible movable property needed to continue a business. This involves the trade name, logo, clientele, equipment, inventory, a website, social media accounts, the commercial lease agreement, etc.

Necessary contracts of the business must be transferred individually, requiring approval from the counterparties.

The purchaser can be held liable to some extent for the seller’s tax or social debts. To address this, official certificates from governmental bodies are typically used.

The purchase of a business fund can often be depreciated fiscally by the buyer. The seller must consider withholding tax payment if the sale amount is received by a company.

An asset deal may also involve the transfer of employment contracts. In such cases, Belgium has long applied CAO 32bis, ensuring that employees' rights are maintained. Through the transfer of the business fund, employment contracts of the employees involved are automatically transferred to the buyer.

Here's a summary of the pros and cons:

Advantages

• Selectivity: Buyers can select specific assets and liabilities, giving them more control over what they acquire and the obligations they take on.
• Less Liability: Buyers generally have less liability for the company’s historical obligations, as only selected assets are acquired.
• Depreciation Benefits: Buyers can benefit from fiscal depreciation advantages on acquired assets.

Disadvantages

• Transfer Costs: Each asset transfer may involve legal and administrative costs.
• Third-party Consent: Certain assets may require third-party consent, such as contractual obligations or permits.

Source: Baakn Advocaten www.baakn.be