It is not necessary to pay 100% of the price to take control of a company. For a limited liability company, it is enough to have more than 50% in order to decide the management policy and the allocation of earnings. If a person possesses 75%, they have control. According to the person’s financial capacity, it is possible to increase their participation over time.
Unlike the sale of goodwill, the buyer cannot choose what they want to buy. Also, they can no longer control the risks connected with the company’s former liabilities as this is integrated within the full sale.
The proprietor holds proportional rights to their contribution of capital into the company in order to collect any benefits or to respond to former or existing debts.
The company’s value is more difficult to determine than goodwill as it is based on the evaluation of the company’s assets and liabilities.
It is customary to get in touch with an advice company to carry out this valuation. The advice company will be able to calculate the value of the company according to different methods, adapted to the business concerned.
Legal guarantees are weak. In fact, buying titles does not give you the right to goodwill. In the case where no specific commitments exist, the buyer cannot easily act against the vendor.
The buyer will be able to act against the vendor if they can prove that:
– The company no longer has assets
– The vendor has acted in a manner, which violates the consent of the vendor.
Because legal guarantees are weak, it is necessary to have a contractual guarantee: liability warranty.
This guarantee protects you against all liabilities not listed on the balance sheets, which occured before the sale and have an effect after. It is necessary to precisely and clearly state these events, which enable the implementation of the guarantee. These events can be a tax or social adjustment or action for dammages, for example.
There are two types of clause: pure liability warranty and the clause for price revision.
Pure liability warranty
The vendor commits to pay off creditors revealed after the sale or to pay back debts revealed after the sale so that the company can balance its liability.
The clause for price revision
This clause is generally used when payment is spread over time. The vendor commits to directly pay the buyer the difference in value of titles resulting from liabilities revealed. This leads to a reduction in price.
The transfer of titles is established by one act. However, it is necessary to write up many documents before the act is signed. During the negotiation period, the two parties are obliged to be honest and if there is an unwarranted break down in talks caused by one of one of the parties, it is their responsibility.
During the auditing period, it is advised to sign a memorandum of agreement, which sets up sale terms and guarantees (previously explained). In the case where shares are paid with common funds, the spouse must agree to and be mentioned in the act.
If not, the spouse can ask for invalidity of the act for up to two years after.
Another term is necessary according to the type of company: it is necessary to obtain the agreement of the other partners, in theory, the majority of partners, who represent half of the shares.
The sale is recorded in a private or notarial agreement
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