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The purchase, creation or sale of a business is an important legal and economic act in the professional life of a businessman or woman.
It is essential to seek the advice of a professional in order to avoid any unpleasant surprises.
What is a business?
The concept of a business has a very precise legal definition.
It consists of several tangible and intangible elements that make up the value of the business and which may be disposed of: the customers, the trade name, the brand or sign, the right to a lease, the equipment, the stock, the operating licences, the patents, etc.
Conversely, business does not include buildings, receivables and debts, contracts (except those that must be transferred such as employment contracts), accounting documents, terrace rights ...
In the case of purchasing a business, a precise procedure needs to be followed:
- declaration of the transfer project with the town hall,
- inform employees of the plan to sell the business,
- sign the business transfer sale,
- registration of the deed of transfer,
- publication in a newspaper of legal notices,
- filing of the modification file with the Business formality centers (CFE).
How should the document recording the transfer of a business be drafted?
Mandatory legal and tax rules apply when the promise to sell and the agreement to sell (or buy) a business are signed.
They are intended to protect the seller, the seller's creditors (supplier, personnel, social security bodies, the tax authority, etc.) and also the buyer and their banker.
When a business is disposed of, the fundamental document is the preliminary sale agreement [compromis de vente]. It is better to use the services of a legal professional, such as a notaire. If certain information is missing, the sale will be null and void.
What should be checked?
A detailed study should be carried out in advance as much of the information is important.
- What would happen if one or more employment contracts with employees were not mentioned when the purchaser is under an obligation to keep them in force?
- Another example: is the lease in order or does it contain errors or omissions?
- Do the premises correspond to the premises identified in the lease?
- What is the current rent? Is it subject to VAT or not? When must it be revised?
- Do you have to pay a deposit?
- Have you checked that the provisions in the lease allow you to carry on all the business activities that you have planned for?
- Have you checked that the lease will be renewed by the owner at the end of the current period?
- Do you have information regarding the urban planning provisions that apply to the premises in which the business will be carried on?
Urban planning can totally change the marketability of a place, for better or for worse.
In the case of purchasing a business, the commercial lease is transferred to the buyer. This is the right to lease. However, clauses can frame the transfer: prior approval of the lessor, guarantee on rents, etc.
A clause in the lease may provide that the lessor has the power to approve or refuse a possible buyer. In terms of the rental guarantee, it allows the lessor to turn against the seller when the buyer does not doesn’t pay his rent.
What should the sale document contain?
When the sale agreement (or promise to sell) is signed, certain information must be included in the document, as without it the contract may be held null and void.
If certain information is missing, such as the root of title, any charges registered against the business, the turnover and profit achieved in the three preceding financial years or the conditions of the lease, the buyer may ask for the sale to be held null and void.
These elements made it possible to determine the value of the business.
However, the law dated July 19, 2019 deleted Article L141-1 of the Commercial Code. Thus, there is no longer any obligation as to the form of the deed of sale and the mandatory information.
However, most of the time, the deed of sale provides for these mentions in order to secure the sale. Other clauses are often inserted in the act, for example, the non-compete and non-reinstatement clause for the seller. The act may also provide for the payment of registration costs. The latter are in principle the responsibility of the buyer, but the parties have the option of providing for a sharing of costs between the seller and the buyer or even payment by the seller.
Good to know : Despite the removal of the mandatory information, the seller remains bound by information obligations. Moreover, the seller and the buyer must always endorse, on the day of the sale, a document which shows the monthly turnover achieved between the end of the last financial year and the month preceding that of the sale. The seller must also make available to the purchaser, for three years from the entry into use of the fund, the accounting books kept during the three financial years preceding the one of the sale.
At what point does the buyer pay the price and take possession of the business?
As soon as the sale agreement is signed.
If the price is not paid in cash, a guarantee is set up in order to protect the seller ("seller's lien" or "registered charge" [privilège de nantissement]). The sale price is retained for a period of 105 days from the sale, while all the formalities are completed.
The price is paid to an "escrow agent" such as the notaire.
Sometimes the money is actually paid to the seller five and a half months after the sale.
Careful: the sequestration period is extended by 60 days when the seller does not file his profit declaration within 60 days of the date of publication of the sale in Bodacc. Sequestration fees and expenses are the responsibility of the buyer, unless the deed of sale provides for another distribution
Why does the seller have to wait so long?
This long waiting period is the result of a succession of several different periods. Once the sale agreement has been signed, it must be registered with the business tax service by the buyer within one month. This is when he pays the registration fees. It is published within two weeks in a journal of legal announcements, and is then published in the Bodacc [Official bulletin of civil and commercial announcements].
These two publications mark the starting point of a period of 10 days during which the seller's creditors may object to the sale.
There is then another period of 60 days (which starts to run from the two weeks of publication in the journal of legal announcements) during which time the tax authority may claim any unpaid tax.
Finally, 3 supplementary months are then added, during which the buyer has joint and several liability with the seller for the payment of any direct tax that is due on the profit of the business achieved during the year in which the transfer takes place, or the previous year, if no declaration has been made, up to the sale price of the business.
In total, the price may be held back for 5,5 months.
It should be noted : right after the publication of the sale, the buyer has 30 days to file a modification file with the CFE to report the acquisition of the business.
As for the period of solidarity, it can be reduced to 30 days (instead of 90 days) from the filing of the declaration of results when three conditions are met:
- the notice of sale of the business was sent to the tax authorities within 15 days of the publication of the sale in a JAL,
- the declaration of results was filed within 60 days of publication,
- the seller is up to date with his tax declarative and payment obligations on the last day of the month which precedes the sale.
How much are the notaire's fees?
The notaire is free to set the fee for this type of document, and you should ask the notaire concerned.
With regard to the transfer of a business, the notaire is a preferred partner.
They can advise, draft an instrument including all the required legal information and provide legal security, which is more adapted to the situation than ever. You would be unwise to enter this legal and tax labyrinth without a guide.