In the last part, we talked about the contracts that we most often come across when selling a company. Today I will focus on explaining the variants of how the company (or part of it) can be sold.

In mergers and acquisitions, we often encounter three basic types of sales: by selling a share in the company (share deal), by selling the business plant a by selling individual selected assets (asset deal). Each of these types has its own specifics that affect both the legal, financial and tax aspects of the transaction.

1. Sale of shares in the company (share deal)

• It happens with the share deal to transfer shares or shares in the company, which means that the buyer gains control over the entire company including all its assets and liabilities. This type of transaction is often used when the buyer is interested in taking over a functioning business as a whole.
• The process requires careful contractual arrangements and due diligence, which includes checking the legal, financial, tax and other material aspects of the company.
• The main advantage is simplicity transfer of ownership by a single legal act (sale of share), but the disadvantage may be the assumption of existing company obligations.
• The transferred company remains a participant in all legal relationships, of which she has been a participant so far. However, be aware of the existence of "change of control" type agreements, according to which contractual partners can terminate these contracts or set less favorable terms if there is a change in the owner of the target company that is a party to the given contractual relationship. Do not forget to also check the existence of so-called contracts with connected persons and the possibility of their termination in the event of a change of owner. These are contracts on the basis of which the target company provides or receives performance from other companies of the concern. After a change in the owner of the target company, it may not be in his interest to receive or provide these services, either because they do not have general economic significance for the company, or because the new owner of the target company can provide them on more favorable terms.

2. Sale of a business plant (or part of it)

• Sale of business plant means transfer of a set of assets, which forms an organizationally independent part of the company capable of independent management. This approach is advantageous if the buyer is only interested in certain parts of the business.
• In this type of transaction, the "IČ" is not transferred, i.e. the company as such, but only its contents.
• The transaction can be implemented with one contract without having to transfer each asset / liability separately. There will be an automatic transfer of assets and liabilities, which by nature somehow "belong" to each other.
• Even with this transaction, it is necessary to pay attention to the existence of "change of control” clauses and contracts between related parties, as we stated above.
• The advantage is the possibility to take over only part of the business without unnecessary liabilities, but it can be more time-consuming due to the need to separate the transferred components.

3. Sale of individual selected assets (asset deal)

• Asset deal includes sale of specific assets, such as real estate, machinery or patents, without taking over the legal entity in which the assets are held. This type of sale allows the buyer to avoid taking on unwanted liabilities.
• Each asset must be transferred separately, which can lead to more complex and lengthy transactions, especially if there are more assets and they are legally demanding.
• In these cases, you usually do not encounter the issue of "change of control clauses" and contracts with related parties. However, you may encounter the existence of pre-emptive rights to important assets (typically real estate), whether contractually agreed or arising from the law (if you have the transferred asset in joint ownership). Of course, pre-emptive rights can also exist in relation to shares (share deal), but here their occurrence is more frequent.

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We can consider the above company selling techniques to be yours truly basic, the most common. The choice of one of them depends on what the original owner wants to sell, whether and to what extent he wants to continue further business activities after the sale of the company, whether he wants to have the possibility of private use of some of the company's assets so far, and on a number of other factors.

Of course, you can also meet combinations the above contracts (sales techniques) or other variants. We can mention, for example, the splitting off of part of the assets of an existing company, which is a process in which a part of the company is separated into a newly established company or into another, existing company. A spin-off requires changes to the articles of association or articles of association and usually must be approved by a general meeting. It is accompanied by the transfer of assets, liabilities and often employees to the newly created legal entity.

After I have outlined the basic possible variants of the "sale of the company", in the next part of the series we will deal with the structure of the main (basic) transfer agreement. In principle, it is indifferent whether shares, a plant or individual assets are transferred, the structure of the contract will always be similar.

Do you need advice or representation at sale of the company? Do you have any comments about our series? Contact us! We have many years of experience in selling companies!

JUDr. Ing. Jan Vych, attorney and partner