What are the most common ways (structures) of selling a company on the Slovak market?

Share deal, asset deal and sale of a business from a practical, legal and tax perspective

Introduction: sales structure as one of the most important parameters of a transaction

Naturally, when selling a company, the value and purchase price are the most discussed issues. In practice, however, the price itself is only one part of the puzzle. The form in which the company is sold has an equally significant impact on the outcome of the transaction.

The choice between a share deal, an asset deal or a sale of a business not only determines the legal framework of the transaction, but also directly influences what the buyer actually acquires, what risks the buyer assumes, what tax implications the transaction will have for both parties and what the overall course of the transaction will be.

From the seller’s perspective, the right structure can mean a significantly higher net return on sales. From the buyer’s perspective, it is in turn a risk management tool – particularly in relation to the target company’s historical liabilities and potential hidden problems.

In this article, we will therefore look at the three most common structures of company sales on the Slovak market, explain their functioning, advantages and disadvantages and compare them from a practical transactional point of view.

Share deal: sale of the company as a whole

The most common form of sale of a company on the Slovak market is the so-called share deal, i.e. the sale of a business share in a limited liability company or shares in a joint-stock company.

In this structure, there is no sale of the business as such, but a transfer of ownership of the company. The buyer acquires an interest in the company and thus indirectly all of its assets, liabilities, contracts, employees and other components of the business.

From a legal point of view, this is a relatively simple concept. The company as a legal person remains unchanged, neither its identity nor its legal relations change. Only the personality of the shareholder or partner changes.

In practical terms, this means that the buyer is “stepping into the existing structure” and taking it over as it is. This has important implications, particularly in relation to risks.

Benefits of a share deal

From the seller’s perspective, a share deal is usually the simplest and cleanest way to exit. The seller sells his or her stake and ideally gets rid of the entire company, including its history. He does not have to deal with the transfer of individual assets or contracts as everything remains at the company level.

The tax aspect is also an important advantage, which is often more favourable than other structures when set up correctly. For individuals or holding structures, the difference in net proceeds from the sale can be significant and therefore the tax set-up of the transaction should be addressed in the preparatory phase.

For the buyer, the main advantage is business continuity. Contracts with customers, suppliers, employees or banks remain in force without the need to re-contract them. There is also no need to re-obtain licenses or permits that are tied to a specific legal entity.

Disadvantages of the share deal

The main disadvantage of a share deal from the buyer’s point of view is that he takes over the company “with everything that belongs to it”. This includes not only known liabilities, but also potential hidden risks such as tax arrears, litigation, misaligned contractual relationships, employment issues or historical regulatory breaches.

That is why due diligence, i.e. a detailed examination of a company before its purchase, plays a key role in share deals. The results of the due diligence are then used to determine the extent of the warranties that the buyer requires from the seller.

From the seller’s point of view, it is the scope of these warranties and potential liability for breach of representations in the contract that can be a disadvantage. In practice, this often means that part of the purchase price is tied to, for example, an escrow account or conditional on other mechanisms.

Typical course of a share deal

Share deal transactions have a fairly standardised course. The initial negotiation phase is followed by due diligence, then the preparation and negotiation of contractual documentation, in particular the share transfer agreement or the broader SPA documentation. The signing of the contract, i.e. the signing, is followed by the satisfaction of conditions precedent and the closing itself.

Setting the purchase price and mechanisms for adjusting it, such as locked-box or completion accounts, or earn-out, is also an important part of this. These mechanisms have a major impact on the economic outcome of the transaction and in practice often determine how much of the nominal purchase price the seller actually collects.

Asset deal: sale of selected assets

At the other end of the spectrum is the asset deal, i.e. the sale of individual company assets. In this case, the buyer does not acquire the company itself, but only specific components of its business.

These may include, for example, tangible assets, technological equipment, inventories, intellectual property, customer base, know-how or selected contractual relationships. The basic characteristic of an asset deal is its selectivity. The buyer can choose what it wants to buy and, conversely, avoid what it considers risky or unnecessary.

Benefits of an asset deal

For the buyer, an asset deal represents a significantly higher degree of control over what it acquires. He can “clean up” the transaction of historical risks and focus only on those parts of the business that have value to him.

This model is therefore particularly attractive if the target company carries significant historical risks, has an opaque accounting or legal history, or if the buyer is not interested in continuing all of the seller’s activities.

From the seller’s point of view, an asset deal may be particularly suitable in situations where the seller does not want to sell the entire company, but only a part of the business, for example, a specific product line, division or a separate project.

Disadvantages of the asset deal

The biggest disadvantage of the asset deal is its complexity. Each asset has to be transferred separately, which in practice means a number of individual legal acts.

Contracts often require the consent of the other contracting party, land registry registration for real estate, special transfer mechanisms for intellectual property rights, and specific employment law rules for employees. All this prolongs and complicates the process.

From the seller’s point of view, it is also a problem that after the transaction the seller is left with a company in which liabilities may remain that were not the subject of the sale. At the same time, an asset deal may be less tax efficient than a share deal, as the seller is usually the company itself and the subsequent payment of the proceeds to the shareholders may create an additional tax layer.

Practical use of the asset deal

In the Slovak market, asset deal is used mainly in specific situations. Typically, this is the case when the buyer does not want to take over the historical risks or when only a part of the business is sold.

It is also common in restructurings or distressed transactions, where the goal is to separate valuable assets from the troubled part of the company. In such cases, an asset deal, despite its complexity, may be a more practical solution than buying the entire company.

Sale of a business or part of a business

A separate category stands between a share deal and an asset deal – the sale of a business or part of it under the Commercial Code.

In this structure, an organised whole is transferred, i.e. the enterprise as a functional unit. It is not a sale of the company or of individual assets, but a transfer of the business as such. Therefore, the rights and liabilities associated with the business are transferred with the business.

The sale of a business is in a sense a compromise between a share deal and an asset deal. On the one hand, it allows the transfer of a functional business unit without the need to transfer each asset individually. On the other hand, it is not a transfer of the company itself, so the seller can retain the legal entity and possibly other parts of the business.

Benefits of selling a business

The main advantage is that the buyer acquires a functional unit without the need to identify and transfer each asset separately. At the same time, some business continuity is maintained, which can be particularly practical when selling a division or a separate operating unit.

For the seller, the advantage is the possibility to sell only a part of the company, for example a specific division, without the need to sell the whole company. This structure can be particularly useful if the seller plans to pursue another part of the business or if the target company has several separate business lines.

Disadvantages of selling a business

From the buyer’s point of view, the disadvantage is that he assumes the liabilities together with the business, similar to a share deal. On the other hand, it does not have the same degree of selectivity as in an asset deal. If the business as an organised whole is associated with certain risks, the buyer may not be able to simply exclude them from the object of the transfer.

For the seller, the tax aspect and the fact that it is not as clean an exit as a share sale can be a disadvantage. The selling company remains in existence and its further operation or the subsequent distribution of the proceeds among the shareholders has to be dealt with.

When the sale of a business is used

The sale of a business or part of a business is mainly used in the sale of divisions, carve-out transactions, group reorganisations or in situations where a share deal is not practically feasible. It may also be appropriate if a complete operation is to be transferred that is economically and organisationally separable from the rest of the company.

Comparison of structures from a practical point of view

The differences between the structures are most pronounced in three areas: the scale of the transfer, the risk profile and the complexity of the transaction.

A share deal is the simplest in terms of implementation and preserves business continuity, but transfers the greatest risks to the buyer. An asset deal allows these risks to be significantly reduced, but at the cost of greater complexity and administrative complexity. The sale of a business represents a compromise between these two approaches.

From a market perspective, it is therefore not surprising that the share deal is the most commonly used. It is administratively simpler, it better corresponds to the seller’s idea of a complete exit and in standard M&A transactions it allows to maintain business continuity relatively efficiently.

Asset deals and business sales are used more in specific situations, in particular when selling part of a business, in carve-outs, in restructurings or where the buyer does not want to take over the entire historical structure of the target company.

Tax and economic perspective

The choice of a sales structure cannot be based on legal simplicity alone. The tax and economic outcome of the transaction is also decisive.

In a share deal, the seller is usually a partner or shareholder. In an asset deal and sale of a business, the seller is typically the company itself. This difference can have a significant impact on where taxable income arises, how the proceeds reach the ultimate owners and whether multiple layers of taxation arise.

At the same time, VAT, accounting implications, potential transaction taxes, fees and practical implementation costs also need to be considered. In some cases, a legally simpler structure may be tax disadvantageous or, conversely, a tax attractive structure may be practically difficult to implement.

Therefore, the structure of the transaction should be set before detailed negotiations on the contractual documentation begin. If tax and legal issues are only addressed at the end of the process, there is often insufficient room to effectively change the structure without disrupting the economics or timing of the entire transaction.

Conclusion: there is no one-size-fits-all solution

Choosing the right structure for the sale of a company is not just a technical issue, but a strategic decision that has a major impact on the entire course and outcome of the transaction.

Which structure is appropriate depends largely on the condition and riskiness of the company, the seller’s objectives, the buyer’s preferences, the tax implications and the bargaining power of the parties.

In practice, therefore, there is no one-size-fits-all solution. Each transaction requires an individual assessment and appropriate structuring to reflect its economic substance.

As with setting the purchase price, the most successful transactions are not the result of chance, but a combination of good preparation, realistic expectations and the right legal and tax framework.

Our advice

At Highgate Law & Tax, we combine legal, tax and transactional perspectives in M&A transactions. Therefore, we not only assist clients with the preparation of contractual documentation, but also with the selection of the appropriate structure, identification of risks and setting up mechanisms that have a direct impact on the net economic result of the sale.

The right sales structure can be the difference between a transaction that is formally closed and one that is actually successful for the client. That’s why it’s advisable to address these issues early – ideally before the seller enters into negotiations with potential buyers.

If you are interested in this topic, please do not hesitate to contact us:

• Tomas Demo, e-mail: tomas.demo@highgate.sk

For more on property and business protection, please visit the Property and Business Protection section of our website.

If you are interested, you can subscribe to our newsletter for interesting practical legal and tax information.

You can address your specific questions in a consultation with our partner Tomáš Dem, who specializes in the area of sales and investments in companies and commercial law. You can book a consultation here: