Contract for the sale of a business

The contract for the sale of a business is a key document that governs the terms and conditions of the transfer of ownership of all or part of the business. This agreement includes details of the assets to be sold, liabilities, the purchase price and the rights or obligations of both parties. Its proper drafting is essential to protect the interests of both the buyer and the seller, as well as to avoid disputes after the transaction has taken place. If you are planning the sale or purchase of a business, familiarity with this type of contract and thorough legal advice will ensure a smooth process and legal certainty.

Sale of a business and contract for the sale of a business

The sale of the business can be either in the form of:

• transfer of the company’s shareholdings by means of a share transfer agreement, under which the buyer acquires either 100% or a certain share of the company (share deal)
• or through the transfer of the separate business or its components under an asset deal.

The choice of the appropriate form of transaction depends on the buyer’s or seller’s interests or may result from the findings of due diligence or the set-up of the transaction’s tax regime.

The aim of the sale of the business is to ensure a smooth and legally correct transfer that protects the interests of both parties. Professional advice helps to minimize risks and ensure a successful transaction.

Importance and use in the sale and purchase of a business

Determining the type of contract and the manner in which the transfer of the equity interests to the buyer will occur is recommended consult with a legal advisor. Individual contract types have their own specifics and the correct structuring of the transaction will affect the position of the contracting party and ensure effective protection of the rights and interests pursued.

The transaction documentation consists of a relatively large number of partial documents, the most important and complex of which is the share purchase agreement (SPA), which governs all aspects of the transaction.

The acquisition agreement captures all the specifics agreed by the parties, defines the rights and obligations of the parties, the conditions and limitations under which the transfer takes place, regulates the possibilities of pre-emption rights or other special provisions such as the right to join the sale (tag-along) and the right to demand the sale (drag-along).

Transfer of business share §115 of the Commercial Companies Code

The transfer of a shareholding is an efficient and administratively less demanding way of terminating a business participation in a company. A shareholder’s business share represents his rights and obligations and the corresponding participation in the company. A share transfer agreement changes the ownership of the share in a limited liability company and thus the shareholder in the company, either to another shareholder or to a third party outside the company.

The acquirer is placed in the position of a shareholder and acquires related rights such as the right to a share in the profits, the right to decide on the direction of the company, the right to transfer his/her business share, the right to the liquidation balance or the shareholder’s equalization share, and the obligations of a shareholder such as the obligation to repay his/her deposit upon joining the company, to contribute to the payment of the company’s losses, and the obligation to comply with the resolutions of the company’s general meeting in the event of a vote in favour of the company.

What to look out for when buying and selling a company

Buying or selling a company involves a combination of legal, tax and financial analysis. In order not to jeopardize the transaction, it is necessary to conduct in-depth due diligence, which includes a review of the financial, legal, tax and operational status of the company.

Determining the correct value of the company is important, taking into account hidden liabilities, future cash flow and market conditions. The contractual documentation must contain clearly defined representations, warranties and penalties to protect both parties to the transaction. Tax implications, particularly on the seller’s net income and the buyer’s costs, must be considered when setting up the transaction. Working with expert legal, financial and tax advisors minimizes risks and ensures a smooth transaction.

Contract of silent partnership

If an investor or shareholder wishes to maintain a degree of anonymity, but is interested in participating in the company or participating in its strategic development and benefiting from the profits, it is advisable for such a shareholder to conclude a silent partnership agreement. The silent partner makes a contribution to the business of the entrepreneur and, as a result of the contribution, the entrepreneur pays him a share of the profits based on the results of his business.

Information about the existence of a silent partnership is not publicly available in the public registers, so the silent partner participates in the activities of the company to a limited extent of the rights and obligations granted and does not act on behalf of the company externally. Several silent partners may operate in the company at the same time, and the terms and conditions of each silent partnership are negotiated individually by each silent partner with the entrepreneur. In relation to third parties, rights and obligations arise only for the entrepreneur and do not bind the silent partner. This form of cooperation is also relatively flexible in terms of termination of the cooperation, since it is a contractual relationship with the entrepreneur, termination of the contract is easier than termination of the shareholder’s participation in the company.

Advice on buying a company

When buying a company, the buyer is the active party with a greater degree of activity than the seller. Advising on the purchase of a business helps to identify suitable investment opportunities and assess their value based on detailed analyses. We provide in-depth due diligence to uncover potential legal, financial or operational risks associated with the transaction. Our experts will assist you in negotiating the terms and setting up the purchase agreement so that your interests are maximally protected. We will also advise you on optimizing the tax structure of the transaction to minimize costs. Our goal is for you to acquire the business on fair terms, with a clear understanding of its potential and risks.

Our services and their importance in buying and selling a company

At Highgate, we provide a full one-stop shop for clients consisting of legal, tax and accounting services. We differentiate ourselves by the range of services we provide and our superior approach to our clients. We don’t just provide expert analysis, we tailor each and every service to the client’s specific needs and ideas. We look at things through your lens by understanding the business by setting the right strategy when selling and buying.

We have hands-on experience with various types of local and cross-border structures and have assisted clients in several industry segments. In particular, our advisory services include:

• analysis of the company and business model;
• preparing the structure of the transaction and setting up an efficient legal and tax regime;
• performing legal and accounting and tax due diligence;
• preparation and negotiation of transaction documentation (term sheet, acquisition agreement, investment agreements, corporate documentation);
• negotiation of the shareholders’ agreement;
• post-transaction advice.

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 M&A and private equity, please visit this section of our website: venture capital and M&A

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