Buying a Business or the Shares in a Company? It pays to take advice
Many British people come to Spain with the aim of setting themselves up in business. Whilst most people would not consider purchasing a property without using an independent lawyer, it is too often the case that this is not applied when considering purchasing a business. This may be because the business purchaser will have been living in Spain for some time before deciding to buy, and therefore feels more at home with the ‘formalities’ of a transaction. It may be that the buyer does not know who to turn to however, and considers that legal fees are best avoided in order to keep costs down. I am hardly unbiased but have to say that good legal advice generally pays for itself. Much in the same way that a good surveyor will often find a fault with a property and thereby justify his fee, a good lawyer will point out the risks and more importantly explain what is actually being purchased. Buying a poor ‘traspaso’ for €120k may not be the wisest of moves.

Firstly it is important to get ones head around what is being sold. Is it the shares in a company, or simply the right to run the business currently owned by the vendor? This will govern the route to be followed, and the checks to be made. Purchasing a company is generally the riskier option since the buyer will take over the vendor’s debts (whether those debts are registered or not). The benefit of buying the shares in a limited company however is that the purchaser effectively ‘steps into the shoes’ of the vendor and the contractual arrangements should not be affected by the change of ownership.

I have listed below a few of the points to consider whether buying a business or a company:

1. Prepare a business plan before you approach anyone. This is necessary irrespective of whether you need to raise finance or not. A business plan is for your benefit, not to impress a bank manager, and will need to be reviewed from time to time.
2. If you are purchasing the freehold (as you would if the business premises were a house), check that the seller is the registered owner and that the property is free of debts, mortgage or other charges.
3. If you are taking over rented premises, make sure you see and understand the rental contract you are to take over. Ideally this would be a good time to renegotiate terms with the landlord.
4. Try to negotiate with the vendor so that part of the purchase price is withheld (called deferred consideration) so that any unexpected debts can be deducted from the retained balance.
5. Make sure there are no outstanding debts for non payment of IVA, social security or other taxes. Once again these can only be covered where part of the purchase price is retained.
6. Obtain copies of contracts (employment/services/suppliers) before completion so that you know exactly what you are taking on.

Any deal which appears too good to be true generally is. I have pointed out before that the Notary is not there to advise you, and this is even more relevant when purchasing a business or company. The Notary is not concerned whether the business is legal or illegal, licensed or unlicensed, or indeed whether it actually exists. A lawyer who advises a buyer to form a new company through which to buy the business ensures that his client takes on no debt. Advice such as that often pays for itself ten times over.

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Information courtesy of Marc White LL.B. (English Solicitor) - Visit homepage

If you have any questions about buying a business, then please email us: info@spanishadvertiser.info using your spanish advertiser email address and we will endeavour to return your query as soon as possible.