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Buying and selling companies: Do I buy the shares or do I buy the company’s assets directly? Part I: commercial aspects

In a process of acquiring a company, one of the first questions that arises is how to carry out this type of transaction.

This operation can be carried out either through the purchase of the shares of the company or through the purchase of the company’s assets.

Although both figures may have the same objective, the difference in the legal and tax regime applicable to each of them may be relevant to opt for one or the other option.

In view of the above, throughout this article we will focus on the legal analysis of both figures, in order to have a better knowledge of them and to assess which alternative is better, depending on the situation in which we find ourselves.

1. Purchase and sale of shares

This is the operation by which all the shares of a company are acquired, with the consequent transfer of all the assets and liabilities of which it is composed.

In this transaction, the partners of the company whose shares are being transferred are the sellers, and the purchasers are the acquirers.

One of the main advantages of this type of operation is that by means of the acquisition of the shares of the company, the assets and liabilities of the company are acquired globally, without the consent of the creditors referred to in Article 1205 of “Código Civil” being necessary, since the company continues to maintain its position with respect to such credit rights.

However, it is important to take into consideration that, although there is a global transfer, there are certain contracts that include the so-called “control clauses”, by which, that contract can be terminated in case of a change of control of the company, if the consent of the other party has not been previously obtained.

In order to avoid situations of this type, our recommendation is to carry out a Due Diligence so that we can identify, prior to the execution of the transaction, among other risks and contingencies, clauses of this type that may have disastrous consequences for the company, if the appropriate measures are not taken.

However, not all are advantages in this type of operations, but they can also have some disadvantages that are important to take into consideration:

  • The first of these concerns the responsibility of the sellers, which is limited to the object of the contract which, in this case, would be the shares or holdings transferred. For this reason, it is very common and also advisable to include in the sale and purchase agreement a specific regime applicable to the liability of the seller with respect to those contingencies that may arise, without prejudice to the guarantees that are established to cover these risks.
  • On the other hand, as indicated above, with the transfer of the shares, all the assets and liabilities are transferred and, therefore, the hidden liabilities. For this reason, it is essential to carry out the corresponding Due Diligence process to identify, in advance, these possible contingencies and, consequently, that the necessary measures can be adopted.
  • Another disadvantage to be taken into account, which can make the process more complex, is when the to be acquired belong to a plurality of persons. In these cases, in addition to complying with the legal and statutory provisions on the transfer of shares, an agreement must be reached with each and every one of the partners to acquire all the shares of the company, which can be costly.

2. Purchase and sale of assets:

This is the contract by which the company’s assets are acquired individually.

In this case, the parties involved will be, as seller, the company owning the assets and, as buyer, the acquirer of such assets.

The main difference between the acquisition of shares and the acquisition of assets is that, in the first case, the acquisition of shares involves the global acquisition of the assets and liabilities, while, in the second case, the acquisition of each asset is carried out individually, and the specific transfer regime must be respected in each case.

One of the main advantages of the acquisition of assets is that the buyer will be able to select those assets that are of most interest to him. In addition, in the area of liability, hidden defects will be limited to those related to the assets, except for those that are legally required, mainly in labor and tax matters.

However, there are certain disadvantages in these operations, which would be important to take into consideration:

  • The main one of them and, which makes the operation can be tedious and costly, is the need for the consent of the third parties whose contracts will be the object of assignment.

This requirement, as we have already indicated, is not necessary in the sale and purchase of shares, since the contracts continue to be owned by the company and, therefore, are not subject to assignment, however, when what is being transferred are the assets, the applicable transfer regime for each asset must be taken into account.

In view of the above, we could consider that the sale and purchase of shares is a “simpler” operation, since it allows the global acquisition of the assets and liabilities, without the need to comply with the rules of transfer of each of the assets being transferred. However, the liability regime varies from one case to another, so that the specific characteristics of each case will have to be taken into account, considering the legal conditioning factors, as well as the tax consequences that each operation may entail, the analysis of which will be the subject of study in another article, in order to opt for one figure or another.

Below is a summary table of the main differences between one type and the other, for greater clarity:

Sale and purchase of assets Sale and purchase of shares

Object of purchase

Assets and liabilities expressly agreed. Acquisition of shares and global transfer of the company’s assets and liabilities (including hidden liabilities).
Formalities No public document is required, except for the acquisition of certain assets (i.e. real estate), the transfer of which must be formalized in a public deed. Public deed, in case of acquisition of shares.
Responsibility The buyer assumes hidden liabilities related to the acquired assets. Tax and labor liability. Possibility of transfer of hidden liabilities.

The buyer’s liability is limited to the purchase price.

Notifications and consent Third party consent required. It does not require consent, but it is advisable to review the clauses in the contracts (“control clauses”).

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