When a business owner decides to sell their company, two legal options are available : selling the company’s shares (equity or stock) or selling the business assets.
Both aim to transfer the activity but follow different rules and have distinct tax, financial, and legal impacts.
Understanding these differences is essential for both the seller and the buyer to secure the transaction and optimize its structure.
1. Transfer of the business
The business assets sale (fonds de commerce) refers to all the elements necessary to operate the activity :
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Intangible assets : customers, trade name, brand, patents, permits, ongoing contracts, lease rights.
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Tangible assets : equipment, machinery, furniture, inventory.
Legal and practical aspects
The transfer requires defining precisely :
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the treatment of ongoing contracts,
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the allocation of payments received and supplier debts related to transactions not yet completed at the transfer date.
In practice, the buyer acquires only the activity, but not the company itself : the seller retains the legal entity, its debts, and its cash.
Tax and financial aspects
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For the buyer : payment of registration duties (according to current tax brackets).
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For the seller : the sale price is recorded as an exceptional income in the company, subject to corporate tax, then distributed as dividends with the applicable taxation.
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Mandatory escrow : the sale price is held for three to five months to complete legal formalities (publication, creditor claims).
If the sold business assets represent the company’s only activity, the entity must then be liquidated or sold as an “empty shell.”
2. The sale of securities (shares or stocks)
The sale of shares consists of selling the equity or stock representing the company’s capital (LLC, SAS, SA, etc.). The buyer acquires the entire company : its assets and liabilities.
Legal and practical aspects
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The company continues to exist without interruption : contracts, permits, and business relationships remain in place.
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The transfer can be total or partial (e.g., 60% of shares), offering more flexibility.
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The buyer also assumes past risks : ongoing litigation, tax or social debts, future reassessments. To protect themselves, they generally require an asset and liability guarantee (GAP), sometimes with a financial guarantee (escrow of part of the price).
Tax and financial aspects
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For the buyer : payment of registration duties (according to current tax brackets).
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For the seller : the capital gain is subject to income tax at the progressive rate, after allowances for holding period (per conditions and brackets in force).
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Social contributions also apply.
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Favorable regimes exist, for example for a retiring owner (fixed €500,000 allowance under conditions) or in case of reinvestment in an SME (subject to applicable conditions).
Choosing between a business assets sale or a share sale means adapting the transfer to each strategy in order to secure and enhance the transaction.
3. How to choose between the two ?
The choice depends on several criteria :
- For the buyer : acquiring the business as a going concern (asset deal) offers protection against hidden liabilities but involves more formalities. Acquiring shares (share deal) is simpler but requires a solid warranty and indemnity (W&I) insurance or guarantees.
- For the seller : taxation and wealth management strategy influence the decision. Selling shares is often more advantageous if the applicable exemptions or allowances are met.
- For both parties : the nature of the activity, the existence of strategic contracts or licenses, and the relationship of trust determine the most suitable structure.
With the right guidance, a business leader can turn legal and tax constraints into both a wealth management and strategic opportunity.
THE EVALIANCE CAPITAL APPROACH
The sale of business assets and the sale of shares follow different logics. The first protects the buyer from past debts but requires a strict definition of transferred elements and heavier formalities. The second is legally smoother but also transfers the liabilities, making an asset and liability guarantee essential.
In all cases, the complex and evolving taxation must be reviewed in advance with a tax advisor to optimize the transaction. Support from a specialized business transfer advisor is therefore essential to secure and maximize the deal.
