Selling your company shares or restaurant business : Advantages / Disadvantages?
“You should rather sell your business, it’s customary in our profession! Frankly, you’ve looked into the possibility of selling your company shares, you’re more at ease and from a tax standpoint it’s more interesting!!!” How many times have operators of bars, cafés or restaurants faced this dilemma when they wanted to change business or simply sell the business they had developed? The question has to be asked every time a business is sold, and the answer is not universal – quite the contrary. Here are some of the answers.
Selling company shares: a real tax and legal advantage, but precautions must be taken
When you sell your company shares, the new owner takes over all the company’s assets and liabilities. The company continues in business, and only the partners change. In principle, there’s no need to pay off the company’s debts at the time of transfer (except perhaps the partners’ checking accounts), and no need to change all contracts and put them in the name of a new company (since it’s the same company whose activity continues).
In principle, the formalities to be completed are less cumbersome than for the sale of a business. There is generally no creditor opposition period, and the sums do not have to be blocked in an escrow account. Fewer declaration formalities. The business does not change hands; only the business shell changes ownership.
From a tax point of view, there are several preferential regimes applicable to the sale of company securities. First of all, capital gains are taxed at a rate of 30% when the seller is an individual. Depending on the circumstances, it is possible to benefit from an allowance of up to 85% (150 0-D CGI) of the amount of the capital gain. In the case of sale on retirement, a 500,000-euro capital gains allowance may also be applied (150 0-D ter CGI). The sale may even be almost totally exempt from capital gains tax if a holding company sells the company running the bar, café or restaurant (taxed at a rate limited to 3.1% in 2021, for example).
What’s more, for the purchaser, the cost of registering the sale is much lower if the company is a SA or SAS.
These are all factors that could tip the balance in favor of the sale of company securities rather than the sale of a business, but not everything is so easy.
There are a number of points to bear in mind when selling your company’s securities.
For example, the buyer may ask for the inclusion of a liability guarantee clause in the deed of sale. The purpose of this clause is to ensure that the seller is liable for any liabilities (debts) that may come to light as a result of the sale. A tax audit, an URSSAF audit, an undisclosed supplier debt that arise after the sale – any of these could result in the seller having to repay a sum to the buyer. Care must therefore be taken when drafting the deed of sale, particularly with regard to liability guarantee clauses.
Similarly, in terms of taxation, once the company has been sold, the operator loses control of the defense of a case vis-à-vis the tax authorities, while the operator may remain personally liable for payment of sums to the tax authorities if the qualification of distributed income is retained. Once again, you need to pay close attention to the clauses of the deed of sale to avoid this potentially catastrophic situation.
Disposing of company shares may therefore be the ideal solution, and may sometimes have to be preferred. However, you need to be careful when drafting the deed of sale, as well as in terms of taxation and… convincing the purchaser, as it is still common practice in the profession to sell the business, with the purchaser preferring to take over a business without the liabilities, rather than take the risk of buying back the company shares.
Selling your business: beware of tax issues… which can be controlled and anticipated… and of the debts you retain
It’s likely that a buyer will suggest that you sell your business. It’s probably safer for them. But is this necessarily disadvantageous for you?
You’ll need to be careful about the company’s debts, as these will not be passed on and will probably have to be settled when the business is sold. Make sure you have the means to do so.
The transfer formalities are likely to be more arduous, but don’t worry, nothing’s impossible with the right support. You’ll probably also have to declare the end of your company’s activity to the various social and tax authorities.
From a tax point of view, capital gains tax on the sale of a business can be twofold. At the level of the company selling the business, at a rate of 26.5% in 2021. Then at the level of the partner who wishes to withdraw the sums from the company, at a rate of 30%. However, there are also a number of preferential tax regimes that can help to limit taxation, particularly if the value of the business is less than 500,000 euros (CGI, article 238 quindecies). It is therefore entirely possible to avoid excessive taxation even if the business is sold.
The advantage of selling the business is that you keep your company for other projects. And combined with the capital gains exemption on business transfers, this can make it much easier to relocate to a new business.
Fewer constraints and traps in the deed, too. Forget the lengthy liability guarantee clauses that sellers often don’t understand, and the risks of having to reimburse the buyer for the sums paid.
Depending on the operator’s tax and legal situation, there may be a real advantage in selling the business rather than the security. Before doing so, you need to carefully study the tax implications of the transaction, the company’s liabilities (which will either be retained or will have to be repaid), and ensure that the transfer formalities are carried out correctly, so that you can recover the money from the sale as quickly as possible and avoid being held liable for the business’s debts for too long.
Would you like more information or advice on selling your business? Use our online procedure. A lawyer in your area belonging to the AGN network will deal with your question, and provide you with all the answers you need. Don’t hesitate to contact us by phone or e-mail, or schedule an appointment online at www.agn-avocats.com.
AGN AVOCATS – Sale of businesses department
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