Repurchase of social rights vs. repurchase of business assets

The choice between the repurchase of social rights and the repurchase of a business is a major strategic decision for any entrepreneur.

This decision may have profound implications on the legal, tax, accounting and operational aspects of the entity concerned. It is therefore essential to understand in detail the nuances between these two options in order to determine which is best suited to the specific situation of the buyer and the objectives pursued. 

The Redemption of Social Rights

Definition and Scope

The repurchase of corporate rights involves the acquisition of securities representing the capital of a company (shares or shares), which gives the purchaser control over the target company, in proportion to the share of capital acquired. The buyer buys the company’s assets (business assets, fixed assets, etc.) and the company’s liabilities (debts, bank loan, etc.).

Nature of Acquired Securities

The acquisition may relate to shares in a limited liability company, a single-member or multi-member simplified joint stock company (SA, SAS), shares in a single-member or multi-member limited liability company (SARL), a civil company or any other form of company. The securities will confer specific rights and obligations on the purchaser:

• Financial rights: right to participate in the distribution of dividends;
• Political right: right to participate in collective decisions and to vote;
• Right of information and control: right of information on the company’s activity during each financial year.

The acquirer thus becomes the partner of the target company.

Valuation of Securities

The value of social rights must be determined precisely, often with the help of financial experts, to reflect the real economic situation of society.

Transfer Procedure

The transfer of social rights is subject to legal formalities, which must be respected otherwise the said transfer will be called into question.

This concerns in particular compliance with the approval and pre-emption procedure in the event that these procedures are provided for by the statutes.

It will also be appropriate to revoke the manager and vote for your appointment in his place.

A detailed analysis of the company’s statutes and KBIS, prior to the transfer, must therefore be carried out by a Lawyer.

Guarantees and Indemnities

A liability and asset guarantee clause can be negotiated to protect the buyer against possible post-acquisition losses linked to the previous management of the company. 

Tax Consequences

The tax implications of the repurchase of corporate rights must be analyzed in detail, particularly with regard to registration fees, which vary depending on the legal form of the target company, and the taxation of capital gains.

Risks and Benefits

Risks: The acquisition of corporate rights may involve risks linked to the discovery of hidden liabilities (tax or social security debts), to ongoing litigation by the target company.

Advantages: The buyer benefits from direct control over the company. In fact, the purchaser buys the activity and the envelope of the company, which includes all of the commitments of the said company, the contracts with the suppliers, service providers, with some exceptions. The acquirer therefore does not need to negotiate new contracts after the takeover of the target company.

The Repurchase of Business Assets

Definition and Scope

The repurchase of a business consists of the acquisition of all the tangible and intangible elements allowing the operation of a commercial activity. This includes in particular the clientele, the goodwill, the business name, the brand, the right to lease and, possibly, the equipment and the goods.

In other words, the buyer only buys the activity developed by a company.

Valuation of goodwill

The value of the business must be determined precisely, often with the help of financial experts.

A detailed and valued inventory of the components of the business must be established to determine the purchase price and the transfer terms.

Right to Lease

The transfer of the right to a commercial lease is a crucial element of the repurchase of a business and must be the subject of particular attention, in particular with regard to the remaining duration of the lease, the renewal conditions and the restrictive clauses.

Non-Competition

It is common to include a non-competition clause to prevent the seller from re-establishing a competing activity that harms the value of the acquired fund.

Tax Consequences

The repurchase of a business has specific tax consequences, particularly with regard to registration fees and the taxation of capital gains, which must be taken into account when structuring the operation.

What about the company holding the business following the purchase of the business?

The company will no longer own the transferred business.

The company may carry out another activity if this activity is provided for within its corporate purpose.

Failing this, the company will be dissolved and removed from the trade and companies register. 

Risks and Benefits

Risks: The risks associated with the buyout of a business include the overvaluation of assets, disputes relating to the commercial lease and the potential loss of customers following the buyout.

Advantages: The acquisition of a business allows you to immediately benefit from an operational activity and an established clientele, without necessarily taking charge of the company’s liabilities.

Strategic Objectives

The strategic objectives of the buyer must guide the choice between repurchase of social rights and repurchase of business assets. If the objective is to control the company and benefit from its assets and liabilities, the repurchase of corporate rights may be preferable. On the other hand, if the intention is to continue only the commercial activity, the purchase of a business may be more appropriate.

A thorough financial analysis will compare the costs and benefits of each option.

The legal and tax implications of each option must be examined in detail to avoid surprises and optimize the structure of the transaction.

Legal and Financial Support
 

The importance of support from professionals such as lawyers and accountants cannot be underestimated. These experts provide essential advice on structuring the transaction, negotiating terms and conditions, and developing strategies to minimize risks and maximize tax benefits.

Conclusion

The choice between the repurchase of social rights and the repurchase of a business is complex and must be based on a careful analysis of the objectives, legal and tax implications, and operational risks. It is crucial to surround yourself with competent professionals to navigate this process and ensure a successful transaction that meets the specific needs of the buyer.

Are you hesitating between a sale of securities or business assets?

The lawyers and jurists of LEGALPROTECH-AVOCATS can support you in these operations by studying the best strategy, drafting the subsequent documents and carrying out the necessary formalities.

by Anouk Thomar