Preparing for the Sale of a Business or Company: Advice from a Business Lawyer
The role of a business lawyer in the sale of a business or company is essential, given the strategic importance such transactions hold within the practice of business law. In this context, the business lawyer assumes multiple roles: legal advisor, negotiator, agent for the sale of a business (or its underlying assets/real estate), and, at times, even mediator.
The lawyer must not only ensure the transaction is legally secure but also represent their client’s interests as effectively as possible, while overseeing adherence to deadlines and facilitating communication between the parties. In managing these transactions, the business lawyer plays a central role that extends well beyond mere technical legal expertise.
Although the business lawyer is not the final decision-maker, they guide and advise their client at every stage. It is precisely this practical, functional aspect of the business lawyer’s profession that is vital to the long-term sustainability of businesses and companies.
I. Understanding the Sale of a Business: Key Issues and General Framework
A. Definition and Types of Business or Company Sales
The term “sale of a business or company” is frequently used in everyday language to refer to the transfer of an economic activity. However, it lacks a precise legal definition. In reality, it is a generic term encompassing several distinct types of legal transactions, each governed by its own specific rules.
Such transactions include, for example: the sale of company securities (shares or equity interests); the sale of a business (as a going concern); the sale of specific assets; and the universal transfer of assets and liabilities (*transmission universelle de patrimoine* or TUP). or, alternatively, mergers, acquisitions, or demergers.
- Transfer of securities (shares, equity interests)
The transfer of corporate securities involves conveying ownership of securities held in a company to another person (whether an individual or a legal entity). These securities represent a portion of the share capital, and holding them grants the holder the status of a partner or shareholder. Depending on the number of securities transferred, the transferee may acquire significant influence or control over the company (notably by obtaining more than 50% of the shares). Such transactions are common within corporate groups, whether occurring internally (intra-group) or with external parties.
2. Transfer of a business (fonds de commerce)
The transfer of a business (*fonds de commerce*) entails the conveyance of a collection of assets that enable the operation of a commercial or industrial activity (such as furniture, equipment, customer base, trade name, and leasehold rights). This type of transaction is often subject to specific legal formalities—including public notice requirements, rights of pre-emption, and the clearing of any vendor’s liens—which necessitate the assistance of a business lawyer. Such transactions frequently take place within the context of business restructuring, aimed at refocusing a company on its core business activities.
B. Legal and Economic Implications of a Business Transfer
Such transactions go beyond the scope of a standard sales contract. They typically entail a change in the company’s control, the transfer of risks to the acquirer, and a direct impact on the company’s ecosystem (employees, clients, and partners).
- Change of Control:
In business law, the transfer of a company very often results in a change of control. The acquirer takes over the shares or the business assets, as well as the associated rights and obligations (existing contracts, employment agreements, tax liabilities). Since the acquirer becomes responsible for past decisions, this underscores the critical importance of a “representation and warranty” agreement (or “guarantee of assets and liabilities”—*garantie d’actif et de passif*, or GAP), which a business lawyer will negotiate, draft, and tailor to the specific nature of the transaction.
2. Securing Contractual Relationships:
Beyond the role of drafter, a business lawyer acts as an advisor. They identify potential legal risks and propose solutions. This process of securing contractual relations involves:
- Auditing existing contracts (due diligence) to detect high-risk clauses (such as automatic termination provisions).
- Anticipating potential contract terminations.
- Verifying the continuity or transferability of contracts—particularly those based on *intuitu personae* (contracts tied to the specific identity of a party).
A business lawyer analyzes, anticipates, and secures these elements to prevent any operational losses.
3. Impact on Employees:
The transfer of a business or company affects employment contracts. The Labor Code stipulates that all existing employment contracts remain in effect between the new employer and the staff; unless otherwise agreed, these contracts are transferred automatically. Concurrently, the Commercial Code mandates that employees be informed in advance of such a transfer. It is essential for any commercial lawyer to ensure that these obligations are fully met.
In the event of a business asset transfer—where the acquirer intends to pursue a different line of business (e.g., a bakery, as opposed to the previous activity) and does not wish to retain the existing employees—the situation presents a significant legal challenge regarding the principle of the continuity of employment contracts. A business lawyer must anticipate the potential consequences, determine whether the new activity justifies a legal exemption (i.e., the absence of a sustained economic identity), and incorporate protective clauses into the transfer agreement. The Petroussenko business law firm is available to assist you in structuring these critical employment-related aspects.