The transfer of a business involves the express or implied transfer of its clientele. It is possible to sell parts of a company without this being considered a sale of a business as long as the clientele is not transferred. Conversely, a lease transfer qualifies as a business sale if the transferee engages in the same business as the seller. The sale of a business unit constitutes a business sale if part of the clientele is transferred.

The sale of a business is subject to specific regulations, outlined in Articles L. 141-1 and following of the Commercial Code, designed to ensure three types of protection. First, the Commercial Code aims to protect the buyer by making them entitled to receive information that enables them to form an opinion on the sale object. The seller, if not paid in full at the time of sale, is granted a privilege. Lastly, the seller’s creditors have the right to oppose the sale or place a higher bid. These three protections are the foundation of the laws governing business sales.

The sale of a business is a significant transaction for both the company and its shareholders, and it is therefore regulated to protect the interests of all parties involved.

The sale must comply with certain substantive and formal requirements.

Substantive Requirements:

The parties must have legal capacity as defined by the Civil Code (i.e., be of legal age and not under protective legal status). If the buyer is from outside the European Union, they must submit a declaration to the prefecture to conduct commercial activities. Some sales are restricted to individuals holding specific qualifications or administrative authorizations, such as the sale of a pharmacy.

Consent to the sale is crucial and is one of the key elements for the validity of a sale. Many instances of defective consent are due to “fraudulent concealment,” which occurs when one party hides critical information from the other. For example, a restaurant owner selling a business and not informing the buyer of a condominium rule prohibiting certain business activities (due to noise or odors) or of an assembly decision limiting restaurant hours violates their duty of loyalty, committing fraudulent concealment. This justifies the annulment of both the business and commercial lease sale. Similarly, omissions or inaccuracies can affect the sale’s validity. Misstatements regarding turnover or operational results may also be deemed fraudulent concealment. However, judges generally do not allow for price errors to be revised.

The contract must also precisely describe the elements constituting the business being sold. A sale is only valid if the subject matter is clearly defined. If intellectual property such as copyrights, patents, or trademarks is involved, the sale must include details allowing the transfer of these rights with the appropriate authorities, such as the INPI (National Institute of Industrial Property), along with mandatory transfers of copyright.

Handling Liabilities:

Generally, the transfer of a business does not transfer its liabilities to the buyer unless otherwise specified. However, certain items, like the liquor license, trade name, or brand name, are presumed to be included in the sale unless otherwise stated.

As with any sale, the price of the business must be clear and defined or determinable. The contract should specify separate prices for intangible assets, equipment, and merchandise. These distinctions are necessary for calculating the seller’s privilege, determining registration fees (which exclude merchandise prices), and calculating capital gains tax and potential higher bids.

Formal Requirements:

The transfer can be documented either by a notarized deed or by a private agreement. Although a verbal agreement may be proven by any means, it carries obvious evidentiary risks. The contract must include the name of the previous owner, the date and nature of their acquisition, and the price paid for intangible assets, merchandise, and equipment. It must also list any privileges or liens attached to the business.

The seller must disclose the turnover generated during the last three fiscal years and during the current year of sale, as well as the operational results for the same period. The sale must also specify the lease, its duration, the landlord’s and assignor’s names and addresses, and the main lease terms, including rent and renewal date.

If any of these details are missing, the sale may be annulled. This annulment is optional, as the aggrieved party must take the case to court within one year of the sale. Intermediaries and drafters of the contract are jointly liable with the seller if they knew about inaccuracies in the declarations.

The seller is also liable for guaranteeing the accuracy of these statements under Articles 1644 and 1645 of the Civil Code, despite any contrary provisions in the sale agreement.

The sale of a business results in the transfer of ownership to the buyer. The seller must deliver the business to the buyer as agreed in the contract. Often, the contract includes obligations for the seller to introduce the buyer to clients or provide technical assistance. In any case, the seller must refrain from actions aimed at retaining or recovering the clientele, and any contrary agreement is void. A non-compete clause can be included as long as it prohibits engaging in the same business within a specified time frame and geographic area and is not disproportionate to the contract’s purpose. The buyer is required to pay the price, which can be in installments, especially through a seller-financed loan. This arrangement may offer tax benefits, particularly for the seller, who can spread capital gains tax over five years if the company has fewer than 50 employees and a turnover of less than €10 million.

It is advisable for the seller to hold a security interest for the outstanding balance, which can only apply to merchandise. If part or all of the price is paid immediately, the funds should not be handed over to the seller right away. They must be held by a notary or trustee until it is confirmed that legal notices have been made, that no seller privileges or liens exist, and that no opposition has been filed following the publications, and that the tax solidarity period has expired.

Each contract should specify whether the buyer will continue existing agreements. In terms of employment contracts, the sale of a business automatically transfers employees to the new employer. The buyer is responsible for honoring the employees’ rights at the time of the sale, including wages and benefits, unless the sale occurs within the framework of a judicial restructuring or liquidation.

The sale of a business must be published, allowing creditors to object or place a higher bid. This involves notices in a local newspaper and the official civil and commercial bulletin.

For any questions regarding the sale of a business, our firm remains at your disposal.

Useful Links:

Cession du fonds de commerce à un tiers | Entreprendre.Service-Public.fr

Cession de fonds de commerce |impots.gouv.fr

Je cède un fonds de commerce ou des titres de société ? | Bpifrance Création (bpifrance-creation.fr)