This article addresses the principal characteristics of the transfer of companies under the asset purchase agreement.
Definition of the asset purchase agreement
The purchase and sale of assets involves the direct acquisition of individualized assets owned by a company under an asset purchase agreement entered into by and between a purchaser and the company.
Advantages of the asset purchase agreement
- The seller will be willing to grant greater guarantees during the acquisition of assets since the number of hidden assets is limited. These include unfulfilled tax and social security obligations and the obligations derived from the Company’s work contracts, ex article 44 of the Workers’ Statute.
- From the perspective of the purchaser, the purchase and sale of assets allows for so-called cherry picking; it permits the selection of the assets that are most interesting to the purchaser.
Disadvantages of the asset purchase agreement
Despite the aforementioned advantages, there are also negative aspects of this type of operation.
- The acquisition of assets involves greater tax costs. The purchase and sale of assets is subject to the Taxable Asset Transfer (ITP), the percentage levied around 8% depending on the autonomous community in which the operation is carried out. In the case of the direct purchase/sale of assets and shareholdings, however, the operation would generally be exempt from indirect taxation ex article 314 of the Consolidated Text of the Spanish Securities Market Act. It should be noted that the transfer of autonomous business units is not subject to VAT, ex article 7.1a) of the Law on Value Added Tax. Only certain elements of the asset, in which there is a change of ownership as a result of the acquisition of the business unit, are subject to the (ITP).
- Greater transactional costs as a result of the need to carry out the transfer of each acquired asset on an individual basis. Indeed, it is necessary to obtain the consent and approvals of more contractual parties, as well as public bodies.
Two legal instruments allow the acquisition of a company in Spain: the transfer of businesses under an asset purchase agreement and the transfer of businesses through the purchase/sale of sales and stocks. Each presents several advantages and disadvantages, which must be evaluated beforehand to guarantee the success of the operation and prevent potential legal contingencies.
Javier Cuevas
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