The Transfer of an online web store
This article was published December 14th 2021, in Twinkle Magazine.
When selling a web store, you inevitably run into the question of how best to transfer your business. Legally, there are actually only two different options for this. These options have their own tax, economic and legal consequences. In this article we will elaborate on both options for you.
The method of transfer
Legally speaking, there are two ways of transferring a business: the asset transaction and the share transaction. In the case of a sole proprietorship or a general partnership, there are no shares and the asset transaction is the only way to transfer your business. In the case of a private limited company (B.V.), there is an option to transfer your company by means of an asset transaction or a share transaction.
The asset deal
An asset deal implies that the buyer only takes over possessions (the so-called "assets" including "goodwill") from the seller. If debts are also taken over, this is referred to as an asset/liability deal. From here on, we will assume the usual asset deal: i.e. Company X sells the possessions (assets) of the company to a third party, who can then continue the business activities. This concerns the assets on the company's balance sheet (stock, inventory and possibly the web shop), but also all peripheral items that the buyer needs to continue the business (such as supplier contacts, customer base, domain name, brand name) of which the added value can be classified as 'goodwill'. Items such as bank balances and debtors/creditors are generally retained by the selling party itself.
The share deal
In a share transaction, a private person or another company (usually a private limited company called a Holding B.V.) sells the shares in the Web store B.V. A buyer takes over the entire B.V. in a single transaction, including assets and liabilities, rights and obligations, agreements with customers and suppliers, licences, permits and obligations to the tax authorities. Nothing else changes: only the owner of the shares in Web store B.V. changes.
The advantages and disadvantages of both transactions
Choosing between a stock or asset transaction can have a lot of impact. If you have the choice (in the case of a B.V.) then delve carefully into the issues below before embarking on a path. If you don't have a choice (sole proprietorship or general partnership) then take stock of the pros and cons below. Perhaps you will then look differently at the planned sale or at the asking price to be used!
Legal consequences of an asset deal
In the case of an asset transaction it is essential to write down in detail exactly what is being taken over. Items that are not included do not fall within the acquisition. Make a complete list and in case of a web store, think at least of:
- Domain name and any additional registrations,
- Hosting, or the agreement with the hosted web store software provider,
- Payment provider,
- Product suppliers,
- Intellectual property rights,
- Inventory (including description and quantities),
- Full inventory list, All sales accounts (Amazon, Bol.com, etc),
- Social media accounts and all other accounts,
- All agreements with other third parties (SEO, content, photos etc).
An advantage of an asset transaction is that it is easier to leave things behind with the selling party ('cherry picking'). Think of (expensive) assets that the buyer does not need and that make the price unnecessarily high (e.g. real estate, land or investments in other companies).
In addition, buyers in an asset transaction should realize that agreements with suppliers and buyers will have to be re-contracted and this regularly forms the basis for (re)negotiations with these parties. So, don't take existing discount structures and payment terms for granted.
A major advantage for buyers is that with an asset transaction you basically do not take over any risks from the past. This is in contrast to the acquisition of a B.V., where the risk of the proverbial "body in the closet" is much greater. Think about claims on guarantees, tax assessments, labor disputes and impending (legal) proceedings. In that sense, an asset transaction is less risky than an equity transaction.
Legal consequences of share transactions
The need for a detailed description of all the matters to be taken over is less important in an equity transaction: after all, when the shares are taken over all the rights and obligations of the company are immediately transferred as well.
The same also applies to all (contracted) relationships of the company: in most cases these are also transferred 1:1 (watch out for 'change of control' clauses).
There is therefore a downside to these advantages, because with the duties taken over, the risk of problems being taken over is higher.