Sell a limited liability company

 

A limited liability company is the most common form of business. It has legal personality and can be formed by one or more natural or legal persons. Anyone who is considering placing an ad to sell a limited liability company or sell shares in a limited liability company wonders what formalities they need to complete. What is the process of selling a company? Who can do it? What conditions must be met for the company sale transaction to be successful? What price should be paid for the company? These and other questions must be answered.

The set of assets and liabilities is the company's property that will be the subject of the transaction. All its components must be analyzed with special attention to make a correct valuation.

 

Formal aspect of the sale

When reading the advertisement - I am selling a limited liability company, we wonder what is actually being sold? In a capital company, which is what a limited liability company is, shares are sold. Article 180 of the Commercial Companies Code indicates the formal manner of selling shares. It is in writing, quote:

“The sale and pledging of a share, part of a share or a fractional share must be done in writing with notarized signatures.”

Each shareholder should have the right to sell their shares; this should be stated in the articles of association. Therefore, if a shareholder wants to sell their shares, they must do so in writing and notify the company's management. The company's consent must also be given in writing. After the sale, the seller or buyer (depending on the contract) must notify the company's management board, also in writing, to which they can attach a copy of the share purchase agreement.

 

The articles of association may regulate

The articles of association may restrict shareholders or specify other conditions under which the sale of shares may take place. For example, the articles of association may make the sale of a share, the sale of a part of a share at a fractional value or the pledging of a share subject to the company's consent. Therefore, the company may or may not have to give its consent to the above-mentioned actions. In the contract, the company may also reserve the right of first refusal of the shares being sold in favor of its existing shareholders.

It should be mentioned here that the sale of all shares in a company with a large number of shareholders will be more difficult. Gathering all the company's shareholders at a notary's office can be a complicated undertaking. Moreover, an important issue remains the absolute consent to the sale of shares of all its shareholders. Therefore, when there is only one shareholder, it is reasonable and true to say, “I am selling the limited liability company,” because the above problem does not arise.

 

Acquisition by inheritance

Another way to acquire shares in a limited liability company is to acquire them by inheritance. Shares in the company are hereditary. The heirs then become the legal heirs of the company. The articles of association can also regulate this situation by indicating the limitations and exclusions of such persons joining the group of shareholders. An important issue in the articles of association is to clarify the conditions under which the heirs are satisfied in the form of repayment and what happens to the shares of the deceased.

 

Takeover of shares of an excluded shareholder

The takeover of shares of a shareholder who has been excluded from the company by court order shall take place at the request of all other shareholders. The shares of the remaining shareholders must be greater than half of the company's capital. In this case, too, the articles of association can regulate the issue of a lawsuit to exclude a shareholder and indicate, for example, a smaller number of shareholders who will be able to file a petition, while indicating that they hold at least half of the shares in the company. A shareholder can be excluded for reasons such as acting to the detriment of the company, conducting competitive activities despite a ban, deliberately preventing the company's bodies from operating, and others. The excluded shareholder is entitled to compensation for the shares. The amount of the compensation is decided by the court on the date the lawsuit is served. The remaining shareholders must either take over the shares or they can be acquired by third parties.

 

Redemption of shares of an excluded shareholder

Shares are only redeemed if the articles of association allow it. Redemption can be compulsory or voluntary. Voluntary redemption takes place at the request of the interested party. Such a statement must include information on the number of shares to be redeemed, the value of the consideration for the shares to be redeemed, and the manner in which the process is to be finalized. The company must acquire the shares to be redeemed by a resolution adopted and subsequently complete the financial transactions. Voluntary redemption of shares can be done by financing them through: a reduction in the company's share capital (requires entry in the National Court Register), from pure profit (profit for the last financial year plus undivided profits from previous years) or in a mixed way, combining the two above methods. In each case, a corresponding resolution is passed. Financing from profit is an easier option. Capital reduction involves lengthy formalities at the registry court.

 

Liquidation of a shareholder's shares without their consent

Based on a resolution of the shareholders' meeting, the shares are compulsorily redeemed. The articles of association must precisely define the conditions and procedure of the meeting's actions in the company. The reasons for redemption may vary, such as conducting activities that are competitive to the company, harming the company's interests, violating business secrets, etc. One important issue regarding remuneration should be mentioned here. A shareholder whose shares have been compulsorily redeemed receives remuneration for the shares subject to this procedure. The articles of association may specify how this remuneration is calculated.

 

Formalities to be completed with the registration authority after the sale of a limited liability company

After the sale of the limited liability company, as described in the advertisement, a series of additional steps must be taken. The company, after the change in the composition of shareholders, must complete the registration formalities, i.e. submit an KRS-Z3 application to change the entry in the National Court Register. The changes will include changes in the share register, consisting of deleting one shareholder and entering a new one with their full details. The company must prepare a new list of shareholders with the signatures of all its shareholders and the value of the shares held. The list must be submitted to the National Court Register within 7 days of the circumstances occurring.

It is worth mentioning that the obligation to report changes in shareholders to the National Court Register (KRS) only occurs when the value of a shareholder's shares amounts to at least 10% of the company's share capital. The KRS examines all reported facts, therefore it is worth attaching to the application for a change of entry attachments in the form of a sales agreement or a notarial extract from the agreement. In addition, if the shares have been acquired by a sole shareholder, a written statement containing the details of the sole buyer, including name, address or registered office in the case of a company, together with its full details, must be submitted to the National Court Register together with the application.

 

Appointment of a new management board of a limited liability company

After the shares have been acquired, the company must appoint a new Management Board. The old management board adopts a resolution, by an absolute majority of votes, in which it elects the bodies of the new management board. The appointed management board represents the interests of the new shareholders. The management board may consist of more than one person, but it is also required to appoint a chairman of the board, who is responsible for representing the company. After passing resolutions, the company submits an application KRS-Z3 to the National Court Register within 7 days of the occurrence of the changing circumstances. This is stated in the National Court Register Act in Article 22.

 

Liability for debts of a limited liability company

As a rule, the company that is the entity with legal personality is liable for the company's obligations. However, there are exceptions to this rule, described in the Commercial Companies Code. One such exception is the acquisition of shares, as stated in Article 198 of the CCC. It follows that the buyer of the shares and the seller at the time of sale are jointly and severally liable for obligations arising from outstanding payments due to the company from the sold share. Claims against the seller expire three years after the company has been notified of the sale of the shares. So as you can see, the very idea of selling a company gives rise to additional obligations that must be taken into account.

 

Tax on sales transactions (PCC)

After the purchase, the buyer is obliged to submit a PCC-3 declaration to the relevant tax office, indicating the value of the shares purchased and calculating the tax due. In the case of a sales contract, the tax on civil law transactions amounts to 1% of the market price of the shares sold. The PCC-3 form, together with the payment, must be submitted within 14 days of the conclusion of the share purchase agreement.

Categories: sell a limited liability company, sell a business, looking for an investor

//M.K.

 

Illustrative photo

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