Share deal vs asset deal
Prof Jo Vanbelle
Belgium
by Prof Jo Vanbelle
In Belgium, the acquisition of a company or its business activities can occur in various ways.
Share deal
Most commonly, an acquisition involves purchasing shares of the involved company (share deal), including its activities. If the intention is not to acquire all the company's activities but only a part, it is possible to split the company beforehand and place a portion of the activities into a new or different company. Subsequently, the share deal can effectively concern only the company containing the desired activities. The rules regarding splits are extensively regulated by law and are often tax-neutral. Assistance from an excellent lawyer, advisor, accountant, and notary is essential in this process.
Advantages and considerations of the share deal:
A share deal is a purely contractual matter handled between the parties (and their advisors) without any mandatory, special publicity or registration, except for adjusting the company's share register.
The company itself remains intact, which provides legal and administrative simplicity, often allowing the deal to be handled faster and more efficiently. The company retains its bank accounts, VAT number, existing supplier contracts, etc.
Since the company is sold as a going concern with all its outstanding rights and obligations, it is crucial to conduct thorough due diligence beforehand, covering accounting, contracts, and commitments with suppliers, staff, service providers, banks, insurers, etc. Since the buyer of the shares indirectly takes over the company's existing tax position, including any latent tax liabilities and risks, it is important to consult with the tax administration beforehand and carefully describe and cover these in the share purchase agreement. Often, an escrow account is created for a portion of the purchase price for several years to cover and guarantee these latent tax and social risks (so-called "representations and warranties").
Existing current accounts must also be reviewed and handled: if the seller owes a debt to their company, will it remain after the sale, be settled with the sale price of the shares, or be resolved differently? And what about a debt the company owes to the selling shareholder?
Taxation and financing:
The sale of company shares in Belgium has the special advantage that capital gains on shares are generally never taxable, even for individual selling shareholders, unless they act with purely speculative intent, which is almost never the case in practice.
Thus, all profits from the sale of shares are fully tax-free in Belgium. The sale price immediately and entirely enters the private assets of the selling shareholder net.
The principle of tax-free share deals often makes Belgium an attractive option within Europe, for example, in structuring company groups (holding or intermediate holdings) with a view to later realisation.
When the seller of the shares is a company, the realised capital gain is also generally tax-free, provided certain minimum participation and holding period requirements are met, which are often satisfied.
Finally, a potential disadvantage of a share deal is that financing is generally more difficult, and the buyer cannot depreciate the purchase price of the shares for tax purposes. This often affects the price the buyer is willing to pay for the shares.
Asset deal
Purchasing a company's business activity, its so-called business fund, or part of it (asset deal) is an alternative to consider when acquiring the entire company is legally-tax complex, too extensive, or expensive, or not desired within the buyer-investor's business strategy or growth scenario.
Advantages and considerations of the asset deal:
The advantage of acquiring a business activity (the seller here is the company, not its shareholder) is that risks can often be identified and safeguarded more quickly and effectively by the selling company.
In Belgium, there is a requirement to request certain certificates from the government prior to the sale of the business fund, indicating outstanding tax and social debts. Without these certificates, the buyer will be jointly liable with the seller for paying these debts.
When selling a business fund, it can be explicitly determined which parts are sold. Debts and obligations can be expressly excluded from the sale, as can certain assets not useful to the buyer (e.g. inventories, outdated machines, and equipment, etc.). However, staff must generally be taken over under existing employment conditions.
An asset deal is more complex and administratively heavy - the owner of the business activity changes, and thus various parties must be informed, such as staff, banks, suppliers, etc.
Unlike a share deal, the sale of a business fund typically triggers (corporate) tax of 20-25% on the realised net gain (after deducting potential tax losses and transaction costs).
If the selling company's shareholder wants to receive the remaining sale proceeds privately, an additional 30% withholding tax is typically due, making the total tax cost high compared to a share deal. However, various methods can temper this tax burden (e.g., by the wise and timely establishment of a liquidation reserve, or spreading the purchase price payment through a phased earn-out), realising capital gains over several tax years. If real estate is sold, the gain can also be reinvested, and the gain is spread over the depreciation period of the new investment object.
Asset deals can be completely contractually arranged except when real estate is involved: then, a notary's intervention is required, and transfer taxes are levied, which can be substantial (approximately 12%). This is not the case if the real estate is part of a share deal and remains in the company of which the shares are sold.
The buyer, on the other hand, will find it easier to obtain financing and can depreciate the purchase price for tax purposes, thereby reducing future taxable profits.
XLNC member firm Vanbelle LawBrussels, BelgiumT: +32 2 431 64 00
Prof Jo Vanbelle, born and raised in Belgium, graduated cum laude as a Master of Laws from KU Leuven in 1995 and immediately thereafter started his own law firm, Vanbelle Law, which has now been in operation for almost thirty years. Since then, the firm has annually won one or more prestigious awards as the best firm in Belgium in international tax and corporate law.
Jo is also a deputy judge in the Brussels Metropolitan Area (since 2006) and also serves as honorary consul of Ukraine in Belgium since 2019. He publishes regularly and is also a lecturer at the Brussels Diplomatic Academy of the University of Brussels. Jo is a member of the University Foundation and founder of VB Alliance, the first multidisciplinary group of advisory and facility firms of this nature and scale in Belgium.
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