Business Transfer (Cession de Fonds de Commerce): Legal Guide and Key Steps

What is a Business Transfer (Cession de Fonds de Commerce)?

The transfer of a business (fonds de commerce) consists of the sale by a company of all the elements, both tangible and intangible, that enable it to carry on its activity. It is a legal universality comprising:

• Tangible Assets: Equipment, commercial furniture, tools, vehicles, and possibly merchandise (which is subject to a separate inventory).

• Intangible Assets: The clientele (the essential element), the business name (enseigne commerciale), the trade name (nom commercial), the leasehold rights (droit au bail), current employment contracts, licenses and administrative authorizations, intellectual property (trademarks, patents, domain names, software), and know-how.

Please note: Certain elements are not automatically included in the transfer and must be specifically mentioned in the deed:

• Merchandise inventory (usually sold separately).

• Accounts receivable and accounts payable related to past operations.

• Current contracts (except those legally transferable, such as employment contracts).

• The buildings in which the business is operated (unless the building is sold simultaneously).

The Crucial Steps of a Business Transfer:

Our law firm guides you through the key steps for a successful transfer:

Step 1: Identification and Valuation of the Business Assets

• Precise Inventory: The first step is to establish a detailed and exhaustive inventory of all the tangible and intangible elements constituting the business. This list will serve as the basis for negotiation and the drafting of the transfer deed.

• Business Valuation: Determining the fair value of the business is essential. Several valuation methods can be used:

  • Industry Multiplier Method: Applying an industry-specific multiplier to the turnover.

  • Profitability Valuation Method: Based on earnings before interest, taxes, depreciation, and amortization (EBITDA) and debt service capacity.

  • Comparative Method: Analyzing the sale prices of similar businesses.

  • Adjusted Net Asset Method: Assessing the real asset value of the company.

  • Our expertise enables you to choose the most appropriate method and negotiate the transfer price in an informed manner.

Step 2: Seller's Preliminary Information Obligations

• Information to Employees (Companies with fewer than 249 employees): The seller is obliged to inform their employees of the transfer plan at least two months before the conclusion of the sale. This information must be provided by any means that allows proof of receipt (registered mail, hand delivery against signature, etc.).

  • Penalty: Failure to comply with this obligation may result in a civil fine for the seller (up to 2% of the sale price).

  • Exceptions: This obligation does not apply to companies with 250 employees or more, transfers by inheritance, liquidation of matrimonial property, transfers to a spouse or certain relatives, and companies in insolvency proceedings.

• Declaration to the Municipality: The seller must inform the town hall of the municipality where the business is located of their intention to sell, specifying the price and terms of the sale. This allows the municipality to exercise its potential right of pre-emption if the business is located in an area designated for the safeguarding of local commerce and crafts.

Step 3: Drafting the Promise to Transfer (Preliminary Agreement)

The signing of a promise to transfer (or a sales agreement) formalizes the parties' agreement on the price and essential terms of the sale. It notably allows the buyer to secure the business while seeking financing.

• Unilateral Promise to Transfer: The seller undertakes to sell at a determined price and under determined conditions, while the buyer has an option to purchase that they can exercise or not within a fixed period.

  • Immobilization Indemnity: The buyer generally pays an indemnity to the seller in exchange for the immobilization of the business.

  • Mandatory Registration: The unilateral promise must be registered with the tax authorities within 10 days of its acceptance by the buyer, otherwise it is void.

    
    

• Bilateral Promise to Transfer (Sales Agreement): Both parties mutually undertake to sell and to buy.

  • Conditions Precedent: The promise often contains conditions precedent (obtaining a bank loan, waiver of the municipality's right of pre-emption, agreement of the landlord if necessary).

  • Immobilization Indemnity: An indemnity is often provided for in the event that the sale is not completed due to the buyer's fault.

Step 4: Drafting the Final Transfer Deed

The transfer deed formally establishes the transfer of ownership of the business. Although the mandatory clauses were removed by the 2019 law, it is strongly recommended to include essential information for the legal security of the transaction:

• Origin of the Business: Name of the previous seller, date and nature of their acquisition, acquisition price.

• Status of Registrations: Mention of any privileges or pledges encumbering the business.

• Business Activity: Turnover and operating profit for the last three financial years, as well as recent monthly figures.

• Commercial Lease Agreement: Date, duration, name and address of the lessor and the transferor, and the history of any previous transfers of the lease.

Step 5: Formalities After Signing the Transfer Deed

• Registration of the Deed: The buyer must register the transfer deed with the tax authorities within one month and pay the registration fees (the amount of which varies depending on the sale price).

• Legal Publications:

  • Publication in a Legal Gazette (Journal d'Annonces Légales - JAL): At the initiative of the buyer, within 15 days of signing.

  • Publication in the Official Bulletin of Civil and Commercial Announcements (Bulletin Officiel des Annonces Civiles et Commerciales - BODACC): By the clerk of the commercial court, within 3 days of publication in the JAL and within 15 days of the sale.

• Opposition of Creditors: The publication in the BODACC opens a ten-day period during which the seller's creditors can oppose the payment of the sale price.

• Escrow of the Sale Price: The sale price is generally held in escrow by a lawyer or notary for a period of tax solidarity (in principle 90 days, which can be reduced to 30 days under certain conditions) to guarantee the payment of taxes due by the seller.

• Formalities for the Buyer: Registration with the Trade and Companies Register (Registre du Commerce et des Sociétés - RCS) if necessary, modification of the company's purpose, declaration of the opening of a new establishment.

• Formalities for the Seller: Closing of accounts, tax declarations, deregistration from the RCS if ceasing activity.

Step 6: Guarantees for the Buyer

The buyer benefits from several legal guarantees from the seller:

• Guarantee of Delivery: The seller must make the business available to the buyer in accordance with what has been agreed.

• Guarantee Against Eviction: The seller must guarantee the buyer peaceful possession of the business and not compete unfairly with them.

• Guarantee Against Hidden Defects: The seller is liable for hidden defects that make the business unfit for its intended use or that so diminish this use that the buyer would not have acquired it or would have given only a lesser price if they had known of 1  them.   

  
  

Why Choose Our Law Firm for Your Business Transfer?

The transfer of a business is a complex operation involving numerous legal and financial risks. Our law firm offers you personalized and secure support at every stage:

• Strategic Advice: Analysis of your situation, identification of risks and opportunities, and definition of the best strategy to adopt.

• Drafting and Negotiation of Deeds: Preparation of the promise to transfer and the final transfer deed, ensuring the protection of your interests.

• Verification of Legal Conditions: Examination of titles of ownership, contracts, the lease agreement, and any pre-emption rights.

• Assistance with Formalities: Support for the completion of all legal and administrative formalities.

• Dispute Resolution: Representation and defense of your interests in the event of litigation.

Contact us today to secure your business transfer project and benefit from the expertise of our specialized lawyers.