Selling a business in France: price, warranty and taxes

Three questions come up in every French business sale: how the price is set, who bears a debt discovered after closing, and what taxes the sale triggers. Each is settled in the contract, and each is cheaper to address at the letter of intent than at signing.

Foreign entrepreneur? A business acquired through a company newly formed in France, funded with at least €30,000 and backed by a consistent business plan, can support a Talent Passport application (business creator route). See Talent Passport: buying a French business to settle.

Setting the price

There is no official price: there is a value, and a negotiation. For a fonds de commerce, the analysis focuses on turnover and profitability, with practices specific to each sector, together with the lease, the location and how much the customers depend on the current owner. For shares, the starting point is the value of the business, adjusted for cash and debt: in simple terms, business value + cash – debt = share price. Hence the importance of the reference date of the accounts and of price adjustment mechanisms.

The price need not be paid in one go: instalments (ideally secured), an earn-out paid if the business meets agreed targets after the sale, or a portion held in escrow to secure the seller’s undertakings. An earn-out defined loosely (which indicator, which accounting rules, who calculates?) becomes a dispute; instalments without security expose the seller to the buyer’s insolvency.

The asset and liability warranty

Buying shares means buying the company’s past: a tax reassessment, a claim by a former employee, a forgotten invoice. The company remains liable whoever owns it. The garantie d’actif et de passif is the seller’s undertaking to indemnify the buyer (or the company) if a liability arising before the sale appears afterwards, or if a declared asset proves not to exist. It is not imposed by law: everything depends on the contract.

• duration, often aligned with tax and social limitation periods;
• de minimis threshold and deductible;
• cap on the seller’s liability;
• claims procedure and conduct of disputes;
• security for the warranty: part of the price in escrow or a bank guarantee.

The seller’s interest runs the other way: limit the warranty in time and amount, exclude what was disclosed during due diligence, and frame the handling of claims.

Registration duties and capital gains

Registration duties are in principle paid by the buyer, and they vary with what is sold:

• shares of an unlisted SAS: 0.1% (General Tax Code, art. 726);
• shares of a SARL: 3%, after an allowance of €23,000 divided by the total number of shares (art. 726);
• companies whose assets are mainly real estate: 5%;
• fonds de commerce: progressive scale, up to 5% on the highest bracket (art. 719).

The seller is taxed on the capital gain; exemption or allowance regimes exist, for instance on retirement, under strict conditions. In a fonds sale, the question also arises of how the proceeds leave the company. At equal price, the structure of the sale can change the overall cost by several thousand euros: it is a point to settle with the accountant before the letter of intent.

Watch: these questions are answered on video, in French, in the podcast Cessions d’entreprise – full episode on YouTube.

General information; this article is not individual legal advice. Legal basis: Civil Code, art. 1103 and 1591; General Tax Code, art. 719 and 726 (rates to be checked at the date of the transaction).