Selling and buying an s.r.o.: what to watch out for

Selling and buying a limited liability company (s.r.o.) is both an alternative to setting up a company from scratch and a way of exiting a business. Transferring an existing company, however, comes with its own risks and pitfalls that need to be checked thoroughly. In this article, we take a closer look at what to watch out for when buying as well as when selling a company.

Why buy or sell an s.r.o.

Buying an existing company can be quicker than setting up a completely new one, or it may bring established contracts or a business history. Selling, in turn, allows the owner to end the business without a lengthy liquidation process. Selling and buying an s.r.o. is therefore a practical tool, but it requires caution and thorough preparation on both sides.

The legal side of the transfer

A company is usually transferred by transferring the ownership interests to the new shareholder, possibly together with a change of the company’s managing director. The entire process must be properly documented and entered in the Commercial Register (ORSR), otherwise it is not effective towards third parties.

1. A contract for the transfer of the ownership interest is concluded.
2. The necessary decisions of the company’s bodies are adopted.
3. An application to enter the changes in the Commercial Register is filed.
4. The company documentation and accounting records are handed over.

What to check before buying

The biggest risk when buying is the company’s hidden history. Before signing, it is essential to check the company thoroughly so that you are not buying problems.

• The company’s liabilities, debts and any disputes.
• The state of the accounting and the company’s tax obligations.
• Valid contracts, licences and authorisations.
• Entries in registers and any enforcement proceedings.

What to bear in mind when selling

The seller should have the company in good order – with up-to-date accounting, settled liabilities and well-organised contractual relationships. A transparent company without hidden problems sells faster and on better terms, as the buyer has no reason to lower the price because of risk. At the same time, it is important for the contract to deal properly with liability for the period before the transfer, so that the seller avoids claims for matters that arose only after the change of owner. Well-prepared documentation protects both parties.

Tax and accounting implications

A transfer of an interest may have tax consequences for both the seller and the buyer. It is equally important to hand over and take over the complete accounting records properly, so that the company can carry on seamlessly under its new owner. Check the current fees and deadlines associated with the entry in advance.

Ready-made companies as an alternative

A special case is so-called ready-made companies, that is, companies set up in advance with no trading history that are ready for immediate sale. Their advantage is a clean slate and speed – the buyer obtains a functioning company almost immediately. Even with these, however, you need to check their origin and status to be certain that you are buying a genuinely unencumbered company.

• Quick acquisition of a functioning company.
• As a rule, a company with no trading history.
• Check the company’s origin and status all the same.
• Entering the changes in the register is essential.

Why a professional review is important

When selling and buying an s.r.o., it pays to work with experts who will check the company from both the accounting and the tax perspective. Bilvao’s accountants will help you uncover any hidden risks and make sure that the entire transfer goes ahead safely and without unpleasant surprises.

Related articles: Mergers and amalgamations of companies: the procedure, Changes to Commercial Register details: what must be reported, Liquidation of an s.r.o.: how to close a company properly.

Frequently asked questions

How does the sale of an s.r.o. work?

A company is most often sold by transferring the ownership interest to the new shareholder, possibly with a change of managing director. A transfer contract is concluded, the company’s bodies adopt their decisions and the changes are entered in the Commercial Register. A professional review of the company is recommended.

What is the biggest risk when buying an existing s.r.o.?

The biggest risk is the company’s hidden history – unpaid debts, tax arrears, ongoing disputes or enforcement proceedings. That is why, before buying, it is essential to check the company thoroughly from both the accounting and the legal perspective, so that you are not buying hidden problems.