To sell or buy a business

Asya Vladimirova
Asya Vladimirova

The different methods and basic steps in the transaction under Bulgarian law

Whether on the side of the seller or the buyer, the disposition of operating business is undoubtedly a risky activity, in which besides determination, there is need of knowledge in many areas, some of which are the legal aspects.


The most common participants in trade are limited liability companies and joint stock companies, and this article is limited namely to the acquisition of business carried out by these companies.

The buyer can acquire all shares in the company, carrying out the business. The transaction is concluded between the buyer and the shareholders in the company, i.e. the business remains in the same company, but its owner changes.

An alternative to the above is the acquisition of the business as a going concern, as a set of rights, obligations and factual relations. In this case seller in the transaction is the very company, whose business is subject to the sale. While the rights and obligations of the company have proprietary expression, the concept factual relations is abstract, as such are the clientele and the reputation of the company, the made contacts and others. The factual relationships are those which distinguish the sale of a company as a developed business and add a significant value to the deal compared with the sale of its individual components, even if the latter constitute the substantial part of its property. The buyer, however, may still aim to acquire precisely selected assets of it, which form the core business without acquiring the entire company with its obligations.

Advantages and disadvantages

In some cases the situation determines the choice of the parties for the method of acquisition of the business, for example if the company carries out various activities, only one of which is subject to the sale. However, if the choice depends on the parties, they might have different views on how to perform the transaction, because the advantages for the seller are disadvantages for the buyer and vice versa. The owners of a company will often prefer to sell their shares, whereas the buyer would prefer to acquire the business from the company. This is because during the sale of all shares of the company, the seller takes no responsibility for its liabilities (unless such agreed in the contract between the parties), while the buyer acquires it with all its liabilities, which in some cases cannot be known or properly assessed. In the case of sale of the business as a going concern the shareholders remain owners of the company and the latter remains liable to the creditors for its liabilities before the sale, jointly with the buyer, to the extent of the acquired rights. Moreover – the creditors are obliged to turn first to the seller. Even if the parties have agreed that the buyer takes responsibility for such liabilities, this will not affect the rights of third parties, who can take actions against the company, unless they have expressly released it from liability. Another feature of the sale of business as going concern is the buyer’s obligation to manage separately the company for a period of six months from the registration of the transfer in the Commercial Register. This protects the creditors of the seller and the buyer from integration of the transferred business with the remaining property of the buyer, as in this period, the creditors can seek enforcement or security for their claims, which had occurred before the date of registration.

While at sale of shares of a company the purchase price is due to the shareholders, at the sale of company as going concern the company receives it itself, and to that end the tax issues can have a crucial role.

The contract

The sale of all shares in a limited liability company is made by a contract with notarized signatures, and the shares in a joint stock company are transferred according to their type – for example bearer shares by their transmission and the registered shares – by endorsement. To take effect, the change of the owner is entered into the Commercial Register and in the transfer of registered shares – in the book of the shareholders. The whole company as a going concern is transferred by a contract with notarized signatures and also has to be entered into the Commercial Register and the Registry Office, when a part of it is a real estate or a property right. Before proceeding to the formal transfer or the so called completion of the transaction, the parties usually regulate their relations by a contract that has elements of a preliminary one. This contract has no transfer action, but regulates the rights and obligations of the parties before, during and after the completion. Usually, the first “draft” is prepared by the consultants of the buyer, since the majority of the contract is intended to protect the buyer. While the seller knows what he/she will receive, there are a number of unknowns for the buyer, as hidden liabilities of the company, encumbrances on the property and others. Thus, some conditions can be regulated in the contract that must be met by the seller in order the completion to occur (e.g. deletion of a pledge or acquiring of a permission, which is important for the business), as well as representations and warranties that protect the buyer in any breach of the contract. In order to identify the questions and how they can be resolved, so as the buyer to be satisfied, it is strongly recommended before the signing of this binding contract a thorough check of the target company to be performed or this is the so called due diligence. The seller, in turn, will seek to obtain contractual protection for the price, especially when a part of the payment is due after the completion. The seller may require a security on an asset, respectively on the shares, guarantee from a parent company, bank guarantee or the remaining part of the payment to be paid into an escrow account.


When there is a sale of all shares in the company, there is no change of the employer; the employment relations remain as they were at the time of the sale, as the buyer “acquires” them together with the company, as well as any possible obligations to the employees, arising prior to the sale. The seller is not legally liable for such obligations and for this reason it is reasonable for the buyer to require contractual guarantees in case that old debts of the company to the workers reveal, about which the seller has not been informed.

It is different when the company is sold as a going concern, even when the object of acquisition is not the entire company, but a significant part of its property. The employment relations are transferred to the buyer at the date of the change by the law, but for the obligations to the employees, arising prior to the sale, the buyer and the seller shall be jointly responsible. Moreover, the old and the new employer have to inform the workers about the intended change and its consequences at least two months before its performance and in some cases also to consult with them. For both types of acquisition, actions of the seller or the buyer as dismissing workers or changing the working conditions before or immediately after the acquisition may be a ground for claims by the workers.

Concentration and taxes

Upon acquisition of business as going concern or shares in a company, it is possible an obligation to notify for concentration before the Commission for Protection of Competition to arise, if the turnovers of the participants in the transaction exceed the thresholds provided by the law.

The participants in the transaction have to pay particular attention to the tax aspects, which are subject to a separate deep analysis.

The article has been published in Bulgarian, in Capital Daily.