Drafting and Signing a Spanish Business Acquisition Agreement. Welcome to the final article in our series on purchasing a business in Spain. This piece focuses on the drafting and signing of the Acquisition Agreement.
As mentioned in previous articles, before drafting an Acquisition Agreement, both parties will engage in preliminary negotiations to align their understanding. This might include signing a Letter of Intent (LOI), which outlines the basic terms and conditions of the proposed deal, and a Confidentiality Agreement. In addition, the buyer’s legal advisor will have conducted extensive due diligence to ensure their client fully understands the business they are purchasing. Spanish law heavily emphasises due diligence, and the buyer must comply with all local regulations. After the due diligence process is completed, negotiations between the seller and purchaser will have taken place to finalise the terms to be included in the Acquisition Agreement.
What clauses should be contained in a Spanish Business Acquisition Agreement?
The Acquisition Agreement sets out the legal obligations of both parties. It typically includes the following components:
- A section on definitions and interpretation.
- The names and details of the parties to the agreement.
- The legal jurisdiction and laws governing the agreement.
- The purpose of the business transfer. In a share sale, this is the sale and purchase of shares (as a way to sell and buy an ongoing business). In an asset sale, the purpose is the sale and purchase of assets, the allocation of liabilities, and the assignment of contractual positions and employees (if applicable).
- List of conditions required to be met before the deal can close.
- Price and payment of the price (and usually price adjustment).
- Interim covenants assumed by the seller relating to the company’s management between signing and closing dates.
- Closing requirements and actions (including delivery of documents and corporate books).
- Seller’s representations and warranties.
- Buyer’s representations and warranties.
- General indemnities for breach of the representations and warranties (and, if appropriate, for breach of obligations under the Acquisition Agreement).
- Disputes resolution procedures.
- Specific indemnities (although this clause may be added to a side letter, particularly about tax/employment/regulatory issues identified in the due diligence process).
- If appropriate, a guarantee to the buyer covering a breach by the seller of the representations and warranties (such as price retention, escrow account, or first demand bank guarantee) and ensuring the buyer’s right of set-off and withholding payment.
- Seller’s post-closing obligations, including:
- non-compete, non-solicitation, and confidentiality provisions; and
- transitional services agreements.
- A confidentiality clause.
- An assignment clause.
- General clauses on expenses and taxes, order of precedence, severability and integration of clauses, entire agreement and amendments, language, waivers, default interest, and notices.
What are the principal areas covered in an Acquisition Agreement’s indemnities and warranties section?
The indemnities and warranties will depend on the details of the business being acquired (for example, the market sector it operates in). Generally, they will be based on:
- The findings unearthed in the due diligence process.
- The characteristics of the transaction and the target business.
- The strength of each party’s bargaining position.
Warranties will normally fall into the following categories:
- Fundamental – the seller’s authority and ability to complete the transaction, transfer licences, valid ownership of company shares and assets, and declaration of solvency.
- Business – such as real estate, assets, products, data protection, environmental and sustainability claims, and IP.
The Acquisition Agreement will also set out the limitations applicable to the listed warranties and indemnities.
What tax liabilities do I need to consider?
Tax planning that considers not only Spanish tax law but the tax laws applicable to the jurisdiction of the acquiring company is crucial to ensuring the ultimate beneficiary of the acquisition secures the greatest benefit. Double Tax treaty considerations must be considered.
An example of a duty that must be considered is transfer tax. Generally, there is no transfer tax on corporate transactions in Spain; however, under Article 108 of the Stock Exchange Law, the transfer of unquoted shares of public limited liability companies and pre-emptive rights to the subscription of those shares by the intervention of a notary or a stockbroker, is exempt from transfer tax unless the transfer leads to the acquisition of control over a company in which 50% or more of its assets consist of immovable property situated in Spain. The buyer is responsible for paying this tax, and the rate will be decided by the regional government overseeing the location where the asset resides.
Other taxes that must be considered include:
- Capital duty
- Stamp duty
- Transfer tax
A duly-qualified legal team can ensure that all tax obligations in Spain and Britain have been investigated and a strategy developed to minimise any duties legally.
What is the process of signing an Acquisition Agreement?
Once all terms have been finalised, the agreement is executed by both parties. Certain acquisition agreements may require notarisation in Spain, necessitating a Spanish notary’s presence. The notary will verify the parties’ identities and the transaction’s legitimacy.
The closing process is where the ownership of the business officially changes hands. It includes fulfilling all conditions, paying the purchase price, and other final requirements stipulated in the agreement.
Whenever possible, completion will occur simultaneously with signing, but occasionally certain conditions need to be fulfilled, or third-party consents obtained before completion can take place. The buyer’s protection between signing and closing is ensured by limiting the seller’s activities and involvement in the business whilst conditions and third-party consents are being discharged/acquired.
Acquiring a Spanish business requires a deep understanding of local laws, customs, and business practices. A well-drafted Acquisition Agreement is central to the transaction, providing a legal framework that safeguards both parties interests. Engaging legal experts and adhering to due diligence principles are key to navigating the complexities of such an agreement. By diligently following each process step, parties can achieve a successful acquisition that meets their strategic goals.
Our dual-qualified, multi-lingual Spanish Abogadas and English barristers can advise on and undertake all legal aspects of purchasing a business in Spain. Please contact us at +44 207 043 0648 to make an appointment.
Drafting and Signing a Spanish Business Acquisition Agreement. Please note that this article does not constitute legal advice.