Transfer of a business

What is the “Fonds de commerce” ?

Although there is no legal definition of the concept of a “fonds de commerce“, it is customary to consider that this concept covers all tangible and intangible movable items that can be used for a business

Intangible elements may include the customer base, the goodwill, the trade name and the leasehold rights.

Goods, equipment and materials are included in tangible items, without this list being exhaustive.

Focus on the main elements of the business

The Lease : it is the main element of the business asset. It is, therefore, essential to read carefully the lease agreement carefully in order to determine, especially :

• the lease nature,
• the duration of the lease and its possible tacit renewal,
• the amount of the rent and its indexation mechanism,
• the amount of charges,
• the purpose of the premises,
• the formalities relating to the transfer.

Some advice in this regard : 

Don’t forget to pay particular attention to the “life of the lease” by asking for the latest minutes of the general assembly and the building rules.

Also, don’t hesitate to ask questions about the key points of your business that could be related to the lease: is an extraction necessary, does it exist, if so is in good condition, do the neighbors complain about nuisance in this respect ?

Visit the premises and check the practical details: is the rubbish bin accessible to you .

The trade sign: the trade sign is a key element of a business. However, this element may be excluded from the transfer, particularly where the business is operated under the trademark owned by a third party, such as in the context of franchise where the trade sign remains the ownership of the franchisor despite the transfer of the business.

Current agreements: these are agreements of various kind which must be listed exhaustively at the time of the transfer. On the basis of this list and a careful study of each of these agreements, the transferee will decide whether or not to keep them. For example : agreements relating to gas, electricity, internet, maintenance, fire extinguishers or electrical installations.

Employment agreements: particular attention must be paid to the employment agreements attached to the business asset. Indeed, the provisions of the French Labour Code stipulate that employment agreements are automatically transferred to the transferee. It is, therefore, essential to take not beforehand, study their amendments and the salaries paid in this context.

Equipment and furniture: an inventory of the furniture and equipment transferred must be drawn up at the kick-off of the negotiations in order to assure it smoothly. We recommend, in this respect, that the assignee does not hesitate to ask to operate the machines.

What is the timetable for the transfer of a business ?

The transfer of the business asset take place in three distinct stages:

1° First of all, an offer to purchase the business asset must be drawn up. This offer should detail the conditions under which the transfer of the business asset will be sold. It will be necessary, in this respect, to set out the financial conditions, the timetable of the transfer but, also, the first so-called “conditions precedent” that you consider essential to acquire the said business asset.

2° Then, a transfer promise must be signed under conditions precedent. It should be noted that the fulfilment of these conditions precedent must be subject to a time limit which must be sufficient for them to be fulfilled.

3° Finally, the signing of the definitive transfer may be formalized provided that the conditions precent have been lifted or waived by the party benefiting from them. Publication of the transfer and its registration will be mandatory.

Get accompanied by a lawyer!

Formalizing the related agreements, ensuring that the conditions precedent are met, analyzing the commercial lease and its ins and outs, and carrying out the registration formalities, are all reasons to call on a professional in this area.