French asset deal: an overview

The sale of assets, so long as it includes customer contracts, qualifies in France as a sale of a ‘business going-concern’ triggering a mandatory legal framework (art. 141-1 and followings of the French commercial code).

It is possible to escape from this mandatory framework if customer agreements and raw materials are excluded from the scope of the sale.  In this situation, it is necessary to transfer non-customers agreements only on a case-by-case basis (each agreement is transferred separately).  Chapter VIII of the French civil code will applies, notably art. 1690 of French civil code (art. 1690: ‘An assignee is vested with regard to third parties only by notice of the assignment served upon the debtor.  Nevertheless, the assignee may likewise be vested by acceptance of the assignment given by the debtor in an authentic act.’).

French law requires that certain statements be set out in the business going-concern sale agreement.  Liabilities are not transferred to the buyer but the purchaser bears several obligations.  Employees working for this business are protected under French laws and are transferred to the buyer.

MANDATORY CONTENT OF THE SALE AGREEMENT

The following must be inserted in the sale agreement (art. L. 141-1 of French commercial code).
• previous ownership of the business: if the seller did not create the business, details regarding the previous owner, the date and nature of the previous sale contract and the purchase price (detailing the break-down of the price as between intangible assets, inventory, including stock, if any, and equipment). • existing liens and pledges over the business • turnover and net profits/losses of the business over • the last three years of the operating of the going concern, up until the date of completion (the last annual period will necessarily be an estimate) • details regarding leasehold rights (lease, date, duration, name and address of the landlord). If any of the above statements are omitted, the purchaser can ask for the cancellation of the sale contract within the year of the signature of the agreement.

Moreover, on the date of the sale, the seller and the purchaser must counter-sign all the accounting ledgers that have been kept by the seller over the three tax years preceding that of the sale of the business, and a document setting out the monthly turnover of the business between the end of the last tax year and the month preceding that of the sale.

The above-mentioned documents are listed and counter-signed by the parties, and the seller must retain at the purchaser’s disposal for a three-year period the said accounting ledgers.

Language and applicable law – A French version of the sale contract needs to be filed with the local Court in charge of the Trade and Companies Registry. Moreover, even though it is not mandatory to have a written contract, a document including the mandatory information should be registered with the local French tax authorities.

Due to the legal requirements set out above, a sale of a French business as a going concern is necessarily subject to French law.