As you decide to move on, finding a successor for your business could complicate and slow down your plan. It’s not just a matter of identifying the right person: to successfully complete a business transfer, you also need to take care of all the legal aspects of this particular transition and define the contract as best you can.
In the next few lines, meanwhile, you are about to find out more precisely what exactly a business transfer is.
What is business transfer?
To understand what a business transfer is, it is a must to start with its definition.
Definition of Business Transfer
A business transfer consists of the transfer of a complex of assets suitable for the operation of a business and occurs whenever the owner of the business changes as a result of a corporate transaction, which can be of various kinds (among these, alongside, for example, demerger, merger and lease, there is also the aforementioned business transfer).
The transfer may involve the entire company as a whole or only a part of it: in the latter case it is called a transfer of a business branch.
In order for one to speak of a business transfer, it is necessary to determine whether or not the assets being transferred actually constitute a business (otherwise one would be faced with a transfer of individual business assets). The solution to the dilemma is as follows: if the set of assets is capable of producing products or services (even if only potentially), it is correct to speak of a business transfer.
Business transfer can be outright (such as when the business is sold) or temporary (as, for example, with leasing).
Not only that, the business transfer can be completed by a unilateral act (as in the case of a donation) or defined by a contract.
Difference between sale and transfer of business
But is transferring the business or selling the business the same thing? In both the case of a business transfer and a sale, the owner of the organized economic activity changes, regardless of the legal transaction by which the handover took place. Whether it is a merger, demerger or other legal transaction, what matters then is that the owner of the economic activity changes. In this regard, remember that the transfer can also be temporary (in this case it is called a business lease).
The substantial difference between business assignment and transfer refers, on the other hand, to the concept of business branch transfer: in this case, it is not the entire business that is transferred (business transfer includes all the assets and all the legal relationships present, except those expressly excluded by contract) but only a part of the business complex, that is, a set of assets and legal relationships that, although part of the same business, are organized for the exercise of an activity that is potentially capable of being exercised separately.
Legal, tax and financial aspects of business transfer
Regarding business transfer, there are some legal, tax and financial aspects to consider.
In Article 2557, for example, the Civil Code stipulates that a person who alienates a business enterprise must refrain for a maximum of five years from starting a new enterprise that could “divert” the clientele of the transferred business.
Another legal effect of business transfer concerns succession in contracts: the purchaser succeeds to contracts entered into for the operation of the business, except for contracts of a personal nature or unless the parties agree otherwise.
In the case of a business transfer, there is also an automatic transfer of business receivables to the buyer.
Business transfer planning
Now that you know what a business transfer is and what it entails, it is important that you also understand how you can best prepare yourself to arrive ready for this appointment.
Choosing a successor
The choice of successor, as mentioned, is one of the most delicate steps.
First, it should be clear to you that there are many reasons to seek one: for example, you may be nearing retirement or need to devote your energies to family or other entrepreneurial projects.
Whatever the reason, you need to plan for succession early so that you do not leave the company without clear leadership and guidance. The new manager must respect what the company has always stood for. Not only that, he or she must be able to consolidate this. Evaluate well, in this regard, the qualities and skills the successor must possess, and if the company’s internal selection process does not allow you to identify the right person, do not have a problem turning to the outside.
Preparing for the transition of command
The transition of command must be gradual, so that the successor can settle into the company and win the trust of staff and customers.
The time required to complete the entire transition, of course, depends on the person you have identified as your successor: if they are someone who has always worked in the company and closely with you, in all likelihood, this period will be shorter.
The business transfer contract
It is now time to understand in more detail how a business transfer contract should be drawn up.
Essential elements of the contract
With regard to the form of the business transfer contract, you must first consider that there is a distinction between the form required for the contract to be valid, the form required for evidentiary purposes, and the form required for registration in the commercial register.
For the purposes of contract validity, the form is free, with the exception of all cases in which real estate or registered movable property is part of the business compendium: the required form, for these transfers, is written form.
Regarding, however, the form required for evidentiary purposes, the Civil Code prescribes written form.
Finally, with reference to registration in the Commercial Registry, the Civil Code prescribes the form of a public deed or notarized private deed.
Clauses to be considered in the contract
Let us now turn to the clauses to be considered: as already pointed out, these include non-competition, succession in contracts, and the automatic transfer of claims to the buyer of the business.
Regarding the non-competition clause, you should know that The statutory time limit can be waived only “downward”: this means that a shorter time interval can be provided for, but the duration of this prohibition cannot be extended beyond 5 years. Regarding the content of the non-compete, the alienator and buyer have complete freedom to agree on the subject matter, location and other circumstances concerning the start of a new business.
Regarding, on the other hand, the automatic passing of accounts receivable, you must consider that, on the other hand, with regard to debts, the transferor is released from the debts of the transferred company only if the creditors consent to this.
Pass the command
Passing the command is never easy. In the next few lines, however, you will find a number of tricks that can make this delicate step easier.
Developing the skills of the successor
We have already emphasized the importance of assessing well the qualities that the successor must have; equally important is to continue to develop certain key skills that he or she cannot fail to have. In this regard, it can be very useful to provide constant mentoring so as to reinforce self-confidence as he or she is introduced to the different areas of the business.
Preparing for the handover
After introducing the successor to the various areas of the business, you will have to give him or her more and more space and freedom as you go along, so that he or she becomes more and more autonomous and ready to assume all the responsibilities at the fateful moment of the handover.
This period will be especially useful for you to evaluate the new manager’s work on your own and see if you have made the right choice, before leaving the enterprise in his hands.
Once the handover is complete, however, remember not to interfere with the new leader’s decisions.
Tips for a successful transfer
We have chosen to conclude this guide dedicated to business transfer with some useful tips.
Communication with employees
The time when the owner of a company changes is particularly complex to manage not only for those leaving the company, but also for all the company’s employees, who find themselves having to deal with a new leader.
For this reason, it is essential to keep the communication channel with workers open at all times, so that the reasons for the decision can be well explained and every step in this delicate process clarified (but also to respond promptly to any doubts or concerns).
Maintaining business continuity
We have already pointed this out but it is worth repeating: in order not to dissipate the value created, it is very important that the actions of the new leader be consistent with what the company has stood for and continues to stand for, so that business continuity can be maintained. Remember, in this regard, the words of Howard Schultz:
“Transferring a business is not just a matter of signing, but of passing values and visions to those who will carry on the future.”
Rely on experienced consultants
Passing command is never easy because it brings with it so many personal implications that can make you lose lucidity and rationality; an outside look, in this sense, can be very useful. To best manage each step of the business transfer process and complete this operation successfully, you may decide, therefore, to rely on one or more experienced consultants: these are professionals who can help you right from the candidate search and selection stage.
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