If you farm as part of a company (EARL, GAEC, SCEA, etc.), you will be wondering whether you should sell your company shares or sell the company's assets when you sell your farm.
We'll take a look at the advantages and disadvantages of each situation to help you make your own decision.
When you sell your company, you will be transferring shares that will enable the buyer (usually referred to as the transferee in the deeds of sale) to hold the share capital, become the majority shareholder or the sole shareholder of the company.
It will therefore take over both the assets and liabilities of the legal entity.
A traditional sale involves real estate (land, buildings) and personal property (equipment, livestock, stocks, etc.).
A company's assets include many other items: intangible rights (PBOs, patents, software, etc.), financial assets (investments, shareholdings in companies, cooperative or Cuma shares, etc.) and current assets (receivables, bank accounts, etc.).
On the liabilities side, the transfer of the company means that loans and debts continue.
Broadly speaking, the takeover value of the company's shares will be as follows:
Value of securities = Value of assets - Value of liabilities
This may sound simple, but it is in fact more complex, because on the day you set a sale price, you do not yet know the value of all the assets or the exact position of the company's debts.
A provisional value is generally defined with payment on the day of the sale. A definitive valuation is then carried out on the basis of the actual situation on the day of the sale.
Depending on the complexity of the situation, the difference may be greater or lesser than the provisional value.
The selling partners often have commitments to the company. These commitments generally end when the business is sold (or must be cancelled).
This is particularly the case for guarantees given by the partners, such as personal guarantees on loans taken out by the company. This guarantee may only be withdrawn with the agreement of the credit institution, which will require the transferee to provide equivalent guarantees.
The partners have a partnership account in the company accounts. This is a sum of money owed to them by the company in addition to the value of their shares. On leaving the company, the seller will ask for the shareholder's current account to be repaid, which often means that the company will have to arrange special bank financing. This new loan will be in addition to any financing taken out by the transferee to acquire the shares.
Partners may also hold leases that they make available to the company. When they withdraw from the company, these leases are automatically terminated. The purchaser must therefore contact the lessors to obtain the signature of a lease or a sale in his favour.
In addition to the assets, the buyer (often referred to as the transferee) will also take over the current contracts, whether these are employment contracts or contracts with service providers.
It can be difficult to clearly determine the nature of the commitments linked to these contracts and whether they are a strength or a weakness of the structure.
On the liabilities side, new liabilities may arise after the transfer of shares:
To protect the purchaser, an Asset and Liability Guarantee (ALG) is included in the deeds to ensure that the seller assumes responsibility for these items.
It may be more attractive for the vendor to sell the company shares rather than the assets.
First of all, however, a distinction needs to be made as to whether the seller is an operating or non-operating partner.
Operating partners
For a farm shareholder, the normal tax rate on the sale of shares is 30% (tax and social security contributions).
The sale may qualify for the same tax exemption schemes as for asset sales (see the article entitled ‘Taxation on the sale of a farm’): exemption for small businesses, exemption on retirement, exemption depending on the value of the assets sold).
If the seller cannot benefit from an exemption on capital gains for small businesses, he may be able to benefit from an exemption based on the value of the assets sold.
The transfer of shares is entirely a transfer of movable property (except in the case of companies with a preponderance of real estate assets), even if the company owns buildings. The sale price is reduced by deducting liabilities. This may enable the company to benefit from total exemption for disposals of less than €500,000 or partial exemption for disposals of less than €1,000,000.
Non-farming partners
For a non-operating partner, the sale of shares is subject to the private capital gains regime, with basic taxation at the single flat-rate levy of 30% (tax and social security contributions) or taxation at the progressive income tax rate.
It is possible to benefit from additional allowances if the property has been held for at least 8 years or in the event of retirement.
Overall, therefore, the tax treatment of a sale of company shares may be more advantageous than a sale of assets in certain situations.
On the other hand, it can have unfavourable consequences for the purchaser, despite real savings on registration fees.
Registration fees
In the case of a standard sale of property, the notaire draws up the deed of sale and deducts registration duty, which is generally around 5.89% of the sale price.
For the sale of shares in an agricultural company, the purchaser will generally have to pay a fixed registration fee of €125 on the final deed (except for companies less than 3 years old, companies with a preponderance of real estate assets and companies subject to corporation tax).
This can be a much lower amount, and therefore a significant saving.
Loss of depreciation
When a company is taken over, the acquirer takes over the assets at their book value on the balance sheet, even if the value used to value the shares is different. This results in a depreciable base that is lower than the negotiated value.
Example: a building is valued at €300,000 to calculate the value of the shares. In the transferor's accounts, it is only valued at €120,000, given the depreciation applied since its acquisition.
The transferee will therefore only be able to depreciate €120,000. The difference of €180,000 is therefore lost, which means that over the life of the building the transferee will have €180,000 in additional income (compared with an asset takeover), which will result in a significant increase in MSA social security contributions and income tax.
This operation is therefore generally highly disadvantageous for the buyer. He will ask for the price to be reduced by at least the tax and social security impact of this loss of depreciation, which may be enough to prevent the sale.
For a long time, share transfers were introduced to facilitate the procedures for obtaining administrative authorisations: control of farm structures and SAFER.
Since the introduction of the Sempastous law, transfers of shares must be declared to the SAFER, which may authorise or refuse them depending on the situation.
Selling a company's shares is a highly complex legal operation, as the scope of the deed is much broader than a ‘simple’ sale of assets. This complexity can be a source of misunderstanding and even conflict.
It should be noted that if the operator does not sell the shares in the company but rather the assets, he will have to wind up the company.
Before deciding whether the sale of your farm should take the form of a transfer of shares, you should contact your accountancy firm, which will advise you on the most advantageous course of action.
*** Translated with www.DeepL.com/Translator (free version) ***
Here are some additional resources we have put at your disposal to provide you with all the information you need for your transfer project.
