Selling your SME in Luxembourg: due diligence and representations and warranties

A share deal sells the shares and the whole company, an asset deal sells the business or selected assets. The choice depends on the liabilities, the tax treatment and the continuity sought. An M&A lawyer weighs the options according to your situation.

It is the legal, tax, employment and financial audit carried out by the buyer to identify hidden risks. Each weakness uncovered becomes a negotiating lever on the price or the warranties.

The LOI sets the negotiation framework before the audit: indicative price, exclusivity, timetable and confidentiality. Some clauses are binding, such as exclusivity, and must be calibrated with care.

The SPA is the contract for the sale of the shares: price, representations and warranties, conditions precedent, undertakings until closing. It is the central document of a share deal.

That is rare for an SME. The buyer almost always requires a warranty. The seller's aim is not to avoid it but to cap and frame its scope.

The duration is negotiated. It is often longer for tax and employment liabilities. It all depends on your situation and the balance of power, which the lawyer helps to set.

It is a portion of the price that depends on the company's future performance over one or more financial years. It aligns the parties' interests but must rest on precise criteria to avoid disputes.

At signing, the parties commit by signing the SPA. At closing, the sale is completed once the conditions precedent have been satisfied: payment of the price and transfer of the shares.

They are events that must occur between signing and closing for the sale to go through: authorisations, bank approval, absence of a significant adverse change. Until they are satisfied, the sale is not completed.

The price often includes an adjustment for cash and debt at closing, and sometimes an earn-out. The method (locked box or completion accounts) is negotiated in the SPA.

The transfer of shares and changes in management give rise to formalities with the RCS kept by the LBR, and to the updating of the register of beneficial owners (RBE).

The tax treatment depends on the structure (share deal or asset deal) and on the status of the seller. The capital gain falls under the ACD and must be anticipated before signing to protect the net price.

It is the document by which the seller discloses specific matters to the buyer. What is properly disclosed can, in principle, be excluded from the scope of the asset and liability warranty.

Strongly recommended. The due diligence, the SPA and the asset and liability warranty determine the real price received and the seller's future exposure. Support protects the seller's position.

Generally allow three to nine months depending on the complexity, the quality of the preparation and the length of the due diligence. A well-prepared company shortens the timetable considerably.

By capping the warranty, setting a deductible, limiting its duration, framing the disclosure letter and balancing the security for the warranty. This is the heart of the negotiation conducted by the M&A lawyer.