Hopefully, the business will have a good customer base and any licences for the business will already be in place. All you should have to do is register a change of ownership with your local town hall and then build on existing business.
Beware: all may not be as it seems! Try to find out why the owners are selling the business, especially if the price seems reasonable. Thriving businesses aren’t sold off at knock-down prices without a good reason. If a business has been badly run and doesn’t have a good reputation, you could be buying something that’s more of a liability than an asset. Make sure you get at least two independent valuations and talk to the current owners at length about their reasons for selling. Is competition too fierce or are there plans afoot to build something close by that will affect your trade? Ask your lawyer to check local planning permission applications for possible rival businesses or anything else that may have a negative effect on your profits.
Another potential disadvantage of buying an existing business is that you must also take on the staff that go with it and you will be subject to all the labour and social security obligations of the previous owner. Make sure that your lawyer checks what kind of contracts are in place for the staff, as you will be the one who has to honour them. Check in particular that there are no outstanding disputes with any staff. The previous employer and you are jointly responsible for any claims made before the sale and up to three years afterwards.
The procedure for buying a business is essentially the same as for buying any property, but you should tread carefully through it. You must usually pay a 10 per cent deposit to show your commitment to buy, with the balance payable, if all goes to plan, between 30 and 60 days later. The payment of a deposit ensures that the business is taken off the market while all the legal checks are made. You should obtain a receipt and insist that the deposit is paid into a client account until completion of the sale, either by the agent or by a gestor, rather than handed over to the seller. This is important, as the legal checks might show that the seller doesn’t have the right to sell the business, the leasehold or the property. Once you’ve paid a deposit, the seller should provide your lawyer with the title deeds (escritura) or a copy of the lease and an inventory of what’s included in the price. That way your lawyer can check with the Land Registry to make sure that the seller is the legal owner or leaseholder and what the tenancy status is.
Your lawyer should also check that all the licences are in place to operate the business legally (see below) and – most important of all – that there are no debts attached to the business or the property and no outstanding disputes with staff if the business is being sold with employees. In Spain, when you buy or lease a property or a business, you also take on the debts as well as any staff and the attendant social security obligations.
If there are any problems with the contract that are beyond your control (e.g. the seller doesn’t have the right to sell, the business isn’t licensed as advertised or there are debts or other liabilities that haven’t been or cannot be cleared up), your deposit should be returned. You should only lose your deposit if you change your mind without good reason. If your lawyer has made all the relevant checks and is satisfied that all is in order, you can go ahead to completion on the agreed date, at which point the balance must be paid and keys will be handed over to you.
If you’re buying a lease, make sure that you can fulfil your responsibilities as leaseholder before you sign a contract. During the term of the lease, you must pay all service charges such as water, electricity, telephone and local business taxes.
One of the main advantages of buying an existing business is that you can generally begin trading more quickly because any licences that are required continue to be valid if it changes hands. You will simply have to register a change of name on the licence. As long as the nature of the business doesn’t change, you won’t have to wait weeks (or months) while a new application is processed, with no guarantee that it will be granted at all. An agent shouldn’t sell you an unlicensed business but unfortunately some do, and unsuspecting purchasers are simply closed down by the police as soon as they open.
If you’re buying a business that is trading, it must by law have an opening licence, but make sure you actually see it and get a copy. It should be displayed, or at least available, on the premises. If the current owners cannot provide it, there’s a strong possibility that the business is operating illegally.
Your agent should make sure that the business has all the necessary licences, and your lawyer or gestor should double-check. Don’t sign an agreement until you have seen the licences and have copies.
If the business is trading while waiting for a licence, this should be carefully checked with the issuing authority – especially the reason for the delay. In certain circumstances, the business can legally be offered for sale without a licence. If this is the case, your lawyer should check whether there are any potential problems obtaining one and ask for the price to be reduced accordingly.
This article is an extract from Making a Living in Spain. Click here to get a copy now.