Are you considering buying a business in Spain?. Are you building up a business to sell it later? Here are some points to consideration that will help you to understand the implications and options, and assist you to make a sound decision.
The concept of buying a business is very generic so we need to narrow it down to have a meaningful consideration.
For the purpose of this article we are going to use the example of a “restaurant business.”
Of course, this consideration will not only be useful if you plan to buy a restaurant but it will help to have a clear mental picture of what we are talking about.
Apart from the fact that “buying a bar or restaurant by the beach” is quite common among those who decide to “move to Spain”. A restaurant also has some general elements that can be applied to the purchase of many other types of businesses. So, to get things clear, a “restaurant business” may
involve:
- A Location (represented by a lease)
- Equipment (machinery, kitchen appliances, ….)
- Human team (Members of staff with their work contracts)
- Clientele (Prospect of incomes due to its reputation, etc..)
- Licenses, Permits …
What are you buying?
With these elements in mind we start to be able to call things by their names.
If element 4 is missing it can hardly be said that you are buying a “business”.
If element 5 is missing, very possibly what you are buying is a “problem”.
Before discussing these cases further, you need to know the two fundamental structures by which you can trade. Depending if your potential new business is run as one or the other it will have outstanding implications in your options:
Basically you can operate as a self-employed (autonomo ) or as a company.
The self-employed person trades in his own name. This means that if your future “restaurant” is run in this fashion, all licencies, leases, contracts are in his name.
In that case, the owner is the corner stone on which all the building stands.
If he steps away from the business it puts the entire project in jeopardy.
In Spanish they use the word “traspaso” to refer to the transfer of a business to other person. When you do a “traspaso” :
- You have to negotiate a new lease. Most lease agreements are protected against “traspasos”. This means that the amount, time and conditions may be revised.
- You would want to start new contracts with old employees. There is the possibility to transfer the employees from one employer to another. By doing this the employees are not made redundant and you would have to assume the compensation for the whole period of employment with the two employers. It is most convenient to restart the contracts.
- You will need to transfer the opening licence and any other required permit to your name. If there are no major changes in the activity and no works are needed in the premises then you can apply for a change in the licence ownership. This still means you have to pay the tax to the town hall but it is better than obtaining one from scratch.
- All the bills, invoices and official document need to now be re-directed to you.
In a way it is as if you are acquiring the business in pieces: you obtain a new lease, buy the equipment from the previous owner, employ his old employees, and obtain new trading licenses in your own name. What you are really buying is the equipment and the prospect of incomes. This last is intangible and it is valued in relation to how the two parties perceive it.
What you do not acquire in the traspaso are the liabilities of the previous owner.
As this was operating in his own name he responds with his own assets for any outstanding debts. Of course, to give you peace of mind, you want be sure that no one is going to knock at your door claiming someone else’s debt.
All of this is much easier if what you buy is a company that runs a business.
In that case, the lease, the contract, the employees, the opening licence and the rest of the official documents are in the name of the company. Buying this is just a matter of signing the purchase of the shares. The downside is that you also buy the liabilities and the company’s history with the authorities.
In this case it is similar to acquiring a well-packed set, all at once. Other related business partners; suppliers and even clients, may not even realize that the owner has changed. And what is great about this option is that you will not have to go through all the above mentioned hard work.
If you are reading this article from the point of view of someone who wants to sell the business you possibly realise that running it as an S.L company makes things much more appealing to potential buyers.
Final warnings
Going back to the first considerations, we would like to insist on these two points:
- If the Clientele is missing…
This might be because the business is doing poorly or because you are going to target other people and the old clientele is of little use to you. Then, in reality, you are setting up a new business in the place of the old one, and this is the risk you will take.
- If the opening licence is missing. (Or you will need a new one anyway because you are not doing the same as the previous business).
Then be very cautious! Requesting a totally new opening license requires that the premises comply with the most recent regulations in electrical installation, ventilation, … etc. A bar for example (now I am talking about a real one) may be open for years without being requested to change the toilet to a disabled friendly one, because it was not compulsory at the time when the license was granted. Now that you are buying it and have decided that you want to serve meals, the current restaurant license will obligate you to refurbish the toilets!.
Related: Will I need a licence
Needless to say, there are many things to keep in mind. You had better avail yourself of an experienced professional before taking any action.