Buying an existing business or company instead of forming a new one

Terms used

• IVA — IVA is Spain's value-added tax, charged on most sales of goods and services.
• ITP — ITP is the transfer tax paid when buying second-hand property and some other assets.
• AJD — AJD is stamp duty on certain legal documents, such as some notarised deeds.
• AEAT — The AEAT is Spain's tax agency.
• TGSS — The TGSS is Spain's Social Security treasury, which collects contributions.
• Declaraciones responsables — A declaración responsable is a signed statement to the town hall that you meet the rules to run an activity.
• Cambio de titularidad — The cambio de titularidad is the town hall procedure that changes the licence holder from the old owner to the new one.

Key rules

• Debt certificates: Request the tax and Social Security debt certificates before the sale, because they can limit or remove your liability for the seller's debts.
• Employees: Staff and their unpaid claims come with the business, and the seller and you are jointly liable for three years for pre-transfer employment debts.
• Licences: A licence moves through a change of holder only if the activity and premises stay the same.
• Share purchase: Buying shares means you take on the company's whole history, including hidden debts.
• Professional help: Have a Spanish lawyer or gestor review the contract and the documents before you sign.

The short answer

Buying an existing business means you can inherit its debts, its employees and its licence problems. Before you sign, check three things: what liabilities follow the business to you, whether the licence can move to you, and whether you buy the assets or the shares.

Shares or assets: how the deal structure changes your risk

Buying shares means you buy the company itself, with its whole history. Hidden debts, tax and Social Security arrears, lawsuits, contracts, licences and employees all stay inside the company, and you now own it. Share sales are exempt from IVA. They are generally exempt from ITP and AJD too, except for companies that mainly hold property. The seller pays tax on their gain.

Buying assets lets you choose what you take and what you leave. It gives better protection against unknown liabilities, but it means more paperwork. The sale is subject to IVA, or to ITP if property is involved, and sometimes to AJD. Contracts and licences do not move automatically. You need the other side's consent or a change of holder.

An asset purchase does not make you safe. If you take over a going business, the debts and employee obligations below can still reach you. The decision below sets the two options side by side.

Tax and Social Security debts

If you continue the seller's activity, you can be liable for the tax debts linked to it, including withholdings, from before the transfer. Your liability is capped at the value of the assets you take over.

You can protect yourself by asking for a debt certificate before the sale:

• Tax agency (AEAT): if it issues the certificate within three months, you are liable only for the debts it lists, or none if it is clean. If it does not issue it in time, you are released.
• Social Security (TGSS): you are jointly liable for the previous owner's contribution debts. The certificate must be issued within 30 days. If it shows no debts, or is not issued in time, you are released.

Ask for both before you pay. The timeline below shows the order.

Employees

When you buy a business with staff, you take over their contracts with the same seniority and conditions. You also take over Social Security obligations and pension commitments. Buying the business is not in itself a reason to dismiss anyone.

Seller and buyer are jointly liable for three years for pay and other employment debts that arose before the transfer and were never paid. Both of you must tell the workers' representatives, or the workers if there are none, in good time before the transfer. Tell them the date, the reasons, the consequences and any planned measures.

Licences and premises

Activity licences and declaraciones responsables are tied to the premises and the activity. The usual route is a cambio de titularidad at the town hall. The old and new holders normally apply together, with your ID, proof of the sale and the lease or title deeds.

• If the activity and premises stay the same, the change is generally approved without new works or an inspection. Some town halls charge a fee.
• If the activity or premises change, you need a new licence or declaration.
• Sector licences, such as alcohol, pharmacies or taxis, have their own rules. Ask the authority that issues them.

Procedures and forms differ by town hall and region, so ask the town hall before you commit.

What to check before signing

Ask the seller for the full set of documents listed below. Check them against the public registries: the commercial register, the property registry and the insolvency records. Also look at loans, guarantees and liens, the lease, insurance, intellectual property and domain names, and any pending or threatened lawsuits or inspections.

Because the sums and risks are high, have a Spanish lawyer or gestor review the deal. They can write protections into the contract, such as a price holdback or a seller guarantee against hidden debts.

Choosing between options

Should you buy the business's assets or the shares of its company?

• Buy the shares: Fits if you want the company kept whole, with its contracts, licences and employees, and you accept its full history. Share transfers are exempt from IVA and in principle from transfer tax (ITP/AJD), with exceptions for property-rich companies.

• Buy the assets: Fits if you want to choose what you take and get more protection against unknown debts, and accept more paperwork. The sale is subject to IVA, or transfer tax (ITP) for property, and stamp duty (AJD) in some cases.

Choose shares for continuity and a simple handover only if checks show a clean company; choose assets when the company's history is uncertain or you want to pick what you take.

Timeline and deadlines

• Ask the tax agency and Social Security for a certificate of the business's debts: before you sign the sale

• Tax agency issues its certificate of the business's tax debts: within three months of your request

• Social Security issues its certificate of the business's contribution debts: within 30 days of your request

Documents you need

• Certificate that the business is up to date with the tax agency (AEAT), requested before the sale

• Certificate that the business is up to date with Social Security (TGSS), requested before the sale

• Proof that local taxes are paid, from the town hall

• Last annual accounts, tax returns (IVA, IRPF or company tax) and accounting books for several years

• Commercial register entry and company deeds

• For a share purchase: the shareholders' register and the bylaws

• List of employees with contracts, payroll, Social Security forms and the collective agreement

• Main client and supplier contracts

• The activity licence or declaración responsable (a declaration made to the town hall to run the activity), plus any sector permits

• Lease contract and proof of rent payments, or the title deeds if the premises are owned

• Details of loans, guarantees and liens

• Insurance policies

• Intellectual property and domain name registrations

• Signed declaration of pending or threatened litigation and inspections

• Searches of the commercial register, property registry, insolvency records and the register of debts

• For the change of holder: a joint application from the former and new holders, your ID, the sale contract and the lease or title

Checklist

• Ask the seller for the employee list with contracts, payroll and the collective agreement, so you know which obligations you take over.

• Get written confirmation that all pay and Social Security contributions due before the transfer have been paid.

• Agree with the seller to inform the workers' representatives, or the workers if there are none, of the date, reasons, consequences and planned measures in good time before the transfer.

• Ask the town hall whether the licence can move to you through a change of holder, and whether it charges a fee.

• Ask the relevant authority how the change of holder works for sector licences such as alcohol, pharmacies or taxis.

• Check the lease and proof of rent payments, or the title deeds if the premises are owned.

• Ask for details of loans, guarantees and liens and check them against the registries.

• Ask the seller to declare any pending or threatened litigation and inspections.

• Search the commercial register, property registry, insolvency records and the register of debts.

What to watch out for

• Buying shares brings the whole company history: If you buy the shares, hidden liabilities, tax and Social Security debts, lawsuits, contracts and employees all stay in the company you now own. Ask for the full document set before you sign, or buy the assets instead if you want protection against unknown debts.

• Tax and Social Security debts can follow the business: If you carry on the seller's activity, you answer for its earlier tax debts, including withholdings, and share liability for its Social Security debts, even in an asset purchase. Request the debt certificates from the tax agency and Social Security before the sale, and only then sign.

• Employees and their unpaid claims come with the business: You take over the employees' rights and obligations, and you and the seller are jointly liable for three years for unpaid obligations from before the transfer. Later obligations are covered too if the transfer is judged a fraud. Get written proof that pay and contributions are up to date, and put protection for unpaid claims in the sale contract.

• Contracts and licences do not move on their own in an asset purchase: Contracts and licences need the other side's consent or a change of holder, so a deal can close while the business cannot yet operate legally. Get consents and the town hall's approval lined up before closing.

Frequently asked questions

Can I dismiss the employees after buying a business?

No, buying a business is not a reason to dismiss its employees. Their contracts continue with the same seniority and conditions they had before the sale. Any dismissal needs its own valid ground.

Do I need a new licence if the business keeps the same activity and premises?

Usually no, you only need a change of holder (cambio de titularidad) with the town hall. It is normally approved without new works or inspection, though some towns charge a fee.

What happens if the tax agency or Social Security does not issue the certificate in time?

If the tax agency does not issue the certificate within three months, you are released from the seller's tax debts. Social Security works the same way: if its certificate is not issued within 30 days, you are released. Keep proof of the date you asked.

Is there a limit to the seller's tax debts I can inherit?

Yes, your liability for the seller's tax debts is limited to the value of the assets you take over. If you ask for a tax certificate before the sale, you are only liable for the debts it lists, or none if it is clean.