Business sale agency

Selling a business (fonds de commerce) is not something to improvise. A restaurateur retiring, a shopkeeper wanting to sell the shop, a buyer looking for a profitable business: all quickly run into the same difficulty, finding the right adviser and securing a technically complex transaction. This is where the business sale agency comes in, an intermediary dedicated to this field that brings seller and buyer together, values the business and supports the transaction. This guide explains what the profession actually covers, the legal framework that governs it, how the agency is paid and the points to watch before signing an agency mandate or a preliminary sale agreement.

What a business sale agency does

A business sale agency is a professional whose activity consists of bringing a seller and a buyer together with a view to a sale of a business (cession de fonds de commerce), in return for remuneration. It acts as a commercial intermediary: it never becomes the owner of the business, it facilitates its transfer.

The French Commercial Code expressly classes this type of activity among commercial acts. Article L110-1 deems to be a commercial act any supply, agency or business office undertaking, as well as any brokerage operation. The same provision also covers purchases and resales of businesses (fonds de commerce). In other words, whether one looks at the object sold or at the intermediary activity itself, one is squarely within commercial law, with the consequences that entails for evidence, the jurisdiction of the commercial court (tribunal de commerce) and limitation periods.

Distinguishing the business from the premises and from the company

Before speaking of an agency, one must know what is being sold. A business (fonds de commerce) is a set of assets used to carry on a commercial activity. It includes intangible assets (the customer base, which is its core, the right to the lease, the trade name, the shop sign, licences) and tangible assets (equipment, tools, fittings). Stock is generally valued separately.

Three transactions are regularly confused, although they are governed by different regimes:

• the sale of the business, which transfers the operating assets but not the seller's debts nor, in principle, its contracts (other than the lease and employment contracts);
• the sale of the commercial premises (murs commerciaux), which concerns the building itself and falls under real estate sales;
• the sale of the shares of the company that runs the business, which transfers the legal entity with its assets and liabilities.

A business sale agency acts on the first transaction, sometimes on the third where it is authorised to handle sales of company shares. The distinction is far from theoretical: it governs the applicable tax treatment, the drafting of the documents and the extent of the warranties.

The agency, a regulated commercial intermediary

The agency is distinct from a mere business introducer. An introducer points out an opportunity and receives a one-off fee. The agency, for its part, is appointed under a mandate, organises the search, presents the business, negotiates and supports the parties through to signature. This difference of degree brings a difference of regime: as soon as a person habitually acts as an intermediary in sales of businesses, that person is subject to strict protective regulation, which the occasional introducer does not have to comply with.

The legal framework applicable to the intermediary

Many sellers are unaware that acting as an intermediary in sales of businesses is not a free activity. It is strictly regulated, in the same way as property transactions.

The Hoguet Law and the professional card

Law No. 70-9 of 2 January 1970, known as the Hoguet Law, regulates the conditions for carrying on activities relating to certain transactions concerning real estate and businesses (fonds de commerce). Its scope is therefore not limited to the traditional estate agent: it expressly covers the intermediary who assists in the purchase or sale of a business.

Practical consequence: to operate lawfully, the agency must hold a professional card bearing the endorsement "transactions on real estate and businesses". Since Law No. 2014-366 of 24 March 2014, known as the ALUR Law, this card is issued by the president of the competent chamber of commerce and industry. Obtaining it requires conditions of professional competence, a financial guarantee where the agency handles funds, professional liability insurance and the absence of any incapacity or prohibition from practising.

The Hoguet Law requires the intermediary to hold a written mandate, recorded in a register of mandates kept up to date and numbered consecutively.

This requirement is not an insignificant administrative formality. A verbal or unregistered mandate deprives the agency of any right to a commission, even if the sale is made thanks to it. Decree No. 72-678 of 20 July 1972, adopted to implement the Hoguet Law, specifies these formal obligations.

The written mandate, a condition of remuneration

The mandate is the cornerstone of the relationship. It defines the assignment, the asking price, the duration, the extent of the agency's powers and the amount of the remuneration. Several forms coexist:

• the simple mandate, which leaves the seller free to entrust the business to several agencies and to sell it itself;
• the exclusive mandate, which reserves marketing to a single agency for a fixed period;
• the semi-exclusive mandate, an intermediate form, which reserves the intermediary role to the agency but allows the seller to conclude directly with a buyer it has found itself.

The Hoguet Law lays down a fundamental protective rule: no commission is due until the transaction has actually been concluded and recorded in a written instrument containing the parties' undertaking. An agency therefore cannot demand remuneration for the mere introduction, or for a simple promise that has not been formalised. This rule prevents a seller from paying for a sale that never went through.

The agency's concrete tasks in a sale of a business

The role of a business sale agency is not limited to publishing an advertisement. Its value lies in the technical support it provides on a transaction that draws on commercial law, tax law and lease law.

The agency begins by assembling a presentation file, sometimes called a sales memorandum, which brings together the turnover of recent financial years, gross operating surplus, the analysis of the commercial lease, the condition of the equipment and the make-up of the customer base. This work determines the credibility of the business in the eyes of serious buyers.

It then carries out the search for and screening of candidates. Presenting a business to a buyer whose financing plan is not solid wastes everyone's time. An experienced agency checks in advance the buyer's ability to pay, the fit of the project with the business and, where relevant, compatibility with the permitted use under the lease.

Lastly comes the negotiation phase. The agency acts as an interface between diverging interests: the seller wants to maximise the price, the buyer wants to secure the takeover and limit latent liabilities. The commercial intermediary helps to structure the agreement, to set the useful conditions precedent (obtaining the loan, landlord's approval, administrative authorisations) and to prepare the transfer of the elements of the business.

The agency's remuneration: commission, conditions and pitfalls to avoid

The agency's remuneration takes the form of a commission, generally expressed as a percentage of the sale price, sometimes with a minimum amount. The law leaves the parties free to set this rate: there is no statutory scale, which justifies comparing several proposals before committing.

Three questions must be settled in the mandate, because they are a recurrent source of disputes:

• who bears the commission, the seller, the buyer, or both? The mandate must state this unambiguously;
• when does the commission become payable? In accordance with the Hoguet Law, only on actual conclusion of the transaction;
• how is the base calculated? Is stock, which is often valued separately, included in or excluded from the calculation base?

A classic pitfall deserves particular attention: the clause providing that a commission remains payable if the seller concludes, after the mandate has expired, with a buyer introduced by the agency. Such a clause is valid, but it requires the agency to prove that it actually introduced that particular candidate. Hence the importance, for the seller and the agency alike, of keeping a written record of introductions.

The stages of the sale and the agency's role at each stage

A sale of a business proceeds in several sequences. The agency acts on the first, and the lawyer and the notary secure the later ones.

Valuation and estimate of the business

Everything begins with valuation. Several methods coexist: valuation by a percentage of turnover, specific to each business sector, or valuation by a multiple of gross operating surplus, which is more refined because it takes account of real profitability. A bakery, a restaurant business or a retail shop do not follow the same market practices. An estimate that is too high freezes the asset, one that is too low makes the seller lose value. Here the agency brings a knowledge of the local market that the isolated seller does not have.

The preliminary sale agreement or promise to sell

Once agreement is reached, the parties sign a preliminary contract. It fixes the price, the precise subject of the sale, the treatment of stock and the conditions precedent. This stage legally binds the parties and calls for the greatest rigour. The lawyer or the notary drafts the instrument, the agency's role being to have prepared the ground and gathered the documents. Drafting the deed of sale is a matter of legal competence: the agency is not meant to take its place. How a lawyer's fees are set at this stage is detailed in our article on lawyer's fees for the sale of a business.

It should be noted that Law No. 2019-744 of 19 July 2019, known as the simplification law, removed the mandatory particulars that appeared in the former Article L141-1 of the French Commercial Code (turnover, results, statement of privileges and pledges). This removal lightened the formalities, but it did not reduce the buyer's interest in obtaining complete and reliable information: the absence of a mandatory particular shifts the burden of verification onto prior due diligence and the seller's contractual statements.

The final deed and the formalities

Signature of the final deed triggers a series of obligations that secure the transaction and protect third parties:

• registration of the deed with the tax office and payment of transfer duties, calculated under the progressive scale in Article 719 of the French General Tax Code;
• publication of the sale in a legal notices journal and in the Bulletin officiel des annonces civiles et commerciales (official gazette of civil and commercial announcements), which opens the period for the seller's creditors to lodge oppositions;
• escrow of the sale price, held by a trusted third party while oppositions and tax joint liability are cleared.

Escrow is essential for the buyer. Indeed, Article 1684 of the French General Tax Code makes the buyer jointly liable for payment of certain taxes owed by the seller for the last year of trading. Until that period has expired, releasing the price to the seller would expose the buyer to risk. On how long the price remains blocked and how this fits with the asset and liability warranty, see our analysis of price escrow in the sale of a business.

Points of vigilance for the seller and the buyer

Several sensitive subjects should be anticipated, failing which the sale may turn against one of the parties.

The commercial lease is often the most valuable asset of the business. Its transfer to the buyer must comply with the terms of the contract: some require the landlord's approval, others impose a joint guarantee from the seller for future rent. A buyer who acquires a business whose lease is about to expire, with no visibility on renewal, is buying a fragile shell.

The position of employees calls for particular vigilance. Existing employment contracts are transferred by operation of law to the buyer. In addition, Law No. 2014-856 of 31 July 2014 on the social and solidarity economy introduced, in businesses with fewer than two hundred and fifty employees, a right for employees to be informed in advance of a plan to sell the business, so as to allow them to make an offer to take it over. Failure to comply with this obligation has been the subject of adjustments, but the subject must be dealt with before the sale timetable is set.

Finally, the clause against re-establishment (non-rétablissement) (sometimes called a non-competition clause) protects the buyer against the risk of the seller reopening a similar business nearby and capturing the customers it has just sold. To be valid, it must be limited in time, in space and as to the activity concerned. A clause that is too broad is liable to be declared void.

How to choose a reliable agency

Not all intermediaries are equal, and the financial stakes of a sale justify a few basic checks before signing a mandate.

The first check concerns the professional card. A business sale agency that operates without the "transactions on real estate and businesses" card places itself outside the Hoguet Law and cannot claim any commission. Asking for the card number and the issuing chamber of commerce and industry is a basic precaution. The other criteria for selecting an intermediary are covered separately in our article on the estate agency dedicated to the sale of businesses.

The second concerns the financial guarantee and professional liability insurance, which are essential where the agency handles funds or incurs liability in the advice it gives. The third is sector focus: an agency well versed in sales of restaurant businesses does not necessarily master the transfer of a professional practice or of a food shop subject to specific authorisations.

Finally, the mandate must be read carefully before it is signed: duration, exclusivity, base and date of payment of the commission, introduction clause. These stipulations commit the parties for several months and determine the final cost of the transaction.

Conclusion

The business sale agency performs a useful function: it brings knowledge of the market, a pool of buyers and support during the negotiation phase. But it is not a free actor. Its activity is closely regulated by the Hoguet Law, which makes its remuneration conditional on holding a professional card, on a written mandate and on the sale actually being completed. Confusing the role of the commercial intermediary with that of the lawyer who secures the instrument would be a costly mistake: the agency brings the parties together, the lawyer or the notary locks down the transaction.

The most useful advice, for a seller as for a buyer, is to separate the two assignments clearly and to have the agency mandate, and then the preliminary agreement, reviewed by a legal professional independent of the intermediary. Before signing anything, check the agency's professional card and have the sensitive clauses, lease, escrow, tax joint liability and non-re-establishment, validated by your adviser.

Frequently asked questions

Does a business sale agency need a professional card? Yes. Acting as an intermediary in sales of businesses falls under Law No. 70-9 of 2 January 1970, known as the Hoguet Law, in the same way as property transactions. The agency must hold a professional card bearing the endorsement "transactions on real estate and businesses", issued by the president of the chamber of commerce and industry since the ALUR Law of 24 March 2014. Without this card, it operates unlawfully and cannot claim any commission.

When is the agency's commission due? The Hoguet Law lays down a protective rule: no commission is due until the transaction has actually been concluded and recorded in a written instrument binding the parties. A mere introduction or a promise that has not been formalised is not enough to make the commission payable. The mandate must also state who bears it and on what base.

What is the difference between selling a business and selling the shares of the company? The sale of a business (fonds de commerce) transfers the operating assets (customer base, right to the lease, equipment) without the seller's debts. The sale of shares transfers the whole company, with its assets and liabilities. Tax treatment, warranties and the drafting of the documents differ radically. The choice between the two structures has significant consequences and warrants prior legal advice.

Must employees be informed of a plan to sell? In businesses with fewer than two hundred and fifty employees, Law No. 2014-856 of 31 July 2014 on the social and solidarity economy requires employees to be informed in advance of the plan to sell the business, so as to allow them to make an offer to take it over. In addition, existing employment contracts are transferred by operation of law to the buyer. This subject must be dealt with at the very start of the sale timetable.

Why is the sale price blocked after signing? The price is placed in escrow with a trusted third party to protect the buyer. Publication of the sale opens a period for the seller's creditors to lodge oppositions, and Article 1684 of the French General Tax Code makes the buyer jointly liable for certain taxes owed by the seller. The price is released only once these risks have been cleared.

Do the mandatory particulars of the deed of sale still exist? No. Law No. 2019-744 of 19 July 2019 on simplification removed the mandatory particulars of the former Article L141-1 of the French Commercial Code (turnover, results, privileges and pledges). This removal lightened the formalities, but it increases the importance of rigorous prior due diligence and precise contractual statements from the seller to inform the buyer properly.

How much are registration duties on the sale of a business? Transfer duties are calculated under the progressive scale in Article 719 of the French General Tax Code, applied to the sale price. They are in principle borne by the buyer and must be paid on registration of the deed. The amount depends on the price: it should be quantified precisely by the person drafting the deed, because it represents a significant cost of the transaction.