Why Is Due Diligence Essential?
Before buying any operating business in Spain, a complete legal and financial due diligence review is essential. This review reveals hidden risks such as outstanding tax debts, ongoing employment claims, invalid contracts with suppliers, or expired business licences, before the final contract is signed.
Due Diligence Checklist
- Reviewing the company's outstanding tax and social security debts
- Reviewing active contracts (suppliers, key clients, employees)
- The status of operating licences and business permits
- Any history of ongoing or potential legal or employment claims
- The status of the business premises' lease and its transfer terms
Share Deal Versus Asset Deal
| Contract type | Key feature |
|---|---|
| Share Deal | The buyer acquires full ownership of the company, including all its past debts and obligations |
| Asset Deal | Only specified assets (equipment, brand, inventory) are transferred; previous debts generally remain with the seller |
An asset deal generally carries less risk for the buyer, as it does not inherit unknown past debts, but it may be more complex from a tax or administrative standpoint. The right choice depends on each business's specific situation and should be reviewed with legal and tax advice.
Transferring the Business Premises' Lease
If the business operates from a leased property, the lease transfer must be carried out under Spain's Urban Leases Law (Ley de Arrendamientos Urbanos, LAU). Depending on the terms of the original contract, the explicit consent of the property owner or simply formal notification may be required. Carefully reviewing the lease contract's clauses before finalising the purchase is essential.
Notifying Government Offices
Once the purchase is finalised, the change of ownership must be formally reported to the tax office (Agencia Tributaria) and social security (Seguridad Social). This step is essential to update the company's tax status and ensure employees' insurance continues correctly.
Under Spanish labour law, in many cases the buyer is required to maintain the existing employment contracts of the acquired business's employees. Disregarding this obligation can lead to costly employment claims.
Frequently Asked Questions
What is the difference between a share deal and an asset deal?
In a share deal, full ownership of the company is transferred with all its debts. In an asset deal, only specified assets are transferred and previous debts remain with the seller.
Why is due diligence essential before buying?
It reveals hidden risks such as tax debt, employment claims or expired licences before the final contract is signed.
Is the business premises' lease automatically transferred?
No, the transfer must be carried out under Spain's Urban Leases Law and with the property owner's consent or notification.
Do I need to notify government offices of the change of ownership?
Yes, the tax office and social security must be notified so that the company's tax status and employees' insurance are updated.