Should a m&a advisor be informed about the Legal landscape? Legal aspects are of high importance when buying a business. Your advisor needs to be up to date with the legal framework that applies to M&A transactions in Finland. Here we mention some aspects that you need to consider when acquiring a company in Finland. In general a part of the legal environment is similar to international law. We also touch upon some of the legal regulations for M&A projects in Finland that are clearly different.
The buyer and the seller should first agree on the structure of the acquisition and the relevant assets included in the transaction. It is important to decide whether the transaction will be a purchase of assets or shares. Asset purchase is normally simpler for the buyer, because it leaves most of the potential or hidden corporate liabilities (for example tax) to the Seller. The stock purchase also means paying transfer tax (1.6%) for the buyer in Finland. However, the seller’s tax treatment is often better in a stock than asset deal. Arbitration is normally the preferred dispute solution in M&A transactions in Finland, especially with foreign buyers.
The documents used in a typical acquisition are the Broker’s Fee Letter, Letter of Intent and the Sales and Purchase Agreement (or Bill of Sale).
Therefore the practise in Finland does not differ much from the standard global practise. The LOI type that is most common to be used is a binding format which means that the Letter of Interest has binding legal consequences and maybe basis for damage claim.
A typical LOI (Letter of Intent) in Finland will normally involve the following terms and conditions:
The fundamental legislation that governs the transfer of shares of companies and transfer of assets is Finnish Corporations Act (2006/624). The share transfers are recorded only in private corporate share registers unless the corporation is publicly traded. Only the tax authorities keep records of share ownership for tax purposes. Otherwise M&A deals are only governed by general contract law, which gives parties full freedom to agree on details.
The common way to work when buying a company in Finland legally is similar to other countries. In Finland the two most common legal ways to acquire a company are:
We are open to advise you if should prefer a share or an asset deal. Below you find some more information on the differences between a share purchase and an asset purchase.
When acquiring shares in the target company, the legal structure of the target business remains the same. Hence, in practise that there will be no change in the company’s business. Contracts with employees, subsidiaries, suppliers or other parties remain in place. A possible disadvantage when acquiring shares is that all liabilities are transferred with the acquired company to the new owner. Hence, during a due diligence a detailed investigation into all possible items will need to be made. This includes all risks like tax and possible environmental liabilities. If the buyer would like certain existing liabilities not to be present in the target company after the transaction an asset deal might be preferred.
If the assets acquired are in Finland, Finnish law is normally used in the contract. In asset deals, only those assets specified by the parties are transferred as part of the acquired business. This enables the buyer to choose only the assets it is really interested in. In Finland only those liabilities which are explicitly assumed by the buyer are transferred to the buyer. This applies also to the seller’s tax liabilities relating to the transferred business. Hence, an asset deal is a way to not become liable for possible tax liabilities when acquiring a business. The existing labour contracts may require that the buyer takes over employees involved in the assets of the company. So normally after an acquisition through an asset deal, the target business’s employees will follow the business to the acquirer. With respect to contracts connected to the assets being acquired, the main principle in Finland is that a transfer of a contract will always require the counter-party’s consent. Therefore, it is wise to get the consent of at least the most important contracting parties before the transaction.
Feel free to contact us if you have any questions about legal aspects when buying a company in Finland. Visit the profile of M&A advisor Pakka Salo (who has made this contribution) to find out what he can do for you.