A business transfer conveys a going concern with its customer base, stock, and goodwill. This guide explains what it is, how the contract works, the tax treatment, and when a company sale is the more appropriate route.
A business transfer conveys a going-concern establishment to a buyer who intends to continue the activity: leased premises, customer base, stock, licences and goodwill, all in a single transaction. It is the standard structure when a restaurateur, retailer or local service provider sells their business and there is no trading company involved, or when a company exists but lacks sufficient structure to justify a share purchase.
This guide examines what a business transfer is, how it is formalised, the taxes it attracts, and, most importantly, when it is preferable to structure the transaction as a company sale rather than a business transfer.
A business transfer is the onerous transmission of a trading establishment as a going concern. Unlike a simple assignment of a lease, a business transfer includes the full set of elements that make up the productive unit: the leased premises, goodwill, customer base, stock, equipment, activity licences, and, where applicable, contracts with suppliers or employees.
The Spanish Commercial Code does not regulate it in general terms, but the Urban Leases Act (LAU, article 32) does contemplate the transfer of the business premises lease as one of the circumstances that permit the assignment of the tenancy without the landlord’s consent, though with consequences examined below.
The structure is particularly common in:
In all these cases, business value resides not only in tangible assets but in goodwill: location, regular custom and the trading name.
Step one: valuing the transfer. The price of a business transfer is freely negotiated between the parties. Common criteria are average turnover over the preceding three years, net operating margin, the remaining term of the lease, and rental conditions. Unlike a company sale, EBITDA multiples are rarely applied: the price typically represents one to two years of net profit for a stable business in an ordinary location, with significant premiums for prime locations.
Step two: negotiation with the landlord. The LAU requires the tenant to notify the landlord of the intention to transfer. The landlord has a right of first refusal: they may acquire the business at the agreed price within thirty days of formal notification. If the landlord waives or fails to exercise that right, the transfer may proceed. After the transfer, the landlord is entitled to increase the rent by up to 20% of the agreed transfer price (article 32.3 LAU), which the acquirer must factor into their viability analysis.
Step three: basic due diligence. The acquirer must verify the transferor’s tax and social security standing (certificates of being current on obligations), the validity and terms of the lease, the status of activity licences, supplier debts, and the actual stock inventory. A brief but rigorous due diligence avoids material surprises after completion.
Step four: drafting and signing the transfer agreement. The contract must be in writing. Although a public deed is not required for all elements, notarial involvement provides greater legal certainty and facilitates registration where applicable. Legal representation for both parties is strongly recommended.
Step five: assignment of the lease. The acquirer steps into the position of tenant. The lease continues on the same terms, subject to the possible rent increase permitted by the LAU.
A well-drafted transfer agreement should contain:
A letter of intent prior to the definitive agreement is advisable for transfers of any size: it fixes the essential terms and grants exclusivity while due diligence is completed.
The tax treatment depends on the transferor’s status and the nature of the elements transferred.
For the transferor (individual carrying on a trade): the transfer price is, in general, a capital gain subject to personal income tax (IRPF). If the business has been carried on for more than two years, the reductions for family business transfers (article 33.3 LIRPF) may apply where the conditions for the wealth tax exemption are met. Otherwise, the price is taxed as a capital gain at the savings rate (19-28% depending on the band).
For the acquirer: the acquisition is subject to Transfer Tax and Stamp Duty (ITP-AJD) in its onerous transfer modality, at the rate applicable in each autonomous community (generally 4-8% on the value of non-real-estate elements). Real estate is valued at its cadastral reference value.
VAT: the transfer of a self-standing economic unit as a going concern may be exempt from VAT if it meets the requirements of article 7.1 of the VAT Act (transfer of a business or branch of activity). Where those conditions are not met, the elements transferred attract VAT at the applicable rate for their respective nature.
Pre-transaction tax planning is essential. The difference between structuring the deal correctly or not can represent several percentage points of the total price.
The most important question for many business owners is not how to formalise the transfer, but whether a transfer is actually the right structure for their circumstances.
A business transfer makes sense when:
A company sale is preferable when:
In our experience with mergers and acquisitions transactions in the one-to-ten-million-euro revenue segment, business owners who approach us with a deal structured as a “business transfer” are often leaving between 20% and 40% of achievable value on the table. The difference does not lie in the market price, but in the tax and legal structure of the transaction.
If your business has recurring EBITDA above 800,000 euros, we recommend a thorough analysis of the company sale alternative before settling on the transaction format. You may also consult our detailed comparison in business transfer versus company sale.
Retirement-driven transfers are the most common in the Spanish business landscape. The owner has spent decades running the business, has no family successor willing or able to take over, and is looking for an orderly exit that provides financial security for the next chapter.
In this context, the most relevant considerations are:
Planning horizon. A rushed transfer typically generates prices below market. Ideally, planning should begin two to three years before the desired exit date: time enough to organise documentation, normalise the business’s reported results, and find a suitable buyer without pressure.
Business continuity. The acquirer will pay more for a business where the transferor facilitates an orderly transition: training, introductions to customers and suppliers, and an initial accompaniment period.
Legal structure analysis. If the business is carried on through a company, it is worth analysing whether a share sale generates a better financial and tax outcome than a premises transfer. The guide on selling a company for retirement addresses this decision in detail.
Wealth planning. The proceeds from the transfer form part of the owner’s personal estate. Their integration into an efficient wealth structure (insurance bonds, funds, family holding) deserves attention before the deal is signed.
By Blue Mountain Capital
By Dirk Manuel Martens Jiménez
By Blue Mountain Capital
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