Every foreign investor who wants to make a company acquisition should firstly perform company due diligence for finding out as many information as he/she can about his business partners and the businesses they manage. The accounting and legal matters are the most important ones and they are the top priorities of our lawyers in Spain who will make the company due diligence report.
| Quick Facts | |
|---|---|
| Institution for company verification | The Registro Mercantil Central is the main source for verifying the legal existence of a Spanish company and its corporate data. |
|
Company name certificate available (YES/NO) |
YES. Certification of the trade name and the company’s existence can be requested from the official register. |
|
Financial statements filed publicly |
Spanish companies must file annual accounts with the Trade Register, which is useful for analyzing profits and debts. |
| Company directors can be verified | The due diligence register can list the names of current or former directors and the types of powers granted to them. |
| Tax debt verification required in Spain |
In major transactions, verification of obligations to the Agencia Estatal de Administración Tributaria – AEAT (Spanish State Tax Administration Agency) is requested. |
| Should Spanish social security liabilities be checked? (YES/NO) |
YES. Any unpaid amounts or arrears owed to the Spanish Social Security system should be reviewed during due diligence, as they may create financial risks for the buyer. |
| Active litigation may affect the transaction |
Commercial, workplace, or tax lawsuits can reduce the value of the company and increase the risk for the buyer. |
| Critical commercial contracts to verify |
Agreements with key suppliers, major customers, commercial leases, and bank financing are checked. |
| Valid licenses and permits in Spain |
For regulated sectors, such as tourism, construction, transport, financial services, health, public catering, or energy, it is checked that the company holds the necessary licenses to operate in Spain. |
| Mortgages or liens on assets | The company’s assets may have registered encumbrances, which can affect their transfer or value. Examples of registered encumbrance: mortgage on a company property, pledge on equipment or machinery for a loan, seizure established for debts, financial leasing on some goods, prohibitions on sale, or litigation on assets. |
| Employees and HR risks |
The number of employees, contracts, labor disputes, and any outstanding compensation is checked. |
| A due diligence report in Spain may reduce the asking price |
If debts or risks are discovered, the buyer can renegotiate the transaction price. Also, specialists (lawyers, accountants, tax consultants) check the company and write a report highlighting risks such as: hidden debts, pending litigation, tax issues, risky contracts, declining revenues, lack of licenses or permits. |
| Additional seller guarantees |
The company’s due diligence in Spain can lead to the introduction of indemnification clauses and post-sale guarantees. |
| An NDA (Non-Disclosure Agreement) is recommended before access to the deed |
Before sensitive documents are transmitted, the parties frequently sign confidentiality agreements. |
| Buyer can withdraw without reason after the report (YES/NO) | NO. If pre-contractual agreements exist, withdrawal without reason can generate claims or compensation, depending on the case. |
The important aspects of the due diligence report can be used by foreign entrepreneurs when they will negotiate the terms of a merger/acquisition or purchase of a Spanish company. The report will include a short history of the company results and an evaluation of the prospects, so the clients would know from the very beginning the risks and the opportunities which come together with the business. The report can also include details about the manufacturing operations, financial procedures, human resources etc.
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The content of a company due diligence report
The due diligence report made by our law firm in Spain will highlight the advantages and disadvantages of doing business with a certain company. Our lawyers can also provide legal assistance for negotiating a contract or concluding a deal. The content of a due diligence report will be decided according to your business’ needs and the local regulations. This way you will avoid taking a decision which can cost you money and time in the future because you haven’t known from the very beginning a few important details about your business partners.
We remind that our team can offer you full information about a certain company and details about its financial situation in the last years and other information which can be obtained from the local Trade Register.
The significance of company due diligence in Spain
The important aspects of the due diligence report can be used by foreign entrepreneurs when they start negotiate the terms of a merger/acquisition of a Spanish company. Besides that, a due diligence report will reveal the liabilities and the committees which at a certain point can change the value of the transaction or increase the securities for which the seller stays coerced to the buyer. Before making any purchase, it is best to ask for company due diligence and see how your future business presents regarding the financial situation among many others.
Why is company due diligence report necessary in Spain?
A due diligence procedure can reveal new factors or findings which can make the buyer change his/her mind, or the transaction can lose the economic viability. In many cases, before a due diligence procedure starts, the parties may conclude pre-contractual terms, but considering that if any issues occur, the buyer cannot pretend for compensations in this matter. Our attorneys in Spain can explain the entire company due diligence procedure on request.
When does a compensation need to be paid?
In cases of breach of negotiations, if the potential buyer changes his/her mind regarding the transaction, a compensation can be offered to the seller if:
• the seller suffered damage resulted from a breach of negotiations;
• the company due diligence procedure did not reveal factors to compromise the economic viability of the transaction, but the client changes his/her mind;
• a fundamental connection has been established between the damaged suffered and the breach of negotiations.
In any case, whether the sale will continue in the terms and conditions established, or not, our Spanish lawyers can provide you with legal support as soon as the company due diligence report was revealed.
If you need a company due diligence report or any other information about a company in Spain, you may contact our law firm in Spain. Our lawyers can also help you open an LLC in Spain with a share capital of EUR3000.