From a Good Deal to a (Very) Bad One

This type of transaction is tempting, and there is no shortage of offers from individuals or (pseudo-)professionals. On the surface, it appears to allow a company to be purchased at a low price—for an amount less than its share capital—while avoiding the formalities of incorporating a new company—or of liquidation for the seller.

Abuse of Rights and Illegality

The acquisition of a company with no business operations—the purchase of a “shell company”—is deemed an abuse of rights by the Federal Court. Such an acquisition is void because it unlawfully circumvents the rules governing the formation and liquidation of companies.

In addition to being illegal, the transaction carries serious risks: notary fees and Commercial Registry fees for amending the articles of incorporation, as well as the subsequent discovery of disputes with third parties or unpaid tax liabilities.

From a tax perspective, the transaction is treated as a liquidation followed by the formation of a new company: the taxes associated with dissolution and formation are fully due, and the new purchaser may be required to pay up the share capital.

Finally, since the sale of the share certificate is void, all decisions made and all contracts entered into by the company are also void. The courts will treat the transaction as if it had never taken place, to the detriment of the purchaser, who will have paid for nothing and will have to chase after the seller—if he can find him.

Conclusion

We strongly advise against entering into any agreement regarding the transfer of a block of shares. We would be happy to assist you in forming your company—or in resolving any issues that may arise following a buyout that has already taken place.