Share deal or asset deal: the first decision
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In short
- Legal support for share and asset transactions.
- Due diligence and review of the business, its obligations and transaction risks.
- Negotiation of warranties, indemnities and the transaction documents.
Explore the scope of our work
Kleanthous & Platis acts for buyers and sellers of businesses in Cyprus: whole companies, controlling stakes, and the sale of a business's assets out of the company that owns them. The legal work has one purpose: that the price agreed in the meeting is the value actually delivered, in both directions.
The first decision shapes everything after it. A share sale transfers the company as it stands, history and liabilities included, which is why buyers investigate and sellers warrant. An asset sale transfers what the contract lists, which is why the list is the contract. Contracts, licences, employees and consents behave differently on each route, and the right choice is made deal by deal, with the tax advisers in the room.
The distinction is not a convention. Section 3(1) of the Transfer of Undertakings (Protection of Employees' Rights) Law, Law 104(I)/2000, applies the Law to transfers of an undertaking, business or part of one to another employer. On a share sale the employer never changes, so the machinery is not triggered at all; on an asset sale it is, whatever the sale agreement says. That single phrase is the whole basis of the choice.
On a share deal, three provisions of the Companies Law, Cap. 113, decide the mechanics. Section 29(1)(a) defines a private company as one whose articles restrict the right to transfer its shares, so every Cyprus private company has a restriction and the articles have to be read before the price is agreed; where the default applies, regulation 3 of Table A, Part II lets the directors refuse to register a transfer in their absolute discretion and without assigning any reason. Section 73 then says what actually moves title: notwithstanding anything in the articles, the company may not register a transfer unless a proper instrument of transfer has been delivered to it. The sale agreement does not move a share; the instrument does, and the buyer is not a member until entered in the register.
Start before the heads of terms
The cheapest moment for legal input is before anything is signed, including the term sheet. Send us a line about the deal and we reply within one business day.
The people you will work with
Due diligence
The investigation that changes the price
The output is not a report for the shelf.
Corporate records and the cap table. Litigation, current and threatened. The key contracts and their change-of-control clauses, because the customer that made the business valuable may have the right to leave when it is sold. Property, employment, IP, licences, data. For sellers, the same exercise in advance, so surprises surface on your timetable, not the buyer's.
Every red item on the list becomes one of four things: a price adjustment, a warranty, an indemnity, or a condition of completion. That is the whole method. Nothing found is merely noted.
Skipping it has a statutory price, and it is in the Contract Law, Cap. 149. Section 19(1) makes an agreement voidable where consent was given as a result of coercion, fraud or misrepresentation, and section 19(2) lets the misled party instead insist on performance and on being put in the position he would have been in had the representations been true. But section 19(3) takes it away again where the consent was given by silence amounting to fraud and the party had the means of discovering the truth with ordinary diligence. A buyer who did not look is a buyer who may not complain. That is also the spine of the disclosure letter: section 17(2) makes mere silence about facts no fraud unless there is a duty to speak or the silence is equivalent to speech, while section 18(a) catches the seller who asserts positively what he has no information to justify, even if he believes it.
The SPA
The document the price actually lives in
Warranties, indemnities, and the mechanics of getting paid.
Conditions precedent and who bears the risk of them failing. Completion mechanics: what moves, in what order, on the day. Warranties, the seller's statements about the business, and indemnities, the seller's promise to cover specific named risks: two different instruments with different consequences, negotiated through caps, thresholds and time limits that are themselves the real bargaining. The disclosure letter, where the seller's knowledge meets the buyer's protection, and where more deals are truly negotiated than anywhere else.
Earn-outs, where part of the price depends on future performance, are drafted with their disputes in mind, because they are where buyer and seller keep doing business after trust has been spent.
Restrictive covenants on the seller: real, bounded, and enforceable, protecting what was bought without overreaching.
People and the deal
Employees in a business transfer
The workforce does not simply come with the keys.
Where a business changes hands as an asset deal, the law on transfers of undertakings, Law 104(I)/2000, does the moving itself: section 4(1) transfers the transferor's rights and obligations under a contract of employment existing at the date of the transfer to the transferee by reason of the transfer alone, and section 4(2) obliges the transferee to preserve terms agreed by collective agreement to the same extent as they bound the transferor. A buyer cannot harmonise collectively agreed terms downwards on completion. Section 8(1) puts the information duty on both transferor and transferee: the date or proposed date of the transfer, the reasons, the legal, economic and social consequences for the employees, and any measures envisaged. Section 8(3) requires consultation in advance and in good time where either intends measures changing the employment status of their employees, with a view to reaching agreement. And section 9(2) is the provision that usually moves a board: contravening section 8 is a criminal offence, not a civil default. Section 5(1) provides that the transfer is not in itself a ground for dismissal by either the transferor or the transferee, and only genuine economic, technical or organisational reasons entailing changes in the workforce escape it. Section 5(2) reaches the buyer who leaves the contract in place but worsens it materially, and section 10(2) closes the pre-completion clear-out: a seller who trims the workforce before the deal to deliver a leaner business does not thereby put those dismissals outside the Law. Section 6 is the one exception that matters commercially: sections 4 and 5 do not apply where the transferor is subject to bankruptcy, liquidation or analogous insolvency proceedings, which is why a genuinely distressed acquisition is a different transaction. Disputes go to the Labour Disputes Court under section 8A, not to the District Court, which is a point for the dispute resolution clause.
In a share deal the employer never changes, so none of this machinery is triggered, which is one of the places where the share-versus-asset choice bites hardest. Either way, it is priced and planned before signing, not discovered after completion.
If you are buying or selling a business, tell us whether the deal is for the shares or the assets, and what stage it has reached, at office@kleanthousplatis.com, or the enquiry form. We reply within one business day.
After completion
The handover that protects the price
Completion is a milestone, not the end.
Registrations and notifications, the transition period, and the discipline of the warranty timeline: claims have contractual deadlines and notice requirements, and a buyer who discovers a problem must move by the contract's clock. Three statutory deadlines run alongside them on a share deal. Under section 76(1) of Cap. 113, a company refusing to register a transfer must send the transferee notice of the refusal within two months of the transfer being lodged. Under section 78(1) the buyer is entitled to share certificates within two months. And under section 113A(1) the transfer must be notified to the Registrar within fourteen days of the entry in the register of members, with an automatic administrative charge that accrues daily where it is not.
Two provisions of the Contract Law belong in the drafting rather than the diary. A non-compete taken from a seller starts void: section 27(1) makes every agreement void to the extent that it restrains the exercise of a lawful profession, trade or business, and section 27(2)(a) is the only doorway on a business sale, permitting a seller of the goodwill of a business to agree not to carry on a similar business within specified limits. A covenant drafted outside that exception is not merely wide; it is void. And section 29 is the reason an earn-out formula must be capable of being made certain: agreements whose meaning is not certain, or capable of being made certain, are void. When a warranty claim surfaces, on either side, it is a commercial dispute with a contract at its centre: see Commercial Disputes in Cyprus.
Common questions
How long does buying a business take?
A clean, well-prepared small transaction is measured in weeks; anything with property, licences, or consents from third parties is measured in months. The honest timetable is set by due diligence findings and third-party consents, and we state it early rather than optimistically.
Do I need accountants as well as lawyers?
Yes, and the work is better when the two run in parallel: the tax structure decides real money, and the financial due diligence feeds the legal protections. We work alongside your accountant as a matter of course.
The seller resists due diligence. Is that a red flag?
Resistance to reasonable requests is information. Sometimes it is disorganisation, which itself tells you about the records you are buying. The response is not to walk away by reflex but to convert the opacity into protection: wider warranties, specific indemnities, or price.
What happens to the employees?
It depends on the structure of the deal, and it is one of the first questions we answer in the specific transaction, because the obligations differ between a share sale and an asset sale and the planning has deadlines of its own.
Written on this subject
Directors' Duties Under Cyprus Law: What They Require in Practice
CorporateLoan Restructuring in Cyprus: What Changes, and What It Costs
BankingSubstance in a Cyprus Company
CorporateAll our writing is on the writing index. Related: Litigation & Arbitration, Restructuring & Insolvency and Trusts, Wills & Succession.
Before instructing, tell us who is involved, what has happened and any deadline you are working to. Once the conflict check is clear we will ask for the existing documents, the names of the parties, and any deadline you are working to.