Starting a business in Europe usually starts with company registration. But sometimes entrepreneurs, especially foreigners, who open a company in another country, think that the easier option is to buy an existing business. They think that they will benefit from it by avoiding certain procedures but there are also many downsides of buying an existing business.
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Data d.o.o. has been guiding entrepreneurs with their business in Slovenia for nearly 30 years. We provide professional accounting services and also have our own legal department. They can explain the downsides of buying a company.
Downsides of buying an existing business – additional expenses
The most common reason why entrepreneurs want to buy an existing business is to avoid expenses, especially for share capital. When registering an LTD company, the shareholder has to deposit 7500€ share capital. Some think that you can buy an existing company for a lower and avoid depositing the share capital. But that is not the case, as the previous owner usually withdraws the share capital before selling the company. To avoid penalties and the company being capitally inadequate, you would need to deposit the 7500€ after purchasing the company, which is a downside as you already spent money on buying the purchasing fee and covering notary expenses.
Buying an existing company does not alleviate the issues for opening the bank account or save any additional time
Sometimes, entrepreneurs think that buying a company would save them time in the process of company registration. This is also not true, as even when buying a company, all shareholders and representatives need a Slovenian tax number before they can become owners. Obtaining this tax number tax around 8 days. Also, one of the downsides that foreigners think they can avoid by buying a company, is opening a bank account. When buying a company, that company will most likely have an active bank account. But buying a company also means that the bank will become aware of new owners. Most banks tend to automatically close bank accounts when ownership changes. Even in cases that the bank would agree with the status of the new owners, the representatives would have to come to Slovenia to be personally identified by the bank before agreeing to continue the business relationship.
Another downside of buying an existing company is employment of foreigners
Another downside of which entrepreneurs are not aware of is the possibility to employ foreigners with the purchased company. As business immigration to Slovenia requires fulfilling specific conditions of active business conduct, people sometimes think that already existing companies can avoid these conditions. Also, some might think that they are able to buy a company that already fulfills those terms.
What you might not be aware of is that some companies can have restrictions when it comes to employing foreigners. The downside is that you cannot check for those restrictions in advance because only the owner of the company has the right to acquire this information. In most cases, these restrictions are related to unpaid taxes or salaries to employees. Also, the companies that are on the market usually are sold without employees and with a low revenue. As they are mostly older than 6 months, they also do not qualify for 50.000€ investment anymore.
Transferring debt when ownership changes
One major downside to buying an existing company is also receiving debt that the company made from the previous owner. While certain information about the financials is publicly available, there are parts of the company information which you can only obtain if you are the owner of the company. Even if you were previously unaware of the debt, you will inherit if when becoming the new owner of the company.
There is a perfectly good way to avoid the downsides of buying an existing business – registering a new company. For more information on company registration in Slovenia, EU, send us an e-mail to [email protected]. You can also contact us over the phone 00386 1 6006 270 or 00386 40 530 718 (Viber, WhatsApp). You can also follow us on Facebook.