Selling shares or assets: employees and contracts
A company can be sold in two main ways: by selling its shares or by selling its assets and business. What happens to employees, contracts and permits depends on the choice. Here we explain the general logic. A specific case must be checked against Lithuanian legislation and together with a lawyer.
Selling shares: the owner changes, not the company
When shares are sold, the company remains the same legal entity, only its owner changes. Therefore, generally speaking:
- Employment contracts usually continue, because the employer remains the same.
- Contracts with customers, suppliers and landlords in principle remain valid, because their party is the same company.
- Permits and licences issued to the company mostly stay with the company, but you need to check whether a notification or a new approval is needed when the owner changes.
- Together with the company, the buyer also takes over its past: debts, disputes, possible claims.
An important exception: some contracts contain change-of-control terms that allow the other party to terminate or amend the contract if the owner changes. Therefore contracts must be read before negotiations.
Selling assets: a part is transferred, not the whole company
When assets and business are sold, the buyer takes over only what has been agreed. The owner stays with their company, and the company stays with the obligations that were not transferred. Generally speaking:
- The transfer of employees must be examined separately: whether a business is being transferred or only individual items, and which employee rights apply. This is a topic that must be discussed with a lawyer.
- Contracts often require the consent of the other party, because the party to the contract changes.
- Licences and permits may not be transferred automatically, and the buyer may have to obtain their own.
- The buyer usually chooses only what is needed and more often avoids old obligations.
Why neither option is "better" or "worse"
Selling shares is usually simpler in terms of continuity, but the buyer takes over the whole history. Selling assets allows you to separate more precisely what is being bought, but requires more steps: assignments of contracts, permits, employee questions. Which way is more suitable depends on the company, the nature of the activity and the goals of the parties.
What is worth doing in advance
- Gather a list of contracts and mark the change-of-control terms.
- Find out which permits or licences are needed for the activity.
- Form a general picture of the employees and their contracts.
- Consult a lawyer before choosing the structure of the transaction.
This text is general information, not legal advice.