Negotiate and draft the company takeover memorandum of understanding

Verified 19 July 2023 - Legal and Administrative Information Directorate (Prime Minister)

Additional cases ?

Next step: Assignment

Negotiation is a crucial stage the company recovery process. In this phase, you will work with the transferor to determine the transfer price and the respective obligations of each party. The result of this negotiation is then formalized by the signature of a memorandum of understanding.

The MoU is a pre-contract which allows:

  • of to materialize in writing the outcome of the negotiation phase
  • and detail the terms of the transfer.

The Memorandum of Understanding is also referred to as " promise of assignment ” of goodwill or of securities (shares or shares).

The Resumption Memorandum of Understanding shall include basic information and more specific elements. It is recommended to be accompanied by a professional (lawyer, notary) to draft the memorandum of understanding.

General information

  • Identification of the parties : surname and forenames, contact details, domicile
  • Presentation of the company : nature of business, location of head office, details of lease
  • Amount of share capital and financial statement
  • Turnover
  • Purpose of the sale : assets of the fund or number of securities acquired (shares or shares)
  • Disposal price and method of payment : the price must be determined or determinable, that is to say, calculable on the day of the sale.
  • Outcome of open contracts : with customers and suppliers
  • Trade-in Conditions : you can decide with the transferor to collaborate after the company is transmitted to facilitate recovery with staff, customers and suppliers
  • Timetable of operations

Please note

It is advisable to specify the name in this document ‘memorandum of understanding’ for mark the difference with the final deed of assignment.

Special particulars

  • Non-compete clause : it prohibits the transferor from engaging in an activity which is concurrent with that of the company transferred. The geographical scope and duration of application of this clause against it should be limited.
  • Earn-out clause : also called price supplement clause, it makes it possible to index part of the transfer price to the company's future profit or loss after the takeover.
  • Jurisdiction clause : it enables the court competent to decide in advance any dispute that may have arisen in connection with the assignment to be determined. It may also provide for an alternative method of conflict resolution (arbitration or mediation).
  • Asset-liability guarantee clause : it commits the assignor to guarantee the accuracy of all information provided to you. You can protect yourself against the asset devaluation (a loss in value) or the discovery of additional liabilities after recovery.

The Memorandum of Understanding may contain suspensive conditions, i.e. essential conditions to be fulfilled (by you or by the assignor) without which the assignment contract cannot be definitively concluded.

The Parties may agree, for example, on the following suspensive conditions:

  • Performing a company audit (e.g. auditing)
  • Getting a financing
  • Signing a contract (with a supplier or customer)
  • Authorization of creditors holding a pledge (e.g. the bank)
  • Administrative authorization (e.g. building permit, liquor outlet license)

The Memorandum of Understanding should set out the deadline implementation of these suspensive conditions.

The Parties shall be responsible for setting out in the Memorandum of Understanding their own consequences of withdrawal of the transferor or the transferee.

The Memorandum of Understanding may provide for enforcement and compel one of the parties to sign the act if it decides to renounce the transmission. On the other hand, enforcement is only possible if suspensive conditions are filled.

The Memorandum of Understanding may also include a penalty clause by which the parties undertake in advance to pay damages if one of them refuses to sign the definitive deed of assignment.

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