Selling the company is, for most business owners, the most important operation of their professional life and also the first time they do it. Across the table there’s usually a buyer (a competitor, a fund, a foreign group) that buys companies frequently, with trained advisors and a learned script. That asymmetry of experience explains why so many sales close below their value or fall apart halfway through: not for lack of buyers, but for lack of preparation on the seller’s side.
This guide walks through the complete process of selling a company in Spain as it works in practice: the phases and their timings, how a business is really valued, what role the letter of intent and the due diligence play, what clauses of the sale and purchase agreement decide who takes on each risk, how deferred payment and the earn-out work, how much the capital gain is taxed depending on who sells, and the mistakes we see repeated deal after deal.
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Phases of the Process of Selling a Company in Spain
An orderly sale of a small or mid-sized company moves between 6 and 12 months from start to finish, and follows a fairly universal sequence:
- Preparation: putting the house in order before showing it. Clean and reconciled accounting, key contracts signed and locatable, intellectual property in the company’s name, labor and tax situation up to date. It’s the phase almost everyone skips and the one that adds the most value.
- Valuation and strategy: setting a defensible value range and deciding the perimeter (what’s sold and what isn’t) and the type of target buyer.
- Approaching the market: an anonymous teaser, confidentiality agreements (NDAs) signed before opening the information, and an information memorandum for serious prospects.
- Letter of intent (LOI): the preferred buyer puts in writing an indicative price, structure, and conditions, and both parties agree on an exclusivity period.
- Due diligence: the buyer audits the company over several weeks.
- Sale and purchase agreement (SPA): negotiation of the final price, warranties, and liabilities.
- Signing and closing: execution as a public deed before a notary (the transfer of quota shares in an S.L. requires a public document), payment, and effective handover of control, sometimes at two separate moments if there are conditions precedent pending.
- Post-closing: the founder’s transition, fulfillment of the warranties and, where applicable, settlement of the earn-out.
The Valuation: Methods and Key Variables
In the real market of Spanish small and mid-sized companies, the dominant valuation is the multiple on EBITDA: the business’s normalized operating profit multiplied by a factor that, depending on sector, size, and revenue quality, usually moves between 3 and 6 times for mid-sized companies (more in technology and recurring-revenue businesses, less in activities dependent on works or projects). Discounted cash flow adds rigor in businesses with solid growth plans, and asset-based valuation is left for patrimonial or liquidation cases.
What separates a high multiple from a mediocre one isn’t the negotiation, but four structural variables: the recurrence and predictability of the revenue (multi-year contracts are worth more than one-off orders), the customer concentration (a customer accounting for 40% of turnover is an automatic discount), the dependence on the founder (if the company is you, the buyer isn’t buying a company, they’re buying you, and they’ll discount it or tie you down with lock-in periods) and the debt. On the last one, the first-time seller’s most expensive misunderstanding: the multiple yields the value of the company (enterprise value), from which the net financial debt is subtracted to reach the value of the shares (equity value), which is what the partner collects. Normalizing the EBITDA before negotiating (removing personal expenses, above-market salaries, and extraordinary items) is the cheapest way to raise the price.
The Letter of Intent (LOI): What It’s For
The LOI is the most misinterpreted document in the process. In essence it’s not binding: the price and structure it sets out are a working basis conditional on the outcome of the due diligence. But it contains clauses that do bind and that must be negotiated carefully: the exclusivity (usually between 60 and 90 days, during which you can’t negotiate with third parties), reinforced confidentiality, and the allocation of costs if the deal falls through.
The veteran’s advice: don’t sign cheap exclusivity. Before granting the buyer the monopoly of the negotiation, the LOI should specify the price or its formula, the payment structure (cash, deferred, earn-out), the treatment of debt and cash, and the essential conditions (the founder’s stay, key employees). Everything you leave open in the LOI you’ll negotiate later with no alternatives on the table, which is the worst negotiating position there is.
The Due Diligence: What the Buyer Analyzes
Due diligence is the audit with which the buyer verifies they’re buying what they think they’re buying. Its typical scope covers the corporate (beneficial ownership of the shares, books, agreements), the tax (the last four non-time-barred years), the labor (contracts, false self-employed workers, directors’ remuneration), the contracts with customers and suppliers (with special attention to the change-of-control clauses, which let a key customer terminate the contract if the company changes hands), the litigation, the intellectual and industrial property, the data protection, and the licenses. The result isn’t usually a yes or a no, but a list of contingencies the buyer will turn into price reductions, holdbacks, or specific warranties.
That’s why the seller’s smart move is to get ahead: a vendor due diligence or preventive review, months before going to market, lets you correct the correctable (regularize a contract, clean up a labor contingency, document related-party transactions) and reach the buyer’s audit with no surprises. Detecting the problem yourself costs the fix; having the buyer detect it costs the fix plus a discount. This preventive work and the buy-side review are exactly the object of our legal due diligence in Spain service.
Do you want a expert consultation? Contact us and we will help you.
The Sale and Purchase Agreement: Essential Clauses
The SPA (sale and purchase agreement) is where the risk is really allocated. The clauses that decide the deal:
- Price and its adjustment mechanics: the two standard formulas are the locked box (price fixed on a reference balance sheet, with a prohibition on value leakage until closing) and completion accounts (a subsequent adjustment based on the real cash, debt, and working capital at closing). The first gives the seller certainty; the second gives the buyer precision.
- Representations and warranties: the catalog of the seller’s statements about the company’s situation (tax, labor, contractual, litigation). If they turn out to be inaccurate, the buyer claims.
- Liability limitations: here the seller’s future peace of mind is at stake. The negotiable and usual: a maximum cap on a percentage of the price, a basket or minimum amount per claim, and claim periods of 12 to 24 months for the general warranties and up to the statute of limitations (four financial years) for the tax and Social Security ones.
- Specific indemnities: for the contingencies already identified in the due diligence, with their own regime apart from the general warranties.
- Non-compete: the seller’s commitment not to set up a rival business, usually 2 or 3 years with a defined material and geographic scope.
- Conditions precedent: authorizations that must arrive between signing and closing. The most frequent today, when the buyer is non-EU and the company touches a sensitive sector: the authorization of the screening mechanism we explain in the guide on foreign direct investment in Spain, which can add up to 3 months to the calendar.
Deferred Payment and Earn-Out: Common Structures
Very few small and mid-sized companies are sold 100% in cash. The two structures that dominate the mid-market:
Pure deferred payment: one part is paid at closing and the rest in agreed installments. The seller’s golden rule is not to defer without a guarantee: a bank guarantee, a pledge over the very shares sold, or a holdback in escrow. A buyer’s promissory note isn’t a guarantee, it’s a hope.
The earn-out: part of the price is conditioned on the company reaching certain results (EBITDA, sales, customer retention) over 1 to 3 years after the sale. It’s a legitimate tool to close the gap between what the seller asks and what the buyer believes, but it’s also the clause that generates the most lawsuits, for a structural reason: the results that trigger the payment depend on a management the buyer already controls. If you accept an earn-out, lock down three things: metrics defined to the cent (which EBITDA, with what accounting criteria, who certifies it), the buyer’s management obligations during the period (not diverting customers or loading group costs) and the right to information and audit. And on the tax side, remember that the rules on installment operations allow the gain to be attributed as it’s collected, which avoids advancing taxes on money that may never arrive.
Taxation of the Capital Gain for the Seller
If a Natural Person Sells
The gain (sale price minus acquisition value) is taxed in personal income tax as savings income, with the scale in force under the Personal Income Tax Act: from 19% to 30%, with the top bracket applying to the part of the gain exceeding 300,000 euros. On that base several buffers operate that are worth reviewing before signing anything: the reduction coefficients for shares acquired before 1994 (with their joint limit of 400,000 euros of transfer value), the exemption for reinvestment in a life annuity for sellers aged 65 or over (up to 240,000 euros reinvested within 6 months, with the proportional gain exempt) and the attribution on collection in deferred prices and earn-outs. The difference between applying these pieces well and settling them any old way is measured in tens of thousands of euros.
If a Company Sells (or You Sell Through Your Holding)
When the seller is a company holding at least 5% for one year, the capital gain enjoys the 95% exemption on Corporate Income Tax: an effective taxation of 1.25%, against up to 30% for the natural person. It’s the reason business owners with a reinvestment vocation structure the ownership through a parent company years in advance, as we explain in the guide on the holding company in Spain. The important nuance: setting up the holding on the eve of the sale to capture the exemption is exactly the pattern the Inspectorate pursues for lack of a valid economic motive; this planning works when done with time and substance, not as a last-minute makeover.
Two cross-cutting notes. The sale of shares is exempt from VAT and Transfer Tax in general (the anti-avoidance exception is reserved for essentially real estate companies used to disguise the transfer of property). And if instead of shares assets are sold, the tax scheme changes completely: the company is taxed on the capital gain at the general rate and the partner is taxed again on distribution, the double taxation that explains why sellers prefer the share deal, within the general framework of corporate taxation we review in the guide on how much taxes a company pays in Spain.
Common Mistakes When Selling a Company
The ones that cost the most money, in order of frequency: going to market without preparation (confusing accounting and unsigned contracts are paid for in discounts), negotiating with a single buyer from day one (with no competitive tension there’s no price), falling in love with a figure with no method to support it, granting long exclusivities with vague LOIs, hiding contingencies the due diligence will find anyway (and it will find the distrust too), accepting earn-outs without locking down the management, signing warranties with no cap or deadline, ignoring the investment screening when the buyer is foreign and discovering it with the calendar already committed, and not planning the personal taxation until after signing, when there’s nothing left to plan. And one last glaring mistake: clinging to selling a business that no longer has a reasonable buyer, when the orderly exit was another; for that scenario, our guide on the common reasons for dissolving a company in Spain describes the alternative path.
Selling a company well in Spain is a 6-to-12-month project won in the preparation: the house in order before showing it, the valuation with method, the concrete LOI before giving away exclusivity, the contingencies detected by you and not by the buyer, and the tax structure decided with years of margin and not with weeks.
At ILLAY Legal we support business owners and partners through the whole cycle of the sale with fully online service: preparation and vendor due diligence, negotiation of the LOI and the sale and purchase agreement, coordination with the tax side of the operation and, for tech-company founders, the specialization of our legal advice for startups in Spain service in funding rounds, secondaries, and exit processes. Tell us which company you want to sell and where you stand, and we’ll tell you exactly how to prepare the operation and what you’ll collect net in each scenario.
Frequently Asked Questions About How to Sell a Company in Spain
How long does it take to sell a company in Spain?
Between 6 and 12 months in orderly small and mid-sized company deals: a few weeks of preparation, 2 or 3 months of approaching the market and negotiating the LOI, 4 to 8 weeks of due diligence, and another month or two of contract and closing. Processes that drag on beyond the year usually carry an original problem: an out-of-market price, unresolved contingencies, or dependence on the founder with no transition plan. And if the buyer needs foreign investment authorization, add up to 3 additional months between signing and closing.
Can I sell my company if it has debts?
Yes, and it’s the norm: almost no company is sold without debt. What happens is that the net financial debt is subtracted from the price (the buyer pays the value of the business minus what it owes), or it’s cancelled at closing itself with part of the price. A different matter is the company in real insolvency: there the ordinary sale gives way to the sales of a production unit in insolvency proceedings, with their own rules. What never works is hiding liabilities: due diligence exists precisely for that, and the contract’s warranties would make the seller liable anyway.
Which is better: selling the shares or selling the assets?
For the seller, almost always the shares: a single level of taxation (savings income tax or the 95% exemption if a company sells), with no VAT or Transfer Tax in general, and the company is transferred whole with its contracts. The buyer, on the other hand, sometimes prefers assets to choose what they take and leave contingencies behind, accepting that the contracts require assignment consents and that, if what’s transferred constitutes a production unit, they subrogate the workers by mandate of the Workers’ Statute. The final structure is one more negotiation, and its tax impact must be quantified before accepting anything.
What happens to the employees when the company is sold?
In the sale of shares, legally nothing happens: the employer is still the same company and the contracts continue intact, without the workers being able to object to the change of partners. In the sale of assets that constitutes a business succession, legal subrogation operates: the buyer takes on the contracts with their seniority and conditions, and both parties are jointly and severally liable for 3 years for the prior labor obligations. In both scenarios, the smart management of key employees (information at the right moment, lock-in incentives) is worth more than many clauses.
Do I need to tell the buyer all the company’s problems?
The correct strategy isn’t to confess everything on day one nor to hide it until the end, but to manage it: identify your contingencies before going to market, correct the correctable ones, and disclose the rest at the right moment of the process, with their quantification and their proposed treatment (price, specific indemnity, or holdback). What the buyer discovers on their own erodes price and trust at once; what the seller presents already sized is negotiated as one more number. And remember that the contract’s representations turn any concealment into a future claim with a name attached.
