For most owners, the sale of a family business is the most significant financial transaction of their lives. There is no second attempt: the price obtained, the contractual terms and the tax structure of the transaction are all fixed at the moment of closing. Preparing well in advance and assembling the right advisory team from the outset is the main difference between a successful transaction and one that leaves value on the table.
Phase 1: Preparing the Business for Sale
The most common mistake in selling a family business is starting the buyer search before the company is ready. A sophisticated buyer — particularly one from the private equity world or an industrial group with acquisition experience — will identify any accounting irregularities, excessive founder dependency, customer concentration or employment risk during due diligence. Discovering these issues after negotiations have begun hands the buyer powerful leverage to renegotiate the price downwards.
Optimal preparation covers:
- Normalising financial statements: adjusting results by removing owner personal expenses and other non-recurring items so that EBITDA reflects the true operational performance of the business
- Reorganising the corporate structure: resolving cross-shareholdings, undocumented shareholder loans, and non-operating assets sitting inside the operating company
- Retaining key employees: retention plans, formalised contracts, transition protocols
- Diversifying the client portfolio: reducing dependency on any single client if they account for more than 20–30% of revenue
- Legal documentation: supplier and client contracts in force, intellectual property registered, licences and concessions free of outstanding risks
Phase 2: Valuing the Business
Valuation is the starting point of negotiations, not an objective outcome. The most common methodologies for SMEs are the adjusted EBITDA multiple (typically 4x–8x depending on sector and business quality), discounted cash flow analysis and adjusted net asset value. Each method produces different results, and the choice of methodology directly affects the expectations set for the process.
A professional, independent valuation — produced by an adviser with no interest in the outcome — provides:
- A reasoned and defensible value range to present to potential buyers
- Identification of the factors with the greatest influence on the price (and which can be addressed before going to market)
- A reference framework against which to evaluate offers received
Phase 3: Structured Buyer Search Process
Going to market without a structured process — posting indiscriminately on business-for-sale platforms — can damage the company’s reputation and alert competitors, clients and employees. The standard process for quality transactions follows this sequence:
- Preparation of an anonymous teaser (a basic description without identifying the company)
- Selection of potential strategic and financial buyers
- Non-disclosure agreements (NDAs) signed before sharing any information
- Distribution of the Information Memorandum to selected candidates
- Receipt of non-binding letters of intent (LOIs) with headline price and key terms
- Selection of the preferred buyer and commencement of the exclusive phase
Phase 4: Due Diligence and Contract Negotiation
Due diligence is the audit process carried out by the buyer to verify the information provided during the process. It covers legal, tax, employment, financial and operational areas. A well-prepared company emerges from due diligence without surprises and without price concessions.
The sale and purchase agreement sets out the final price, adjustment mechanisms (working capital, net debt), seller representations and warranties, indemnification mechanisms, and — where applicable — the earn-out structure.
Phase 5: Tax Planning for the Transaction
The tax treatment of the sale can represent a difference of several percentage points on the price received. The main optimisation levers are the structure of the transaction (share sale versus asset sale), leveraging the reinvestment exemption in certain holding structures, and planning deferred payments to optimise the timing of gain recognition.
How BMC Can Help
Our business sales team manages the complete sale process from preparation to closing, coordinating the independent valuation and due diligence advisory. Our integrated model ensures that tax planning, contract negotiation and process management are aligned at all times with the seller’s objectives.
If you are considering selling your business in the next two to three years, we recommend starting the conversation now: most of the value is created in the preparation phase, not during negotiations.
Specific Legal Framework
The transfer of a family business in Spain triggers several rules that determine the seller’s tax treatment, the buyer’s rights and the formal requirements of the transaction:
- Ley 35/2006, IRPF, Art. 37.1.b): Minimum valuation of unlisted equity interests for determining the capital gain. If the sale price is below the minimum tax value (the higher of the proportional net assets and the capitalisation of average profits at 20%), the gain is calculated on the minimum value.
- Ley 27/2014, IS, Art. 21: Participation exemption for dividends and capital gains from subsidiaries. If the seller is a holding company with a stake of ≥5% held for ≥1 year, the gain from the sale may be 95% exempt from Corporate Income Tax (following the amendment treating 5% of the participation as non-deductible expenses, Art. 21.10 LIS).
- Ley 29/1987, ISD, Art. 20.2.c): 95% reduction in Inheritance and Gift Tax (ISD) on mortis causa transfers of family business interests where the requirements of the Wealth Tax Law (Ley 19/1991) are met (business as principal activity, remuneration for management role, 10-year holding period).
- Ley 19/1991, IP, Art. 4.Ocho: Exemption of family business interests from Wealth Tax, conditional on the economic activity being the principal source of income for the active partner and their stake exceeding 5% (or 20% together with close family members).
- Real Decreto Legislativo 1/2010 (LSC), Art. 107: Regime for the transfer of limited company (SL) interests: pre-emption rights for existing shareholders, consent of the management body (if provided for in the articles). Failing to comply with these requirements may invalidate the transfer.
- Ley 58/2003 LGT, Art. 42.1.c): Tax liability of the acquirer of a business or branch of activity for the transferor’s tax debts. The buyer may request a tax debt certificate (Art. 175.2 LGT) to limit their liability.
The Family Business Exemption in ISD: Key Requirements
| Requirement | Content | Rule |
|---|---|---|
| Real economic activity | Cannot be a mere asset-holding entity | LIS Art. 4.Ocho.Dos |
| Remuneration for management role | ≥50% of the active partner’s total income | IP Art. 4.Ocho.Dos b) |
| Minimum stake | ≥5% individually or 20% with close family | IP Art. 4.Ocho.Dos b) |
| Post-transfer holding period | 10 years for heirs (unless acquirer dies) | ISD Art. 20.2.c) |
Practical Example: Sale of Catering Hermanos Salinas, S.L.
Scenario: Two brothers, each holding 50% of a catering business with €5.8M turnover and EBITDA of €680,000. Negotiated price: €4,100,000 (6x EBITDA). Cost of acquisition of the interests: €120,000 (founding capital plus subsequent increases).
| Item | Without tax planning | With planning (prior holding) |
|---|---|---|
| Capital gain (seller as individual) | €4,100,000 – €120,000 = €3,980,000 | Gain in holding’s Corporation Tax: €3,980,000 |
| Tax rate (savings income base) | 19–28% progressive | Corporation Tax at 23% (SME) |
| Approximate tax | ~€927,000 (23.3% effective) | ~€914,000 |
| 95% exemption in holding IS (Art. 21 LIS) | Not applicable (direct sale by individual) | ≈€869,300 exempt → effective CT ≈ €45,700 |
| Total tax | ~€927,000 | ~€45,700 |
| Saving from planning | — | ~€881,300 |
Prior reorganisation through a holding company (contribution of interests under the tax-neutral provisions of Art. 87 LIS) followed by the sale from the holding to the buyer allows the Art. 21 LIS exemption to apply. This saving more than justifies the cost of planning, but requires at least 12–24 months of lead time.
Common Mistakes BMC Corrects
- Selling directly without first creating a holding structure. The Art. 21 LIS exemption (95% of the capital gain exempt from Corporation Tax) is only available where the sale is made from a holding company with a stake of ≥5% held for ≥1 year. Starting the process without this structure foregoes a potential tax saving of hundreds of thousands of euros.
- Not verifying statutory pre-emption rights before starting the process. If the SL’s articles give existing shareholders pre-emption rights, a sale that does not follow the prescribed procedure can be challenged. Reviewing the articles is the first legal step in the process.
- Agreeing a price without checking the minimum fiscal value under Art. 37.1.b) IRPF. If the agreed price is below the minimum tax value (which can occur in sales between family members or in urgent situations), the seller still pays tax on the minimum value, creating a tax liability on a gain that has not been received.
- Not planning the earn-out from a tax perspective. An earn-out (deferred payment conditional on results) may be taxed in the year of receipt (capital gain) or in the year of sale (if the amount is determinable). The tax treatment of the earn-out must be agreed with the tax adviser before signing.
- Not coordinating the communication to employees and clients with the buyer. Premature or poorly managed communication can cause key employees to leave or contracts to be lost, which affects the earn-out price. The communication protocol must be agreed in the contract before closing.
Next Steps
- Analyse whether restructuring ownership through a holding company 12–24 months before the sale would enable access to the Art. 21 LIS exemption
- Verify the requirements for the family business exemption in ISD if the transfer has succession elements (gift to children)
- Review the company’s articles to identify pre-emption rights, transfer restrictions and drag-along/tag-along provisions
- Prepare an adjusted EBITDA for the last three financial years and calculate the valuation range before making contact with potential buyers
- Engage an independent financial adviser with sector expertise and M&A experience to manage the buyer search process
- Request a tax debt certificate from the AEAT before closing to limit the buyer’s tax liability (Art. 175.2 LGT)
