The transfer is the process through which a business owner transfers the ownership of their company to another individual or legal entity, whether a family member, an employee or an external buyer, in order to ensure the continuity of the activity and organise their professional retirement. The procedure is not limited to a private agreement. It involves legal, tax and employment aspects that must be followed rigorously to avoid future contingencies. A well-designed retirement transfer can become a profitable and secure operation for both the transferor and the acquirer, while also guaranteeing employee stability and preserving the brand in the market.
Legal framework of business transfer on retirement
The transfer of a business is regulated by several rules of the Spanish legal system:
- Commercial Code (Royal Decree of 1885): establishes the commercial obligations of companies and individual entrepreneurs.
- Capital Companies Act (Royal Legislative Decree 1/2010): regulates procedures for the transfer of shares and holdings.
- Workers’ Statute (Royal Legislative Decree 2/2015): establishes labour subrogation, requiring the new owner to respect employees’ contracts, seniority and rights.
- Value Added Tax Act (Act 37/1992): exempts from VAT the transfer of an economic unit that is operating.
- Royal Legislative Decree 1/1993: regulates the Transfer Tax and Stamp Duty (ITP and AJD), applicable to certain individual assets such as real estate.
- Personal Income Tax Act 35/2006: the Personal Income Tax Act 35/2006 requires declaring capital gains derived from the transfer.
This regulatory framework ensures transparency and legal protection for both parties.
Steps to transfer a business on retirement
1. Preparation and notification
The first step is to inform about the transfer and gather all relevant documentation such as opening licences, current contracts, asset inventories, financial statements and possible debts. In many cases, publishing the availability of the business through digital platforms or specialised intermediaries is recommended.
2. Business valuation
The objective valuation of the company is essential to set a fair price. The most common methods are:
- Asset valuation: based on the balance sheet and assets.
- Income valuation: focused on EBITDA and obtained profits.
- Goodwill: includes intangible elements such as brand, clients and reputation.
- Discounted Cash Flow (DCF): projects future income and discounts it to present value.
In practice, most negotiations close around a multiple of the company’s EBITDA.
3. Search for buyers
The next step is to identify interested parties such as family members, key employees, competitors, strategic suppliers or investment funds. During this phase, it is essential to protect sensitive information through confidentiality agreements (NDA).
4. Negotiation and due diligence
Before signing, the buyer carries out a legal, tax and employment audit to verify the real situation of the business, such as tax compliance, current contracts, debts, licences and possible contingencies. This due diligence process provides transparency and prevents future claims.
5. Transfer agreement
The agreement must be formalised in a public deed and registered with the Commercial Registry in the case of companies. The main clauses must include:
- Identification of the transferor and the acquirer.
- Description of the business, assets and liabilities included.
- Payment conditions and deadlines.
- Non-compete and confidentiality clauses.
- Guarantees against hidden debts.
6. Change of licence ownership
The new owner must process with the corresponding City Council the change of ownership of the opening licence and, where applicable, other required administrative authorisations for the activity.
7. Operational transition
In most transfers, a transition period is established in which the former owner advises the new holder, providing operational knowledge and commercial contacts. This ensures a shorter learning curve and greater business continuity.
Tax aspects of retirement transfer
The transfer of a business creates tax obligations that should be planned in advance:
- VAT: not applicable if the business is transferred as an operating unit, according to Article 7 of Act 37/1992.
- ITP and AJD: applicable in some cases if individual assets, such as real estate or vehicles, are transferred.
- Personal Income Tax: the business owner must declare as a capital gain the difference between the transfer value and the acquisition value of the holdings transferred. In the case of donation, only the part of the holdings not benefiting from the tax reduction in ISD would be taxed in the donor’s Personal Income Tax.
- Corporate Income Tax: if the partner transferring the company is a legal entity, the capital gains arising from the sale are taxed under this tax, paying special attention to whether the 95 per cent exemption in Article 21 of the Corporate Income Tax Act could apply.
- Inheritance and Gift Tax (ISD): if the transfer is made to family members through a gift, taxable base reductions of up to 95 per cent may apply when family business requirements are met.
A suitable tax strategy can significantly reduce the tax burden, improving the benefit for the retiring business owner.
Protection of employees
Spanish labour regulations guarantee employee stability in the event of a business transfer. According to Article 44 of the Workers’ Statute, the new owner must:
- Maintain existing employment contracts.
- Respect employee seniority.
- Assume wages and acquired rights.
In this way, labour subrogation ensures that the operation does not lead to job losses or worsening of working conditions. Knowing how to transfer a business on retirement is essential to turn professional retirement into an orderly, safe and beneficial process. The operation requires complying with legal, tax and employment requirements, as well as precisely defining contractual terms. Planning ahead, carrying out an objective valuation and obtaining appropriate advice are key to ensuring that the business transfer protects the outgoing entrepreneur and provides value to the buyer and employees. Retirement may be the end of one stage, but it can also be the beginning of a new one for the company. With a well-managed transfer, a lifetime of effort becomes a legacy that continues under new hands.