tiistai 5. marraskuuta 2013

Mergers and acquisitions in Finland; lawyer's role and costs

Lawyer’s role in an acquisition in Finland

It goes without saying that the extent of a lawyer’s involvement in an acquisition depends on the instructions of the client and consequently varies a lot. I have recently been involved in a couple of acquisitions which were very different from each other both in structure and the size of the deal. Yet, these two acquisitions highlighted the role of the lawyer and made me realize that different clients may have totally opposite needs when choosing their legal advisers.

1.      Client’s objective

The objective which the parties’ lawyers will be expected to achieve is the legal transfer of ownership from seller to buyer of the shares of the target company. The client will also expect his lawyer to identify risks of a legal nature and to seek to protect him from those risks as far as possible. As the objective is so clear it’s worth considering why the instructions of clients vary so much. The first idea that crosses your mind is that the client would simply like to achieve this objective at the lowest possible cost. This is not, however, always the case.

2.      Client’s motives

Many clients, in particular owners of family owned companies, are straightforward and seek to make the acquisition process as simple as possible and at the lowest possible costs. This is possible in Finland as we belong to the continental legal tradition with written laws based originally on Swedish law. So if you want to make the paper work lighter it can be done as much of the  contractual relationship will be covered by the law anyway. So why pay for something that you get for free?

Having said that you may still have valid grounds to make the documents more extensive. An international company often has a protocol for mergers and acquisitions and always does the documentation exactly the same way. This may be due to the corporate policy or their bankers’ requirements. This approach should not be taken to the extreme. I once had a German multinational as counterpart and they had pushed the corporate requirements so far that they did not care about the laws of the object company. It was most unfortunate – for them.

For a multinational company it is important that all acquisitions are done more or less the same way irrespective of the country. This makes the management of the subsidiaries and affiliates easier. One of the reasons to make a very extensive documentation may be a corporate one: once the decision maker uses one of the largest law firms in the country he cannot be blamed if the deal goes sour. After all the decisionmaker in question has done everything within his power. Fair enough but this approach can be counter productive, and now I am not talking about the legal fees. I have in the past seen cases where the documentation has been so extensive that not even the drafting lawyer could make sense of it. This risk is enhanced by the fact that legal teams dealing with acquisitions seem to become larger and larger by the day and produce more and more documentation. A skilled client should be specific about what he expects. One is sometimes surprised how much material is produced with very little or no analysis.





3.      Commercial Issues

The lawyer’s input into the commercial aspects of the transaction varies a lot in practice. The stage at which the client instructs the lawyer seems to be equally as variable. These two factors often go hand in hand. Unfortunately the client sometimes sees the lawyer’s role as excluding the commercial side of the transaction, and then instructs the lawyer at a relatively late stage in proceedings. There are sad stories about due diligences made and substance of the deal having been  negotiated without the advice of the lawyer.

The reality is, however, that it is nearly impossible to isolate the legal aspects from the commercial aspects and therefore we prefer to be involved as early as possible in the parties’ negotiations. This is vital if the lawyer is expected to give taxation advice in relation to the acquisition. The way the acquisition is structured has substantial impact on the client’s tax position; if the client makes contact too late, it may be impossible to choose the most tax-effective method. We do not wish to see that our client enters into any binding commitments too early and see to that all negotiations are subject to formal contract.


4.      Coordination

A function which our clients often ask us to carry out is to coordinate the various professional advisers involved in the proposed acquisition. The acquisition “team” most typically includes feasibility study makers, accountants, surveyors and environmental auditors and patent agents. If  a publicly  listed company is involved, the team will be much larger and enhanced with corporate finance and merchant bankers.

You simply cannot exaggerate the significance of the coordination and this concerns also the legal advisors. The team leader or the coordinator should be totally committed to the case: we have in the past seen mediocre results by large reputed firms due to bad coordination. A legal team often consists of a group of lawyers, some of them with less experience than the others. If the team leader has not time enough to meticulously coordinate the case, you will get outstanding individual performances and the total outcome will at its best be mediocre. 


Time is of essence so the earlier we get involved the easier and less costly the process will be. Equally important for the client is to have a strategy: i..e. a clear and outspoken vision of what he expects to be done, to what extent and at what cost.        

tiistai 3. syyskuuta 2013

Can foreigners own shares in Finland and be directors of a Finnish Company?

1         Can a foreign citizen own shares in a Finnish company?

In regular businesses there are no restrictions based on the place of residence or domicile, or nationality, regarding the right to own shares.


2          Can a foreign resident be a board member in a Finnish limited liability company?

The nationality of the person is not a decisive factor. What is essential is in which country he or she lives permanently. In certain cases a person residing outside the European Economic Area (EEA) needs a permit from the NBPR.

If at least one Board member is a resident of the EEA, no permit is needed. So  for instance in  a Finnish-Chinese joint venture, no permit from the NBPR is required, as long as at least one of both the ordinary and the deputy members are residents of the EEA. Should none of the ordinary members live in the EEA, all of them would need a permit granted by the NBPR.

3          Managing Director

The Managing Director (and his/her deputy, if any) must have a place of residence in the EEA. This is quite logical as the managing director is running the business and is normally “at site”. N.B. The laws talk about residence not the nationality. So a Chinese national residing in Finland can be the Managing Director.


keskiviikko 14. elokuuta 2013

Poison pills of all kinds


                                Poison pills of all kinds            
                                           
Many of us would associate poison pills with articles of an association and their special clauses that limit voting rights. But the expression poison pill is just perfect and its usage has expanded to many other             unpleasant surprises as well. Due diligence in particular is designed to detect those pills and to protect the buyer so that the content of the pill does not puff on the vendor’s eyes.
                                           
Employment or labor section of a due diligence can appear really boring and killing when the material comes from a foreign jurisdiction. On surface labor risk analysis in the form of a due diligence appears local and possible issues would be handled locally, so why bother. However, one observation just might have global relevance for an international   operation.
                                            
Employees’ rights to IPR or their inventions is handled slightly differently from one country to another. In Finland the key point to understand is that it is not possible for the employee to waive his/her                       rights to the invention in advance. Such agreement may exist but it cannot be enforced. It is null and void. A standard solution would be to agree with the employee on compensation as early as possible, i.e. when the very first signs of an invention have been identified. For an MA transaction this is an issue for drafting and calculus, although with a local origin.

Tina Taivaloja, LLM

Helsinki, Finland                                                      

perjantai 7. kesäkuuta 2013

Due Diligence or risk analysis


Due Diligence or risk analysis

How to handle it in a minority language country


Due diligence investigation can be life saving in a cross border MA transaction. The trick is not to overdo it and at the same time to dig out all information relevant to the transaction. Well, this is how things look from the parties’ perspective. The performers’ point of view  i.e. the attorneys’ or accountants’, is somewhat different. It is in their billing and professional interest to suggest a due diligence investigation that is as thorough as possible. Which carries with it the risk of losing focus and the due diligence investigation becoming worthless and very expensive.

Finland is a minority language country meaning that many official documents are drafted in Finnish. It is a language that is barely known outside of the country. Although English is well mastered in Finland it does not change the fact that you need to know Finnish as well. For a transaction a typical solution would be to hire a local law firm and accountants for the due diligence. The issue is then handled from a technical perspective assuming that google translation method would work. Most of us have noticed that it does not. Many reports will be prepared but the information is not there. The due diligence thus performed did not help our drafting of agreements.

A solution could be to include a member of the drafting team in the due diligence team. That link between the teams should be in a position to make sure that questions of the drafting team are correctly understood and, also, that answers provided by the due diligence team can be understood by the drafters. Obviously, in real life, things would not go this smoothly. Operation of a due diligence team can be a business secret and, therefore, a new temporary member would not be welcome.


by Tina Taivaloja

lecturer, doctoral student at University of Helsinki

maanantai 13. toukokuuta 2013

Finskt dotterbolags beskattning; ränteavdrag


UTLÄNDSKA FÖRETAGS DOTTERBOLAG I FINLAND


HÅRDARE  BESKATTNING  FR.O.M. 2014






Minimal bolagsbeskattning av utländska företags dotterbolag i Finland

Finland har varit ett ”skatteparadis” för multinationella bolag, men framöver blir det slut på det goda – eller åtminstone krävs det skickligare planering.  Den finska regeringen har nämligen  föreslagit en begränsning i företagens rätt att avdra räntekostnader. Finland har sen gammalt inte uppburit någon källskatt på räntebetalningar. Regeln har funnits i inhemsk skattelagstiftning och gällt betalningar till alla länder (även lågskatteländer och skatteparadis). Dessutom har vi inte haft begränsningar av s.k. tunn kapitalisering. Detta har möjliggjort kapitaliseringen av det finländska dotterbolaget med stora lån, vars räntor har varit avdragsgilla i Finland. Dessutom har utbetalningen av räntorna inte genererat finsk källskatt.



Förändringar fr.o.m. 2014

Rätten att avdra räntor kommer att förändras fr.o.m. skatteåret 2014. Räntebetalningarna till ett svensk moder-/systerbolag  förblir avdragsgilla  med följande begränsningar:

* Om nettoränteutgifterna för skatteåret (= den del av ränteutgifterna som är större än ränteintäkterna) uppgår till högst 500 000 euro kan bolaget också dra av dem till fullt belopp.

* När nettoränteutgifterna överstiger 500 000 euro får de dras av till den del som de uppgår till högst 30 procent av justerat resultat av näringsverksamheten. Det maximala beloppet av icke avdragbara nettoränteutgifter är dock högst lika stort som beloppet av nettoränteutgifter mellan bolagen i intressegemenskap.

Begränsningarna gäller endast de bolag som betalar räntor till parter som är i intressegemenskap med det finländska dotterbolaget. Däremot räntebetalningarna t.ex. till en svensk bank förblir helt och hållet avdragsilla. Regeln gäller dock inte om det svenska moderbolaget har givit t.ex. en deposition som säkerhet.

Självfallet får  ränteutgifter fortfarande dras av till fullt belopp till de delar som motsvarar ränteinkomsternas belopp.

Slutsats

Det är uppenbart att de multinationella storbolagen kommer att kunna dra nytta av räntornas avdragbarhet eftersom de kan operera genom bankerna och p.g.a. deras intrikata system går det inte att öronmärka säkerheterna.

Mindre företag får lov att anpassa sina strukturer till att motsvara de nya reglerna. Tunn kapitalisering av det finländska dotterbolaget ger inte mera den beskattningsmässiga fördelen som man haft. Å andra sidan kommer bolagsskatten i Finland att sänkas till 20% vilket gör landet beskattningsmässigt konkurrenskraftigt för utländska företag.

sunnuntai 24. maaliskuuta 2013

Fusion-acquisition en Finlande:



Achat d’une société en Finlande


Préparation

Une fusion-acquisition en Finlande n’est pas forcement compliquée. La Finlande appartient au système juridique continental donc il y a peu de surprises pour un acheteur francais. Bien entendu il y a des particularités nationales surtout sur les domaines de droit immobilier, droit de travail et droit fiscal. Nous trouvons que l’ assistance et le conseil dans la structuration de l’opération en matière juridique, fiscale et sociale dans sa préparation est d’importance.  La réalisation des audits de pré-acquisition (Due Diligence) et organisation de data-rooms suit, mais bon conseil au debut du processus vaut beaucoup.

Les négotiations concernant la rédaction et négociation de la documentation juridique d’acquisition (lettre d’intention, contrat d’acquisition, convention de garantie) et de financement (contrats de crédit et sûretés ) sont plus faciles si on a commencé de bonne heure et formé une strategie.

  Finances

Le système juridique finlandais  permet la libération du capital mais il faut être prudent: le vendeur peut obtenir des dividends supplementaires, la société objet peut être diffusion, la société peut rachter des actions. Les mécanismes sont divers.

Prudence

 Nous devons vérifier que  les terrains constructibles ont obtenu  un permis de construire de la municipalité. L’acheteur devra vérifier que tous les actes d'achats ont bien été transcrits au bureau des registrations. L'acquéreur pourra par ailleurs vérifier à ce bureau la situation réelle des immeubles et s'assurer qu'il n'existe pas de hypothèques antérieures sur les immeubles de l'actif.


Dans une acquisition en Finlande nous  vérifions le respect des normes et règlements en vigueur en Finlande. Finalement ce n’est pas souvent que nous rencontrons des cas de non respect de règles et lois qui  peuvent engendrer de conséquences financières. Bien entendu  les règles environnementales peuvent être très lourdes de conséquences pour la société et de plus les consequences peuvent se realiser trés tard.


Qu’est-ce que cela coûte?

Les coûts de conseil juridique sont souvent élevés, mais il ne doit  pas être ainsi! Le système finlandais nous permet  de rédiger des contrats plus courts sans risque. Beaucoup de grands cabinets font des audits de pré-acquisition (Due Diligence) en grand style sans analyser trop et les contrats d’acquisition sont plutôt du style américain que finlandais. Cela n’est pas toujours nécessaire dans un système de droit continental ; nous préférons adapter le travail aux vrais besoins du client et trouvons qu’une  analyse vaut mieux  que beaucoup de  documents  photocopiés et traduits.


Visitez nos pages à www.salvelex.com

lauantai 23. maaliskuuta 2013

Företagsköp i Finland


FÖRETAGSKÖP I FINLAND

Inledning

Företagsöverlåtelser i ett annat land, i detta fall i Finland, är relativt komplicerade affärshändelser. Då är behovet av entydiga avtal stort, bl.a. sekretessavtal, letter of intent, köpavtal och olika sidoavtal. Förhandlingsprocessen som leder fram till de olika avtalen kan vara omfattande beroende på avtalsintresset, branschen och hur väl objektbolaget har skött sina räkenskaper och sin interna och externa dokumentation. De finländska köpebreven följer svensk modell och är relativt korta - åtminstone i jämförelse med de anglosaxiska avtalen. Tack vare riskkapitalföretagen och de internationellt orienterade advokatbyråerna har köpavtalen dock tenderat att bli längre och längre under de senaste åren.

För ett tjugotal år sedan var det i mindre företagsköp vanligt att säljaren inte gav några andra garantier än möjligheten för köparen att bekanta sig med målbolagets räkenskaper. Läget har sedermera radikalt förändrats och i dag ges omfattande garantier köparen till fromma.

Språket

Ett företagsköp i Finland är hur lätt som helst att genomföra: lagarna är i det stora hela de samma, Finland var ju en del av Sverige ända till 1809 och folk vid kusterna talar svenska. Dessutom råder en stor avtalsfrihet på just sådana här transaktioner. Visst är det så men skenet kan bedra. De gemensamma nordiska lagberedningarna till trots så har Finland faktiskt utvecklats isär från Sverige i drygt 200 år.

Att Finland var en del av det svenska riket, att svenska talas vid kusten och att institutionerna är de samma eller liknande som i Sverige kan vagga en i en felaktig trygghetskänsla. Eftersom Finlands förvaltning är tvåspråkig finns alla lagar, förordningar och andra viktiga dokument också på svenska. Dessutom definieras och beskrivs de språkliga rättigheterna och skyldigheterna närmare i språklagen och myndigheterna betjänar allmänheten på både finska och svenska.

Trots de många likheterna skall man vara på sin vakt. Det juridiska språkbruket har sedan statssamhörigheten upphörde utvecklats på finländska villkor och utvecklingen har inte nödvändigtvis varit exakt densamma som i Sverige.

Om verksamheten är omfattande så kan man inte utgå ifrån att samtliga avtal och handlingar i målbolaget skulle vara skrivna på svenska även om företaget är beläget i svenskbygderna. Oberoende av områdets och ägarnas språk så opererar företagen på finska och ofta på engelska och därför är det viktigt att revisorerna och juristerna som går igenom due diligence materialet behärskar finska. Den uppenbara avsikten med en due diligence inför ett företagsförvärv är att köparen önskar information om målföretaget och då måste man kunna ta del av den ekonomiska informationen och likaväl förstå sig på företagets avtal.

Oberoende av stadgandena i språklagstiftningen så kan det på vissa orter vara en avgörande fördel att kunna förhandla med myndigheterna på finska. De svenska resurserna på myndighetssidan är ibland rätt begränsade och då kan processen påskyndas genom att handlingarna uppsätts på finska och att kontakten till myndigheterna sker på finska.

Juridiken

En viktig fråga är om företagsöverlåtelsen ska avse aktierna eller substansen (inkråm). En aktieöverlåtelse betyder att bara aktierna eller andelarna i bolaget säljs. Väljer man att köpa aktierna så förblir målföretaget oförändrat och dess avtal t.ex. leveransavtal, kundavtal, distributionsavtal m.m. fortbestår. Detta underlättar ofta transaktionens genomförande men innebär också vissa risker eftersom bolaget kan innehålla dolda förpliktelser.

Vid en substansöverlåtelse är förvärvsobjektet endast affärsrörelsen eller de enskilda tillgångarna och skulderna enligt specifikationen i avtalet. Substansöverlåtelsen innebär att varje tillgång måste överlåtas för sig. Köparna upplever ofta substansförvärvet tryggare men kan dock ibland överraskas av bl.a. arbetsrättsliga yrkanden och påföljder. I och med att Finland blev medlem av EU har dessa arbetsrättsliga frågor reglerats avsevärt hårdare än tidigare.

På samma sätt som i Sverige råder låneförbud i företagsöverlåtelser: det innebär att köparföretaget inte får betala köpeskillingen med målföretagets egna medel. Regeln gäller både penninglån och ställande av säkerhet till förmån för köparen. Däremot är man mera liberal med kundfinansieringen och har än så länge inte ställt krav på mängden av skulder i förhållande till eget kapital (debt equity ratio). En mycket vanlig teknik innebär att ett finskt holdingbolag köper aktierna i målföretaget och dessa två fusioneras senare. Fusion som absorption d.v.s. holdingbolaget som det övertagande bolaget tar över målbolaget och på detta vis kommer amorteringarna och räntekostnaderna av akvisitionspriset sist och slutligen att bäras av verksamheten i målbolaget.

Såsom i alla internationella transaktioner är vissa områden mera nationellt styrda än andra: en svensk köpare borde aldrig lita på sitt eget omdöme bl.a. på skatte-, fastighets-, arbets- och hyreslagstiftningens områden. Till skillnad från Sverige är t.ex. fastighetsöverlåtelserna ogiltiga om de ej bestyrkts av ett offentligt köpvittne. Regeln är tvingande. Här kommer vi väldigt nära det kontinentaleuropeiska notariesystemet.

Lokalkännedomen

Vi har upprepade gånger agerat på svenska huvudmäns vägnar som jurister och förmedlare mellan två kulturer. Förmedlarens roll går knappast att överdriva i all synnerhet i de fall när målföretaget är ett mindre fåmansbolag. Detta accentueras om säljarna är äldre företagare eller om de opererat bara på den finska marknaden.

Salvén & Wuorenpää har under åren utvecklat ett tillvägagångssätt som våra kunder har varit med om att forma. Vi strävar inte efter att göra allt själva utan agerar som svenska huvudmannens outsourcade juridiska avdelning och söker de bästa lokala medhjälparna till olika sysslor och uppdrag. Vi ser helt enkelt till att våra huvudmän får kontakt med kvalificerade bokförare, rekryterare, bankirer mm. Nätverket som vi byggt upp under åren står våra svenska huvudmän till förfogande.

Efter att många stora finländska advokatbyråer grundat stora enheter i Sverige har vi fått allt fler efterfrågningar av enskilda personer och mindre svenska byråer som helst använder sig av sådana finländska kontakter vilka inte konkurrerar om deras kunder på den svenska marknaden. För att bättre kunna betjäna kunderna i Sverige har vi skaffat faciliteter i Stockholm för att där kunna förhandla och inleda samarbetet. Det har visat sig vara uppskattat av klienterna.

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Mera på vår hemsida www.salvelex.com

Artikel på engelska om företagsköp i Finland: http://www.artipot.com/articles/1510434/legal-aspects-in-business-acquisitions-in-finland.htm

Business Acquisition in Finland


Business Acquisition in Finland - a new concept



In the course of years we have represented a broad range of individuals and companies pursuing business opportunities through mergers and acquisitions, most recently within e-commerce, metal industry and wealth management. All the three of us have worked as inhouse lawyers and seen a lot of mediocre legal work performed by lawyers, let lone reputable firms. We decided not to deliver the same kind of quality and not to deliver unnecessarily lengthy reports which lack proper analyze. A client has the right to get answers – proper opinions- for his money.



M & A  approach


We have in the past few years seen a foreign acquisition culture penetrate this market. In most cases this means unnecessarily lengthy agreements and extensive due diligences. Such practices have their justification provided they serve the best interests of the client but that is unfortunately not always the case. In a jurisdiction like Finland you could achieve the same level of protection with less paperwork and more analyzing. That may, however,  not always be in the interest of the service provider.

Since 2012 we have assumed a new approach where the three partners of the firm perform almost all the work needed in an acquisition process. Thus the client gets the benefit of our past experiences and does not have to satisfy with work performed by fairly inexperienced associate lawyers. This approach has proven successful and we have recently been involved in several mergers and acquisitions in spite of the fact that the general M&A market has stagnated. Many of our clients have authorized us to disclose our involvement in the respective mergers and acquisitions. We are pleased to inform you about our past engagements.


Finland as the acquisition target country


The process of acquiring a company is seen in many jurisdictions as something complicated and time-consuming. This does not apply to the Nordic countries let alone to Finland. We have a culture of transparency, openness and minimal form requirements. Our legal culture has minimized red tape which fact facilitates business dynamism.


Lower transaction costs


The Finnish transaction and legal costs are competitive and mostly lower than in the majority of countries. We encourage our clients to structure the deal in accordance with the Finnish legal tradition in order to minimize the costs. Of course you may want to do an acquisition process in the same way in every country or do it more extensively in order to cover your back. Our approach has been particularly suitable in the acquisitions of small and medium sized companies where the owner makes the decisions and does not need to justify his actions to others.


Be a demanding client


It goes without saying that the extent of a lawyer’s involvement in across border acquisition is dependent on the instructions of the client. Yet, this basic fact is often forgotten and lawyers serve standard solutions to their clients, solutions which unfortunately in some cases are extensive and expensive without giving any real help to the client’s decision making. The objective which the parties’ attorneys will be expected to achieve is the legal transfer of ownership from seller to buyer of either the shares or the assets of the business as appropriate. The client has every right to expect his attorney to identify risks and pitfalls and to give advice to protect the client’s interests rather than make lengthy DD-reports without analyzing the underlying facts.


Take us earlier onboard and save in transaction costs


An experienced lawyer’s input into the commercial aspects of the transaction should be substantial as the legal facts do have financial implications. The stage at which the client instructs the lawyer in cross border transactions should be carefully considered. It is often unfortunate if the client sees the lawyer’s role as excluding the commercial side of the transaction. In such cases the client will instruct the lawyer at a relatively late stage in proceedings, maybe after most of the deal has been negotiated. We have seen cases where little could be done and most of the advisor’s time was consumed in trying to mend the errors already made and create structure in the DD-process and deal.

It is, however, impossible to isolate the legal aspects from the commercial aspects and it is therefore we prefer to be involved as early as possible in the negotiations. The lawyer should ensure that his client does not enter into any binding commitments and that all negotiations are subject to contract. In a nightmare scenario the client may commit a breach just by signing.

Corporate tax reform in Finland

Corporate tax rate in Finland to 20 per cent - great news for foreign shareholders

Positive news for businesses as Finland intends to cut its corporate tax to 20 per cent. Foreign owned companies are the real winners.
The Finnish Government announced the  contemplated reform at a press conference on March 23rd, 2013  at which the Prime Minister also disclosed measures aimed at reducing Finland’s budget deficit.

The tax cut would be partially financed by higher taxes on stock dividends which naturally does not affect an international owner as he is liable to any such taxes in his home country but not in Finland.  

All good seems to have a price tag: Finnish resident shareholders’ dividend taxation gets harder: shareholders of non-quoted companies will pay tax on the dividends depending of the net value of the company. This means an aggregate tax burden of 26,4 per cent (corporate tax + dividend tax) for the Finnish resident shareholders.

The reform is in line with the changes made in other Nordic countries. A similar tax cut was announced Sweden  and Denmark resulting in a 22 per cent  tax rate.

More about mergers and acquisitions in Finland  at my website http://www.salvelex.com/ 
You can also acquaint yourself with my previously published article about taxation aspects in mergers and acquisitions at www.isnare.com/?aid=1815709&ca=Legal
Bolagsskatten i Finland  till 20 %
Bolagsskatten i Finalnd  sänks från 24,5 procent till 20 procent. Sänkningen kompenseras genom en hårdare beskattning av dividender. Detta drabbar förståss inte svenska aktieägare (allmänt skattskyldiga i Sverige)  eftersom de inte betalar  källskatt på dividender.

perjantai 22. maaliskuuta 2013

Mergers & Acquisitions in Finland


LEGAL ASPECTS IN BUSINESS ACQUISITIONS IN FINLAND

This is a quotation from my previously published article about business acquisitions in Finland. The original is available at isnare.com (http://www.isnare.com/?aid=1816028&ca=Legal). For further information about M&A cases you can contact me via http://www.salvelex.com.

Finland as the acquisition target country

The process of acquiring a company is seen in many jurisdictions as something complicated and time-consuming. This does not apply to the Nordic countries let alone to Finland. We have a culture of transparency, openness and minimal form requirements. Our legal culture has minimized red tape which fact facilitates business dynamism. Mergers and acquisitions in Finland are generally regulated by the Finnish Companies Act along with special regulation on areas such as tax law, competition law, provisions on the rights of employees, etc.

The Finnish legal system is based on the Scandinavian and continental European tradition of written law. The Finnish contract law is based on the idea of freedom of contract. Although you do not necessarily need lengthy anglo-saxon type contracts in Finland you should still be very clear as contracts that do not contain clear terms may be disputed. A business person hardly wishes it to be left to the judges to decide what is enforceable. Courts interpreting the badly drafted contracts are constantly facing the difficulty of deciding the rights of parties who have expressed themselves incompletely. A number of rules is used in Finland to guide the court in the process of interpreting and determining an ambiguous expression. At the end of the day the court will have to consider a contractual provision as an expression of free will and at the same time our courts are likely to try to reconstruct the original intention of the parties in that specific contractual context.

Type of acquisition

One of the first decisions to be reached by the buyer and seller in an acquisition process is whether the purchase will go forward as a business acquisition (the assets of the business) or a share acquisition. Many buyers prefer a business acquisition as it often comes with the opportunity to pick and choose the assets that are acquired, and to avoid any hidden liabilities which may reveal themselves later on. The sellers of a company mostly prefer to get rid of any potential future liability offered by a share sale.
There are many factors influencing the choice between business acquisition and share acquisition, and the buyer and seller often have conflicting interests. Almost without exception the seller prefers a straight forward transfer of title due to tax and liability reasons. The buyer prefers a business purchase for the ability to choose assets, and for the tax advantages from the buyer's viewpoint. The Finnish fiscal system grants a good base cost of assets for tax purposes, and income tax relief in the form of capital allowances and depreciations on the price paid for certain assets e.g. plant and machinery. Labor issues need to be scrutinized carefully as employees enjoy certain rights in connection with a takeover, whether this occurs as an acquisition of assets, shares or otherwise. For instance, an acquirer of assets succeeds in the liabilities towards employees.
At the end of the day the bargaining power of the parties will determine how the transaction proceeds.

How to structure the deal

During the pre-contract period the parties often enter into a letter of intent setting out the main terms according to which the parties have agreed to proceed, and the seller may grant the buyer a period during which it has the exclusive right to negotiate the purchase. A confidentiality agreement is almost always entered into between the buyer and seller, obliging the buyer to keep confidential information about the business that may disclosed during the pre-contract stage of the transaction, and usually also obliging both seller and buyer to keep the fact of the proposed deal itself a secret.
Supported by the letter of intent and a possible exclusive bargaining right, the buyer will proceed to acquire as much information as possible about the target business.
The due diligence process inevitably leads into the drafting and negotiation of transaction document (purchase agreement). It is normally prepared by the buyer's attorneys and contains protection for the buyer in the form of representations and warranties - and indemnities that the seller agrees to give with respect to the object company.

Due diligence of a Finnish company


when going through the target business, the buyer is trying to protect itself by ensuring that the company is worth the contemplated purchase price, and by requesting representations and warranties from the seller in areas where there may be potential liabilities of both hidden or clearly visible nature. The buyer's accountants prepare a report covering the commercial activities of the business, its management structure and employees, profitability and taxation. The legal investigation will be customized due to the objectives and past of the target business, but it always covers the target company's most important contracts, financial arrangements, premises, and company law matters. A careful buyer pays special attention to the quality of assets he purchases and meticulously verifies if the change of ownership terminates or entitles to terminate any important agreements. An acquisition of assets usually means that only the rights and liabilities agreed upon between the parties are transferred. So it is very important to obtain consent from customers and suppliers.

Reps and Warranties - Liability issues


The buyers' due diligence investigations provide a certain amount of information and endeavor to ensure that that the target company is worth the purchase price. Yet, there is usually not time enough for a full investigation, and a buyer of shares takes the risk of hidden liabilities in buying the shares. The representations and warranties included in the acquisition agreement therefore provide a way of redress for the buyer if the company turns out to be worth less than the buyer expected. If a warranty proves to be false, the buyer is entitled to indemnities.
Warranties and indemnities are an essential post-contract exposure for the seller, a risk that may cost a lot of money. It is therefore logical for the seller to try to limit the extent of this possible liability. The seller should make complete disclosures during the due diligence as it will not be in breach of warranty in relation to matters which have been fully and fairly disclosed. The disclosure letter therefore qualifies the warranties. The seller will also negotiate time limits on its liability in the share purchase agreement itself. The seller can usually expect to be free from the worry of further liability after a period of 1-3 years for most matters. Tax and environment related warranties are, however, substantially longer.