Real estate investment company
Clearly, this option can only be envisaged where the company owns a single asset or several assets that are to be sold together. The reasons underlying such a practice relate partly to tax and partly to other considerations.
In tax terms, disposing of the company may give rise to:
- registration fees that cost less than those associated with the sale of a real estate asset, even though the law has been changed to limit this "windfall" effect;
- depending on the case, different and sometimes more advantageous taxation arrangements may apply to capital gains on disposal than those applicable to disposals of a real estate asset.
This benefit is frequently offset in part by the fact that a purchaser who is purchasing not the real estate asset, but the company that owns it, may become liable to pay the tax differential existing in the company’s accounts between the real estate asset’s net book value and its actual value. This is the issue of "unrealised capital gains" / unpaid tax liabilities.
Non-tax considerations making it preferable to opt to dispose of a company may arise from contractual constraints.
One example is a company that has entered into contracts that cannot be assigned without consulting the co-contractor.
Likewise in the case of an asset portfolio, it may be easier to dispose of the company that owns all of the assets.
As regards non-tax aspects militating against the disposal of a company, there is in particular the issue of any company liabilities (charges or risks) that may not appear in the accounts, but which will be taken on in the economic sense by the purchaser when he buys the company. This issue is usually dealt with by a guarantee covering liabilities, which is itself frequently underwritten by a financial guarantee covering the eventuality of it being called in.