The sale of a company that has received funding, particularly several years after completion of the project, rarely raises concerns at the outset of a transaction. Business owners usually focus on the company\u2019s valuation, negotiations with the investor, tax issues or protecting their interests after the sale. The funding often appears somewhere near the end of the list of matters to be reviewed. <\/p>\n\n
This is usually because the project itself was completed long ago. The company purchased equipment, implemented the technology, settled the expenditure and received the final payment. It may therefore appear that the issue of public funding belongs entirely to the past. <\/p>\n\n
During due diligence, however, or after a few additional questions are asked, it may become clear that the position is less straightforward. The buyer asks whether the project is still within its sustainability period. Someone begins to analyse the company\u2019s SME status following the investor\u2019s entry. Questions arise as to whether the funding institution was informed of changes in the ownership structure or whether the transaction will continue to satisfy the conditions on which the funding was granted. <\/p>\n\n
At this point, many businesses return to the grant agreement for the first time since the project was completed. This is one of the issues that most often resurfaces when a company that has received public funding is sold. Businesses quite often assume that, once the project has been settled, a sale of shares no longer has any relevance to the funding. In practice, however, the transaction itself is not always neutral from the perspective of the conditions on which the public support was granted. <\/p>\n\n
It should be emphasised that the sale of shares in a company that has received funding is permissible. The risk arises where the change in ownership affects circumstances that were relevant to the assessment of the project or the amount of funding awarded, such as the company\u2019s status or the manner in which infrastructure financed from the funding is used. Sometimes the problem results from the fact that no one informs the institution about changes in ownership or a reorganisation of the company. It also happens that only during the transaction does someone notice that the project was implemented somewhat differently from what had originally been planned. In such situations, the issue is often simply the lack of an earlier assessment of how the transaction may affect the project and the funding recipient\u2019s obligations. In practice, therefore, the sale of a company that has received funding requires simultaneous consideration of the project conditions, the ownership structure and the company\u2019s position after the transaction. <\/p>\n\n
The impact of a transaction on the funding conditions is particularly clear in relation to SME status, which I discuss in the article: Does the sale of shares result in immediate loss of SME status<\/a>? <\/p>\n\n Many people still assume that the status of a small or medium-sized enterprise depends solely on the number of employees or the turnover of the company itself. EU rules, however, require a much broader analysis. Ownership relationships, voting rights, the ability to exercise a dominant influence, and links with other entities may all be relevant. A company may still appear to be a typical start-up or a small technology business, but after an investor enters the ownership structure, the assessment of its SME status may require data relating to the entire corporate group. For many businesses, this comes as a significant surprise, because no one analysed these issues in the context of the planned share sale. <\/p>\n\n At the same time, not every investment automatically results in the loss of SME status. EU rules<\/a> provide for exceptions concerning certain categories of investors, including venture capital funds and institutional investors. For this reason, each such situation requires an analysis of the ownership structure, a recalculation of the relevant financial data and an assessment of how the ownership changes affect the company\u2019s status both before and after the transaction. <\/p>\n\n Situations like this can rarely be assessed by simply stating that \u201cthe entry of a large investor automatically results in the loss of SME status<\/em>\u201d, although this view can still be encountered, including in the approach taken by some authorities.<\/p>\n\n Difficulties also arise because the parties to a transaction often pay much less attention to the project documentation. Only a review of the grant agreement, the rules of the relevant call for applications, any amendments, and earlier correspondence with the funding institution<\/a> reveals which obligations continue to apply to the funding recipient. It may then become apparent that certain changes should have been notified to the institution or that the project is still within its sustainability period. <\/p>\n\n It is also worth remembering that the rules on project sustainability do not focus solely on a change of ownership itself. From the perspective of project sustainability, the consequences of the transaction are what matter. It is therefore necessary to determine, among other things, whether the change in ownership results in a transfer of business activities, a change in ownership of the infrastructure used to obtain an undue advantage, or a material change affecting the nature of the project, its objectives or the conditions under which it is implemented.<\/p>\n\n Consequently, the sale of a company that has received funding may have different consequences depending on what actually changes as a result of the transaction. A sale of shares in a company that continues to implement the project in exactly the same manner as before will be assessed differently from a situation in which the transaction results in a transfer of business activities, a change in the function of the infrastructure or a material reorganisation of the project. <\/p>\n\n The fact that a company previously received funding is often considered more closely only when a project control<\/a>, an audit by the National Revenue Administration (KAS), or questions from the customs and tax office arise. Several years after completion of the project, there is usually little to suggest that the funding may once again become a tax, legal or transactional issue. I discuss post-completion project controls in the article Can a project still be audited and funding repayment requested after completion?<\/a> <\/p>\n\n Risks associated with public funding very often emerge only with the passage of time. The European Commission has long emphasised that projects financed from European funds are subject to a system of control and supervision carried out jointly by the Commission and national or regional authorities. This means that questions concerning a project may arise long after its formal completion. <\/p>\n\n Increasingly, this may also involve the liability of persons who managed the company. Many business owners assume that selling their shares or leaving the management board definitively closes any issue of liability connected with the company\u2019s earlier activities. That is not always the case. <\/p>\n\nSale of a company that has received funding \u2013 risks may emerge years later<\/strong><\/h2>\n\n