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Deal Structuring

What is an Earn-out?

An Earn-out is a mechanism where the seller receives part of the purchase price later, contingent upon the company achieving specific financial targets.

Is share sale subject to VAT?

Generally, the sale of shares is exempt from VAT in Georgia, unlike asset sales, which are taxable.

What is an Escrow account?

It's an account held by a third party (bank) where funds are kept and released to the seller only after specific contractual conditions are met.

When is an Asset Deal preferred?

An Asset Deal is preferred when the buyer wants to avoid assuming the target company's historical liabilities and risks.

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Deal Structuring is the architecture of the Mergers & Acquisitions (M&A) process. It is the stage where decisions are made on how to execute the transaction to maximize financial benefits, minimize tax burdens, and allocate risks between parties. In Georgia, there are mainly two paths: Share Deal or Asset Deal. The choice depends on many factors: the company's historical liabilities, tax exemptions, transferability of licenses, and employee status. An incorrectly chosen structure can lead to unforeseen tax penalties or deal delays. Specialists on Legal.ge analyze your specific case and create an optimal scheme that protects your interests at the negotiation table.

What Does Deal Structuring Service Cover?

Our corporate and tax lawyers offer:

  • Transaction Model Selection: Comparative analysis of Share Deal vs. Asset Deal pros and cons for specific goals.
  • Tax Planning: Calculating the effects of VAT, Profit Tax, and Income Tax. For example, selling shares is often VAT exempt, while selling assets is taxable.
  • Payment Mechanism Development: Using Fixed Price, Deferred Payments, Earn-outs (bonuses tied to future results), and Escrow accounts to hedge risks.
  • Corporate Reorganization: Planning merger, division, or conversion procedures before the deal to "clean up" the target company.
  • Financial Engineering Support: Legal support for Leveraged Buyouts (LBO) and security arrangements.

Real-World Scenarios When You Need This Service

Proper structuring is decisive in the following cases:

  • Buying a Distressed Company: If the target company has large tax debts, an Asset Deal is better so that debts remain with the old entity.
  • Acquiring a Licensed Business: If the company holds an exclusive license (e.g., broadcasting, mining) that is non-transferable, a Share Deal is necessary.
  • Acquiring a Startup: When a large company buys a startup, an Earn-out model is often used to keep founders incentivized to deliver results.
  • Foreign Investment: When the buyer is a non-resident, Double Taxation Avoidance Treaties need to be considered in the structure.

Georgian Legal Framework and Regulations

Deal structuring relies on the Tax Code of Georgia (tax regimes), the Law on Entrepreneurs (share transfer rules, reorganization), and the Civil Code. If the deal is large, the Law on Competition may apply, requiring notification to the Competition Agency. A professional lawyer evaluates all these regulations comprehensively to avoid legal barriers.

Service Process

The structuring process on Legal.ge includes:

  1. Initial Audit: Studying the buyer's goals and the target company's condition.
  2. Scenario Modeling: Developing several options (Option A, Option B) with pros/cons.
  3. Term Sheet Preparation: Reflecting the chosen structure in the key terms document.
  4. Tax Opinion: Confirming the tax effect of the final structure.

Why Choose Legal.ge?

Deal structuring requires deep knowledge of corporate law, taxation, and finance. The Legal.ge team combines these disciplines to offer solutions that save money and reduce risk. Trust experts who know how to turn a complex deal into a successful investment.

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Specialists for this service

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