A married couple from Betanzos, in Galicia, own a Spanish limited company with thirty years of trading, two children who do not want it and a buyer who asks to see the accounts before discussing a price. Whatever shares are transferred will be taxed as a capital gain in each seller’s personal income tax return (article 33 of Law 35/2006), and that figure, which decides how much money is actually left, is usually the last thing anyone looks at. I set it out in the order in which the decisions present themselves to a family, because in these transactions the problem is rarely the buyer and is nearly always the way the consequences are shared out between the people selling.
Selling the shares or selling the business, two different transactions
When people talk about selling the family business, two very different contracts are possible. In a share purchase the buyer acquires the whole company, with its history, its contracts, its employees, its known debts and the ones nobody knows about. In an asset purchase (the premises, the machinery, the customer base, the brand) the company stays with the family, who keep the cash and the liabilities, and the buyer takes only what has been agreed. The second route requires the general meeting to authorise the disposal when what is sold is an essential asset (article 160 of the Spanish Companies Act), triggers the automatic transfer of employees under article 44 of the Workers’ Statute and exposes the acquirer to liability for the tax debts of the business as successor (article 42.1.c of the General Tax Law), which is why almost every buyer of a going concern prefers the shares and asks, in return, for warranties from the seller.
In practice, at the firm we find that a family selling on retirement with no successor ends up with the first route, and that the second is left for small businesses where what changes hands is little more than premises and a customer list. If what you are considering is closing rather than selling, the analysis is different and I have written it up in closing your business at retirement without dragging in your personal assets.
What it is worth and why you need to start two years early
A professional buyer does not pay for what the company has been, but for what it can keep generating without the founder. That is the first difficulty with a family business, because it is usually worth a great deal while the father is there and considerably less as soon as he retires. The usual methods start from recurring operating profit and apply a multiple, or discount projected cash flows, and in both cases the result is adjusted for everything the pre-sale review brings to light. The factors that most depress the price of a family business are well known, and at the firm we see them repeated in almost every matter. Personal and company accounts mixed together, relatives on the payroll with no clear role, director’s remuneration without a shareholders’ resolution or cover in the articles (article 217 of the Companies Act), business premises held in the parents’ names with no lease, verbal contracts with the main customers and goodwill that rests on one person.
That is why preparation is measured in financial years rather than weeks. Two clean year-end closings, with related-party transactions documented and the balance sheet in order, change the price and change the family’s bargaining position when the buyer asks for warranties. There is also a tax floor worth knowing before discussing a price with anyone. For unlisted shares, the transfer value cannot, for income tax purposes, be lower than the higher of the book value in the last approved balance sheet and the figure obtained by capitalising at 20 % the average results of the previous three years, unless it is proved that the agreed price is the market price (article 37.1.b of Law 35/2006). Selling below that figure without being able to justify it is an invitation to the tax authority to recalculate the gain.
How each seller is taxed
If an individual sells, the difference between the transfer value and the acquisition value is a capital gain (articles 34 and 35 of Law 35/2006), it goes into the savings base (articles 46 and 49) and is taxed on the savings scale, which runs from 19 % to 30 % since 2025 (articles 66 and 76). In a family it is rare for everyone to have the same acquisition value, and that is where the disagreement over how to split the price begins.
The founder who incorporated the company has as cost what he contributed to the capital, plus any capital increases he subscribed. The child who received shares by inheritance starts from the value declared for inheritance tax, plus the tax and costs paid (article 36), so his gain is usually small. The child who received them by lifetime gift with the family business relief steps into the donor’s acquisition date and value (article 36, second paragraph), because the donor was not taxed on that gift (article 33.3.c), and therefore inherits the latent gain as well. Three siblings with the same percentage can pay very different amounts on the same price, and that figure has to be on the table before anything is signed, because the civil rule that each receives according to his shareholding does not prevent one of them ending up with far less net than the others.
Anyone still holding shares acquired before 1995 can still apply the reducing coefficients of the ninth transitional provision, capped at an accumulated transfer value of 400,000 euros. And anyone over 65 can exempt the gain by reinvesting the price in an insured life annuity, up to a maximum of 240,000 euros and within six months (article 38.3). For a couple who retire and sell, that is 480,000 euros of price that may escape tax, and it is one of the decisions taken before signing and not afterwards.
When the price is collected over several years, the law allows the gain to be recognised as it is received if more than a year passes between delivery and the last instalment (article 14.2.d). A variable price tied to future results, what the buyer will call an earn-out, is recognised when its amount becomes known, following the criterion of the Directorate-General for Taxation, so the tax bill is spread across different years. The reverse side is that you are collecting from a company the family no longer controls, and an unsecured deferred price is a claim against a debtor you did not choose. I have written about collecting what people do not want to pay you in collecting from a debtor who says he has nothing, and the lesson applies here before signing, not afterwards.
| Who transfers | Who is taxed and under which tax | Rule that decides it |
|---|---|---|
| Individual selling to a third party | The seller, capital gain in the savings base of personal income tax, from 19 % to 30 % | Articles 33 to 37, 46, 66 and 76 of Law 35/2006 |
| Family holding company selling the subsidiary | The holding company, corporate income tax with 95 % of the income exempt if the requirements are met | Article 21 of Law 27/2014 |
| Parents gifting to a child with family business relief | The donee, inheritance and gift tax with 95 % relief (99 % in Galicia); the donor is not taxed on the gain | Article 20.6 of Law 29/1987, article 33.3.c of Law 35/2006, Galician Legislative Decree 1/2011 |
| Inheritance or Galician apartación to a child | The heir, inheritance tax with 95 % relief (99 % in Galicia); the deceased’s gain is not taxed | Article 20.2.c of Law 29/1987, article 33.3.b of Law 35/2006 |
The table summarises who pays under each route. What it does not show is that the last two only work if there is a child willing to stay, and that the price of that tax advantage is a holding commitment explained further down.
Selling through a holding company and article 21
When the shares are held by a family company rather than by individuals, the gain is taxed under the corporate income tax of that holding company. If the shareholding is at least 5 % and has been held for a year, the income from the sale is 95 % exempt, because the remaining 5 % is treated as non-deductible management expenses (article 21 of Law 27/2014). At the general rate of 25 %, the effective cost of the sale is around 1.25 % of the gain, against the 19 % to 30 % an individual would pay.
That difference leads many families to ask whether they can set up the holding company now, contribute the shares and sell the following month. The answer the law gives is an uncomfortable one. The contribution of the shares to the new company can be made without tax under the special restructuring regime (chapter VII of title VII of the same law), but that regime requires a valid economic reason and is lost when the main purpose of the transaction is the tax saving (article 89.2). Interposing a holding company in order to sell is the textbook example of what the tax authority reassesses, and although the one-year holding period is counted at group level, the purpose is examined closely. Nor does the exemption apply to the part of the income attributable to an asset-holding entity (article 21.5.a), which rules out the route for companies that only hold property or cash.
There is also the second half of the calculation, which almost no article on the subject mentions. The sale proceeds stay in the holding company, and to reach the family they have to come out as a dividend, taxed in each shareholder’s income tax return on the same savings scale. The holding company makes sense if the family wants to reinvest from within the company, buy another business or keep a common estate, and it does not if what they want is to split the price and retire.
The 95 % relief that has already been claimed
Many family businesses in the province have already changed hands once. The children received them by inheritance with the 95 % relief of article 20.2.c of Law 29/1987, or by lifetime gift with the relief of article 20.6, which requires the donor to have been 65 or incapacitated, to have stopped managing and drawing pay from the company, and the donee to keep what was received and the right to the wealth tax exemption. In Galicia, Legislative Decree 1/2011 raises the relief to 99 % and shortens the holding period to five years. The apartación, which in Galicia is treated as a transfer on death, benefits in the same way, and I explained how it works in apartación and pacto de mejora in Galicia.
The question that reaches the firm is what happens to that relief if the business is sold now. The law is clear on the effect. If the holding requirement is breached, the acquirer has to pay the part of the tax not paid because of the relief plus late-payment interest, and the holding period runs from the date of acquisition, not from the signing of the sale. The nuance that decides the question is what has to be kept. In acquisitions by inheritance, the settled administrative and judicial view is that what must be preserved is the value, so selling and reinvesting the proceeds in other assets, keeping them within one’s estate for the rest of the period, does not forfeit the relief. With gifts the bar is higher, because the right to the wealth tax exemption must also be preserved, and that right is not conferred by cash or a portfolio of funds, so the reinvestment has to be in assets that continue to meet the family business requirements. Selling before the deadline without a qualifying reinvestment means repaying the relieved tax with interest, and that amount comes off the net price of the person who received it, not off the other siblings.
The sale also ends the wealth tax exemption on the shares (article 4.Eight.Two of Law 19/1991). The money received is exempt from nothing, and although Galicia applies a regional allowance against the tax due, the Temporary Solidarity Tax on Large Fortunes under Law 38/2022 taxes net estates above three million euros regardless of that allowance. A family that has never paid wealth tax can start paying it in the year of the sale.
When a sibling does not want to sell
Nobody can be forced to sell their shares because the rest of the family has decided to. What does happen is that the buyer of a family business wants one hundred per cent, and a minority shareholder who stays inside is a problem that is either deducted from the price or brings the deal down. The company’s articles are the first document to read, because the statutory regime for limited companies subjects transfers to third parties to the consent of the general meeting and gives the other shareholders a pre-emption right (article 107 of the Companies Act), which allows the family members who do want to sell to buy out the one who does not first, or the one who does not want to sell to buy out the others and carry on alone. If the company has a drag-along clause, the majority can oblige the minority to sell on the same terms, but that clause has to be in the articles or in a signed shareholders’ agreement, and in the traditional family business it almost never is.
Without that clause, the way out is to negotiate within the family before negotiating with the buyer. The sibling who will not sell usually has an economic reason, almost always that the price does not work for him because his after-tax net is lower, or a personal one, usually that he has worked in the company for twenty years and does not know what he will do with his life. The first is solved with numbers and with a split of the price that need not be proportional to the shareholdings if everyone signs it, and the second with his continuity agreed with the buyer. What is never solved is signing a letter of intent with a third party without the internal front settled, because the buyer eventually finds out and the price drops.
At the firm we come in at that point, when the family has an offer or is about to look for one and needs to know what each branch can demand and what it will cost each of them, and we do it from the civil and commercial law practice, with each shareholder’s figures in front of us and before anything has been signed with anyone.
What the family signs in the share purchase agreement
The contract that closes the deal, which the buyer will call the SPA, is not a one-page document. Its core is the set of representations and warranties given by the seller about the company, and its reason for existing lies in a gap in the Civil Code. The remedy for hidden defects in articles 1484 and following protects the buyer as regards the thing sold, and the thing sold is the shares, not the business, so a tax liability, an employment claim or a ruinous supply contract that surfaces after signing does not by itself give the buyer a claim unless he can prove fraud or breach under articles 1101 and 1124. That is why the buyer requires the family to state in writing that the accounts are true and fair, that there are no unrecorded debts, that the licences are in force, that no inspections are under way, that the main contracts do not terminate on a change of control, and that there are no pending claims, and to be liable if any of that turns out to be untrue.
What the family takes on with those statements has three dimensions that have to be negotiated one by one. Duration, which for tax and employment contingencies is usually aligned with the limitation periods of the General Tax Law and the Workers’ Statute, and for everything else is agreed shorter. The cap, which is set as a percentage of the price and not as the whole price. And the way it is secured, which may be a retention of part of the price in escrow, a bank guarantee or simply the personal liability of each seller. The issue that most divides the family is the last, because the buyer will want all the sellers to be jointly and severally liable and each sibling will want to answer only for his share, and someone who has been out of the management for years has no reason to warrant what he has not known. A well-organised pre-sale review, with all the documentation handed to the buyer in a data room that leaves a record, narrows the scope of the warranties because what the buyer knows before signing cannot be claimed afterwards.
The contract also carries a non-compete undertaking by the sellers, which in practice runs for two or three years and affects anyone who planned to stay in the sector with another business, and the terms on which the relatives who work in the company will stay on. Here a share sale does not in itself alter the employment contracts, because the employer remains the same company, but the buyer decides who stays and on what terms, and the sensible approach is for those terms to be written into the purchase agreement as an obligation of the buyer and not left as a verbal promise. If only part of the business is sold and the founder stays on, what is signed is a shareholders’ agreement governing who decides what, how and when the rest is sold and at what price, because the majority just sold no longer belongs to the family.
What you can do today without signing anything
Before discussing a price with anyone there are things that can be done without a lawyer and that improve the family’s position. Gather the current articles of association and the shareholders’ register, and check that each person’s shares match what everyone believes. Locate the deed under which each family member acquired their shares, whether incorporation, capital increase, inheritance or gift, and the corresponding inheritance or gift tax return, because that is where the acquisition value and the start date of the holding period come from. Pull out the written contracts with the main customers and suppliers, and note which ones do not exist in writing. And do not hand over accounts, customer lists or margins to any interested party without a signed confidentiality undertaking, and do not sign a letter of intent even if it says it is non-binding, because it usually carries an exclusivity and price terms that are hard to get out of afterwards.
What is at stake if you do this on your own
The specific risk of selling a family business without advice is not that the deal fails to close but that it closes badly for one of the sellers. A sibling who repays the inheritance tax relief with interest because nobody checked the holding period, a founder who answers with his personal assets for years for contingencies the buyer already knew about, a deferred price that is never collected, or a savings scale applied in one go when the law allowed it to be spread. At the firm we review each shareholder’s tax and corporate position before the offer, negotiate the contract and the warranties the family takes on with the buyer, and put in writing between the family members how the price and the liability are shared. You can call +34 677 841 007 or write through the contact page. When you call, have to hand the articles of association, each shareholder’s percentage and how it was acquired, the accounts for the last three financial years, and if an offer or letter of intent already exists, that document unsigned.
Frequently asked questions
I inherited the company with the 95 % relief and now want to sell, do I lose the relief?
It depends on how much time has passed and what you do with the money. If you sell before the holding period ends, which is ten years under state law and five in Galicia counted from the date of acquisition, you have to pay the part of the tax you did not pay because of the relief plus late-payment interest. For acquisitions by inheritance the settled view is that what must be kept is the value, so if you reinvest the price and keep it within your estate until the period ends, the relief is preserved. For gifts the requirement is stricter, because the right to the wealth tax exemption must also be kept, and that means reinvesting in assets that continue to meet the family business requirements.
Am I taxed the same if I sell the shares myself as if a family holding company sells them?
No. An individual pays tax on the gain at the savings scale of personal income tax, between 19 % and 30 % since 2025. The holding company pays corporate income tax with the 95 % exemption of article 21 of Law 27/2014 if it has held at least 5 % for a year, at an effective cost close to 1.25 %. The difference disappears if the holding company is set up just before the sale, because the contribution of shares requires a valid economic reason and the tax authority reassesses structures built only to save tax, and it shrinks considerably when the money has to leave the holding company as a dividend to reach the family.
Can I sell only part and stay in the company, and how is a deferred price taxed?
Yes, and it is common when the buyer wants the founder to see the transition through. What is signed in that case is a shareholders’ agreement setting out who decides, with what majorities and how the rest is sold. A price collected over several years can be recognised for income tax as it is received if the last instalment falls due more than a year after delivery, and a variable price tied to results is declared when its amount becomes known. In return, you are collecting from a company you no longer control, and a deferred price without a bank guarantee or an escrow retention is an ordinary claim against the buyer.
Do I need a lawyer to sell the family business or is my accountant enough?
If what you are selling is a small business with a single owner, no debts, a known buyer and a cash price, your accountant and the notary are enough and the cost of a lawyer is not justified. You need a lawyer when there is more than one seller with different acquisition costs, when someone received the shares with inheritance tax relief in the last ten years, when the buyer asks for representations and warranties, when part of the price is deferred or depends on results, or when one of the shareholders does not want to sell. In any of those cases the saving achieved in negotiating the contract and in tax planning comfortably exceeds the fees, and the cost of not doing it falls on one sibling rather than on the whole family.
I live abroad and inherited a share of a Spanish family company that my siblings now want to sell. Where do I pay tax on the sale, and can I sign without travelling to Spain?
If you are not tax resident in Spain, the gain on shares in a Spanish company is normally taxed here under the non-residents income tax at 19 % and declared on form 210 within a fixed period, subject to the double taxation treaty with your country of residence, which in some cases allocates the right to tax to that country instead. Any inheritance tax relief you claimed in Galicia is subject to the same holding period whether or not you live in Spain, so the timing of the sale matters. You do not need to travel: the sale can be signed through a power of attorney granted before a notary abroad with the Hague apostille, or at the Spanish consulate. We act for sellers resident outside Spain, review the contract and the tax position for each seller separately and work in English.