Questions to ask your lawyers and tax advisers before structuring a deal

The structure of a transaction — what exactly changes hands, between whom, in what form and in what order — has consequences that last long after the deal is signed. Those consequences are legal, tax, commercial and practical, and in a cross-border transaction they arise separately in each jurisdiction involved. Deciding on a structure is therefore a matter for qualified lawyers and tax advisers working together.

What a business can do is arrive at those conversations prepared, with clear facts and good questions. This article offers a question list, organised by theme, to take to your lawyers and tax advisers before a structure is chosen. It deliberately gives no answers: the right answer depends on your facts and on the law of each place, and only qualified advisers can give it.

Why structure deserves early questions

Structure is often treated as a technical detail to be settled near the end. In practice, it shapes almost everything: what the buyer inherits, what the seller keeps, which approvals or consents may be needed, how people are affected, what tax consequences arise and how easily the arrangement can be changed later.

Asking structural questions early has two benefits. It lets advisers raise issues while there is still room to address them, and it prevents the business from committing — in a letter of intent, in discussions or internally — to a shape that later proves impractical.

Preparing for the conversation

Advisers can only answer well if they understand the facts. Before the first structuring discussion, gather:

• the transaction objective, ideally in the one-page form described in defining the transaction objective before engaging advisers;
• an ownership chart of the businesses involved, showing every relevant entity and jurisdiction;
• a summary of where the business operates, holds assets and employs people;
• any structural preferences already expressed by either side;
• the known constraints: timing, confidentiality, financing discussions, internal approvals.

Share the same pack with legal and tax advisers so that both start from the same facts.

Questions about the form of the transaction

• What forms could this transaction take, given our objective and the businesses involved?
• What does each form actually transfer, and what stays where it is?
• Which parties would be involved in each form, including entities we have not thought about?
• Are there forms we should rule out early, and why?
• How would each form fit with what the other side has said it wants?

Questions about share and asset approaches

Many transactions are discussed in terms of acquiring an ownership interest in a company or acquiring particular assets and activities. These are conceptual categories; how each works, and what it means, depends on the law of each place.

• In our case, what would acquiring an ownership interest bring with it, including history and obligations?
• What would acquiring assets or activities involve in practice — which contracts, people, licences and records would need to move, and how?
• Which approach is more practical given how the business is organised today?
• Would a combination of approaches be possible, and what would it involve?
• What information would you need from the other side to compare the options properly?

Questions about consequences in each jurisdiction

• Which jurisdictions are relevant to this transaction, and why?
• For each one, which legal questions does the proposed structure raise?
• For each one, which tax consequences need to be examined, for each party?
• Are there reporting, registration or notification steps to consider in any jurisdiction?
• Does the order of the steps matter, and if so, how?
• Where do you need input from advisers in another jurisdiction, and how will that be coordinated?

How advisers in several jurisdictions can be kept aligned is covered in keeping parallel workstreams aligned across jurisdictions.

Questions about approvals and consents

• Could this transaction require any regulatory, competition, foreign-investment or sector approval, notification or consent in any relevant jurisdiction? How would we find out for certain?
• Do any of our contracts, licences or financing arrangements require consent from a third party before ownership or control changes?
• What internal approvals are needed — shareholders, boards, any other body?
• How should possible approvals be reflected in the timetable and in the transaction documents?
• What happens if an approval or consent is delayed or refused?

Questions about people and contracts

• How would each possible structure affect employees and their terms?
• Which key people need to be consulted or informed, and when?
• Would anyone need to move between countries, and does that raise separate work-authorisation questions?
• Which customer, supplier and partner contracts could be affected, and how?
• What practical steps would be needed to keep the business running without interruption?

The people side of transactions, including relocation, is explored further in people in a transaction: when staff may need to relocate.

Questions about consideration and risk allocation

These questions concern how the transaction is put together, not what it should be worth. Questions about value belong with qualified financial advisers and valuation specialists.

• What forms of consideration could the structure accommodate, and what would each involve legally and for tax?
• How are risks discovered during due diligence typically addressed in documents of this kind, in the relevant jurisdictions?
• Which risks remain with each party under each structure?
• What protections are customary or available, and what are their limits?
• How do financing discussions, if any, interact with the structure? Who should we speak to about them?

Questions about exit and future flexibility

• If the arrangement needs to change later — a further investment, a partial sale, a separation — how would each structure affect that?
• What would make the structure difficult to unwind?
• Which continuing obligations would each structure create?
• How would a change in the law or in either party's circumstances affect the structure?

Questions about timing and sequence

• Which steps in the proposed structure depend on others, and in what order should they happen?
• Which steps could take time that is outside the parties' control, such as approvals or third-party consents?
• Is there anything that should be done before signing, between signing and completion, or only after completion?
• How should the structure and the timetable be reflected in any early document, such as a letter of intent?
• What would change if the timetable had to move?

Questions about the advisers' own work

• Which jurisdictions and questions does your engagement cover, and which does it not?
• Which other advisers do you need us to appoint, and how will you work with them?
• What information do you need from us, and in what form?
• How will your advice be delivered — written advice, a memorandum, a call — and when?
• How will the work be charged, and what would cause the scope to grow?

Recording and comparing the answers

Keep a simple record of each question, who answered it, what the answer was and any conditions or assumptions attached. When legal and tax advisers give answers that point in different directions, record both, share them with each adviser and ask what each would need to see to change their view. The decision remains the business's; the advisers' role is to make the consequences of each option clear.

Who those advisers are, and how their roles fit together, is set out in mapping the specialists in a cross-border deal.

In short

Transaction structure shapes what is transferred, who is affected, what approvals may be needed and what consequences follow — in every jurisdiction involved. Arrive at structuring discussions with clear facts, ask questions about form, share and asset approaches, consequences in each place, approvals, people, risk allocation and future flexibility, and record the answers carefully. The answers themselves must come from qualified lawyers and tax advisers.

If you would like help preparing a fact pack and question list for your structuring discussions, you can talk to Wobridge.