Structure and process, legal regulation and consents

Structure

How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?

The acquisition of privately owned companies, businesses or assets is typically carried out by entering into either a share purchase or an asset purchase agreement, with share purchases being used more frequently. Buyers may also participate in auction processes arranged by or for the sellers. Auction processes are more common when the seller has engaged an M&A adviser and the target is likely to attract multiple purchase candidates.

The duration of the transaction process depends on, for instance, the size of the target, the field of business of the target, possible regulatory aspects in relation to the closing of the transaction (eg, merger control) and the number of buyer candidates involved in the process. The acquisition of a smaller or mid-sized target, which does not require any regulatory approvals prior to the closing of the transaction, usually takes no more than a few months to close from the start of the negotiations. For larger or more complicated transactions it is not that unusual that the whole process lasts for more than 12 months.

A typical transaction process generally includes the following steps:

  • the entry into various preliminary agreements, such as a letter of intent and a non-disclosure agreement with a buyer candidate who wishes to receive more information on the target;
  • an information memorandum regarding the target is delivered to the buyer candidate;
  • the submission of an initial bid by the buyer candidate;
  • due diligence performed by the buyer candidate;
  • the submission of the final bid by the buyer candidate;
  • final negotiations and conclusion of the relevant transaction documents (including the acquisition agreement); and
  • signing and closing of the transaction, which may occur either simultaneously or separately should there be any closing conditions included in the acquisition agreement.
Legal regulation

Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?

In general, Finnish private M&A transactions are governed by national legislation and EU regulations. The main national legislation includes:

 

The M&A market is not specifically regulated, except with respect to publicly listed companies and the regulation governing transfers of undertakings from an employment law perspective.

The parties may agree that the acquisition agreement be governed by foreign law; however, certain statutory Finnish laws apply in any event in relation to, for example, tax law, competition law, employment law and the legal transfer of ownership.

Legal title

What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?

At the outset, the title to the shares, business or assets is transferred from the seller to the buyer upon completion of the acquisition agreement. In addition, for the buyer to get sufficient assurance regarding the title, the seller usually warrants in the purchase agreement that the seller lawfully owns and has transferable title to the target or the shares and that they are free from any encumbrances.

For the buyer to use the rights pertaining to the shares, the buyer must inform the board of directors of the target company about the acquisition of the target shares and be recorded as the lawful owner of the shares in the target company’s shareholder register. The buyer can only be entered into the shareholder register after the transfer tax has been paid.

In addition, it is advisable for the purchase agreement to clearly state, among other things, whether any share certificates have been issued regarding the shares. If share certificates have been issued, they must be physically transferred to the buyer and duly endorsed.

Finnish law does not generally recognise a difference between legal and beneficial title.

Multiple sellers

Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?

At the outset, unless a shareholder agreement is in place that stipulates otherwise, each shareholder must agree to sell the shares owned by it before a buyer may acquire all the shares in the company.

However, the Companies Act offers a squeeze-out mechanism, according to which a shareholder owning more than 90 per cent of the target’s shares and votes may redeem the remaining shares at a fair price. In such a squeeze-out situation, a minority shareholder is also entitled to require the majority shareholder to redeem his or her shares. The redemption price is the fair price preceding the initiation of the squeeze-out procedure, and is finally determined in statutory arbitration in the case of a dispute.

Exclusion of assets or liabilities

Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?

At the outset, the parties are free to agree on which assets and liabilities that shall be transferred from the seller to the buyer as part of the business transfer; however, in an asset sale where the target is a going concern business, the buyer must provide continued employment to employees working for the transferred business. Consequently, employees are automatically transferred to the buyer as part of the purchased going concern business. From a tax point of view, tax liabilities remain with the transferor and cannot (in relation to the tax authorities) be assigned to the transferee.

With regard to environmental liability, under the Act on Compensation for Environmental Damage (737/1994, as amended), a party that has purchased a business or company that caused environmental damage or loss can be held liable for the damage or loss if the relevant buyer knew or should have known, at the time of the assignment, about the damage or loss or the threat of it.

As opposed to share acquisitions, the continuance of agreements and other legal relationships requires, at the outset, third party consents in a business transfer, unless stated otherwise in the relevant agreements.

Consents

Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?

Under the Investment Control Act, a foreign buyer must apply for prior approval from the Ministry of Economic Affairs and Employment (MEAE) for an acquisition resulting in the buyer holding more than one-tenth, one-third or one-half of the voting power (or corresponding actual influence) of a Finnish defence or security company.

In addition, a foreign buyer may submit a notification to the MEAE for an acquisition resulting in the buyer holding more than one-tenth, one-third or one-half of the voting power (or corresponding actual influence) of a company or business holding a key position with respect to maintaining vital functions of the Finnish society.

When considering an application, the MEAE can transfer the matter to the Council of State if the acquisition may jeopardise key national interests. A foreign buyer is defined as a person, entity or trust that does not have a place of residence within the European Union or the European Free Trade Association (EFTA). The Investment Control Act also applies to an entity or trust that has a place of residence within the European Union or EFTA and in which a foreign buyer (as defined above) holds:

  • at least one-tenth of the voting power, in the case of a limited liability company; or
  • corresponding actual influence, in the case of another entity or business.

 

In addition, regarding acquisitions of Finnish defence companies, a foreign buyer is also defined as a person, entity or trust that has a place of residence within the European Union, apart from Finland, or within the EFTA. The same applies to a Finnish entity or trust in which a person, entity or trust, which has a place of residence within the European Union, apart from Finland, or within EFTA, holds: 

  • at least one-tenth of the voting power, in the case of a limited liability company; or
  • corresponding actual influence, in the case of another entity or business.

 

The MEAE approves acquisitions resulting in the control of those companies unless the acquisition endangers key national interests. Such interests include:

  • military national defence;
  • national security and public order; and
  • functions vital to society (including safeguarding critical infrastructure and security of supply).

 

No approval by the MEAE is required where:

  • the foreign buyer subscribes for shares in the company in connection with an increase of the share capital of that company in the same proportion as its current shareholding;
  • the foreign buyer acquires the shares through inheritance under a will or by matrimonial right;
  • another foreign owner has already acquired dominant control of the company under the Investment Control Act (not applicable to defence or security companies); or
  • the company is acquired from another foreign enterprise that has already become the owner of the company under the Investment Control Act (not applicable to defence or security companies).

 

The MEAE may impose conditions on an acquisition if it is necessary to secure key national interests. The conditions must be accepted by the parties to the transaction.

If approval is not granted, the buyer must decrease its ownership to less than one-tenth (or less than one-third or less than one-half) of the shares in the company, and can only exercise the corresponding voting power at any general meeting of the company’s shareholders or other relevant corporate body.

The Investment Control Act allows for rather wide interpretation possibilities with respect to its applicability; thus, it is not that unusual for contemplated transactions to be pre-notified to the MEAE under the Investment Control Act.

In addition, certain sector-specific notification requirements may also become applicable to a contemplated transaction, such as the requirement to notify the Finnish Financial Supervisory Authority about changes of ownership in credit institutions.

Are any other third-party consents commonly required?

At the outset, the shares in a private limited liability company can be freely transferred from an existing shareholder to a new shareholder, unless otherwise set out in the articles of association or a shareholders’ agreement regarding the target company.

The target company may have entered into, for instance, commercial agreements or received government funding, the terms of which might include change of control provisions. In such situation, the relevant counterparty of the target might be entitled to terminate the agreement or claw back the funding granted to the target company, unless prior consent to the transaction is obtained from the counterparty.

In a business transfer, at the outset, the continuance of agreements and other legal relationships requires third-party consents, unless stated otherwise in the relevant agreements.

Regulatory filings

Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?

Share acquisitions or business transfers do not, at the outset, require any regulatory filings; however, M&A is subject to merger control under the Competition Act. An M&A transaction, or a concentration for the purposes of the Competition Act, is subject to control if both the combined worldwide turnover of the parties to the concentration exceeds €350 million and the turnover generated in Finland of each of at least two parties to the concentration exceeds €20 million.

A draft government bill published on 14 June 2022 has proposed to significantly lower the turnover thresholds for merger control notifications in Finland. Based on the proposal, a mandatory merger control notification obligation would apply where the combined turnover of all the parties generated in Finland exceeds €100 million and the turnover generated in Finland of each of at least two parties to the transaction exceeds €10 million. The new provisions are proposed to enter into force at the beginning of 2023. 

Certain foreign corporate acquisitions require the approval of the MEAE under the Investment Control Act. The purpose of the Act is to screen and, if key national interests so require, to restrict the transfer of influence to foreign persons and foreign organisations and foundations. Key national interests refer to national defence, national security and public order and functions vital to society (including safeguarding critical infrastructure and security of supply).

Filing an application with the MEAE is compulsory in foreign acquisitions in the defence and dual-use products sectors, as well as the security sector. For other acquisitions subject to screening under the Act (ie, acquisitions of Finnish companies that are considered critical for securing vital functions of society), a notification may be submitted with the MEAE for advance approval.

As of 1 July 2019, it is mandatory for a broad range of businesses to register their ultimate beneficial owners with the beneficial owner register maintained by the Finnish Trade Register. Listed companies, housing companies and mutual real estate companies, among others, are exempted from this obligation. An ultimate beneficial owner is defined in the Money Laundering Act as a natural person holding more than 25 per cent of an entity’s ownership or voting rights (or exercising control, for example, by virtue of by-laws or shareholders’ agreement). If another legal entity holds more than 25 per cent of an entity’s ownership or voting rights in the entity, the natural person who de facto has the right to make independent decisions in the holding entity must be identified.

The registration is free of charge and must, as a rule, be made electronically. The register is not public, but only parties that, under the Money Laundering Act, may need this information can apply for a disclosure of the contents of the register.