Selling One of Four Business Units: Strategic Considerations

Why the perimeter is the first and most important step

Before you start negotiating the price, you must be able to state in a single sentence and a single list exactly what you are selling. This is called defining the perimeter: an inventory of assets, contracts, employees, permits, and liabilities belonging to the business unit being sold, and a clear boundary against the remaining three business units you are keeping. Without this definition, the buyer cannot assess the value, the financing bank cannot approve the loan, and due diligence will stall on the fundamental question of what is actually the subject of the audit.

A business establishment is an organized collection of assets created by an entrepreneur which, by their will, serves to operate their business; it is presumed that the establishment consists of everything that normally serves its operation (Section 502 of the Civil Code).

A branch is a part of a business establishment that exhibits economic and functional independence and which the entrepreneur has decided will be a branch; if it is registered in the Commercial Register, it is a branch office (odštěpný závod). Formal registration in the Commercial Register itself does not make the sale easier or more difficult, but the registration of a branch office is often a practical by-product of a well-defined perimeter, as it forces the company to clarify the independence of the business unit in advance.

It is precisely this economic and functional independence that you must demonstrate for the business unit being sold, and it cannot be created overnight. The Supreme Court repeatedly confirms that a part of a business establishment can be considered an independent organizational unit if separate accounting is kept for it, showing which assets, rights, and values serve its operation — although commentary literature admits that with otherwise obvious factual independence of the business unit, separate accounting may not be strictly necessary, in practice, it remains the most reliable evidence to rely on in any potential dispute.

A business unit that has so far functioned as one of the departments sharing accounting, IT systems, and purchasing with the rest of the company needs time to become an entity that can be independently described, valued, and handed over. Twelve months is a realistic horizon for the accounting, contracts, and HR agenda of the business unit to be separable without disputes over what belongs where — this is a business recommendation based on experience from similar transactions, not a statutory deadline.

How long defining the perimeter will actually take for a specific company depends on how interconnected the business units currently are through shared systems and people — which is why the Czech legal team at ARROWS law firm makes this estimate after an initial audit, not as a flat rate. For companies with separate accounting for business units, preparation may be shorter; for companies with everything shared, it tends to be longer.

The sale or other transfer of a part of a business establishment constituting an independent organizational unit is governed similarly to the sale of an entire business establishment (Section 2183 of the Civil Code). In other words, the more clearly the business unit is defined as an independent organizational unit today, the simpler and more predictable the subsequent process of the entire transaction will be.

Employees: who transfers and what you must notify in advance

If there is a transfer of an employer's activities or a part thereof, the rights and obligations arising from labor relations transfer in full to the transferee employer (Section 338 of the Labor Code). The purchase of a business establishment, and similarly the purchase of its independent organizational unit, is considered directly as such a transfer of the employer's activities, so the legal title for the transfer already exists.

The five additional conditions from the Labor Code — the same or similar method of performing the activity, a character other than mere supply of goods, the existence of a dedicated group of employees, the long-term nature of the activity, and the transfer of key assets or a substantial part of the employees — apply mainly where such an independent legal title is missing and the transfer relies solely on these factual elements.

For you, this implies a specific task, but it is more subtle than it seems at first glance: what is decisive is not how the payroll department records the employees, but to which business unit their work actually and factually belongs. The Supreme Court has explicitly confirmed that for employees, their factual assignment to perform work in the transferred part of the business establishment is determining, not the method of their recording in the entrepreneur's accounting system (judgment of the Supreme Court, file no. 21 Cdo 670/2024 dated August 26, 2025, available at rozhodnuti.nsoud.cz).

If employees currently alternate working across multiple business units or if the HR agenda is managed centrally without distinguishing who works in which hall, their actual assignment must be assessed in advance based on the real content of their work, rather than administratively "assigning" them to a business unit at the time of signing based on your own discretion — moreover, a single employment relationship cannot simply be split so that part of it transfers to the new employer and part remains. This assessment is one of those things that can only be reliably done in advance, not a week before signing.

The second obligation is notification. The existing and transferee employers are obliged, sufficiently in advance and at least thirty days before the transfer of rights and obligations, to inform the trade union organization and the works council of the date, reasons, and consequences of the transfer and to discuss the planned measures with them; if neither a trade union organization nor a works council is active, the directly affected employees must be informed directly (Section 339 of the Labor Code).

Thirty days is the latest deadline, not a window in which the notification must be rushed — no regulation prohibits fulfilling the obligation earlier. If you are preparing the transaction a year in advance, informing the unions or employees does not have to wait until the last minute: as soon as the perimeter and the allocation of employees according to their actual assignment are done and the information is concrete, the obligation can easily be fulfilled well in advance. You must have the content of the notification — the exact list of transferring employees and a description of the impacts on them — prepared much earlier than thirty days in advance, as it is based precisely on the definition of the perimeter described above.

Debts, receivables, and contracts: what goes with the business unit automatically

By purchasing a business establishment, the buyer becomes the creditor of receivables and the debtor of debts belonging to the establishment; however, the buyer only assumes those debts of whose existence they knew or at least must have reasonably expected, and if the creditor has not consented to the assumption of the debt by the buyer, the seller guarantees its performance (Section 2177 of the Civil Code). The same applies analogously under Section 2183 to the sale of an independent organizational unit, i.e., precisely to the situation of selling one out of four business units.

The risk here does not lie where one might expect. In practice, this means that unclearly kept accounting of the business unit harms the seller, not the buyer. The buyer will claim after due diligence that they did not know and could not have known about a certain liability if it was not clearly recorded in the accounting of the business unit being sold. Conversely, clearly kept accounting with a separate cost and balance sheet structure of the business unit gives both parties a clear idea of what is actually being sold and shortens negotiations on price and warranties, as both parties argue with the same, verifiable numbers instead of estimates.

The same logic applies to contracts with suppliers and customers of the business unit. By purchasing a business establishment, the buyer acquires everything that belongs to the establishment as a whole, and if a contractual relationship belongs to the independent organizational unit being sold, it transfers to the buyer along with it as part of the same organized collection of assets, without the need to assign each contract individually under the general rules of assignment.

Nevertheless, individual contracts must be reviewed, as not all of them transfer as easily. Some may contain explicit restrictions on transferability or a change of control clause, other rights may be non-transferable by nature, such as performance tied to personal trust in the contractual partner, and for licensing and similar relationships, it is necessary to separately assess what the license agreement itself says. Reviewing key contracts for these restrictions therefore remains a necessary part of preparation, even if it does not involve the wholesale assignment of every single contract.

How strictly to set the limit of the buyer's liability for debts in the contract and how deeply to review the contractual relationships tied to the business unit depends on how well the state of affairs is documented — which is why the Czech legal team at ARROWS law firm proposes the wording of warranties for hidden liabilities and the scope of the contract review only after reviewing the accounting and contracts, not based on a template clause. The better the state of affairs is documented, the narrower the warranties the seller must provide.

A twelve-month horizon is also realistic because separating the accounting of costs, liabilities, and assets by business units usually requires at least one full financial year-end closing in which the numbers are already kept in the new structure — this is typically the strongest evidence of the business unit's independence, which both the court and the buyer's due diligence look for first. Trying to reconstruct these numbers retrospectively at the last minute is time-consuming, and the buyer and their auditor will typically find discrepancies that prolong negotiations.

Permits, licenses, and intellectual property that do not transfer automatically

Permits and licenses tied to the person of the operator are generally not transferred automatically. Environmental permits, trade licenses, or other permits necessary to operate a facility are typically issued to a specific legal entity, not to the business unit as such, and for each of them, the procedure for changing the operator must be verified independently: in some cases, a completely new permit will be required, in others, an amendment or a mere notification of the new operator to the administrative authority will suffice. This applies even if the buyer is otherwise an experienced operator of similar facilities — the validity of their existing permits usually does not extend to the newly acquired business unit.

The buyer must therefore find out in advance which specific procedure applies to each permit, and the deadlines of administrative proceedings are one of the factors determining the latest realistic date for closing the deal. Furthermore, for integrated permits requiring an environmental impact assessment, the cooperation of the existing operator is often required to hand over operational documentation and technical data, so here too it is an advantage when the perimeter and technical documentation of the business unit are prepared well in advance.

Intellectual property tied to the business unit, such as trademarks, patents, or the know-how of a specific production line, is in principle transferred along with the other assets upon the purchase of a business establishment. The law provides only a limited exception: a right from industrial or other intellectual property cannot be transferred to the buyer with the sale of a business establishment if this is excluded by the contract under which the right was granted to the seller, or by the nature of such right (Section 2178 of the Civil Code).

In practice, this reverses the order in which intellectual property is thought of: the default state is that it transfers, and the perimeter review should look for exceptions, not the other way around. The most common exception is a license that the seller themselves acquired from a third party and whose license agreement excludes transfer to another operator — there, without separate negotiation with the licensor, the buyer will not acquire the right to use the licensed subject matter, even if they otherwise buy the business unit as a whole.

Omitting this check is typically revealed only when the buyer discovers they lack the right to use the brand under which the business unit operated on the market, or a license necessary to operate a specific technology.

Equal attention should be paid to lease and leasing relationships tied to the business unit: leased machinery, fleet leasing, or the lease of part of a plot of land from a third party. Although these relationships may belong to the sold organizational unit just like other contracts, in practice they often require the cooperation of the lessor or leasing company to change the lessee, especially if the contract contains its own change of control clause or transfer restrictions — and without resolving this, the buyer will formally remain without certainty regarding the right to use the equipment they physically purchased with the business unit.

If the business unit being sold consists of real estate with its own industrial premises, the perimeter also includes issues addressed in the text on how to sell an industrial park: the condition of the land, environmental liabilities, and permits tied to the building are a separate layer of preparation alongside defining the business unit as an organizational unit.

Twelve months: what to do in each phase of preparation

In the first three months of preparation, right at the beginning of the twelve-month horizon, the perimeter is defined: an inventory of assets, employees, contracts, permits, and liabilities belonging to the business unit, and its separation from the remaining three business units. This is also when decisions are made about which IT systems, shared services, or purchasing contracts will need to be separated or duplicated in the remaining company, and who in the team will be responsible for each area of preparation.

In the following three to four months, the perimeter is reflected in the accounting and contractual documentation. The accounting of the business unit is kept separately so that at least one financial year-end closing takes place in the new structure. In parallel, contracts with transferability restrictions or change of control clauses are mapped, and it is resolved which relationships will require third-party cooperation despite the general automatic transfer.

In the penultimate phase, permits and licenses are addressed: applications for new permits are submitted in the name of the future buyer, if known, or documentation is prepared for rapid submission as soon as the buyer is selected. This phase also typically includes communication with the relevant administrative authorities regarding which documents will be required for the new proceedings, so that the application is not returned for completion, which would restart the deadline from the beginning. In parallel, due diligence is conducted by interested parties, which reviews the perimeter, accounting, and contracts from the other side and typically reveals what remains unresolved in the perimeter.

Informing employees under the Labor Code is scheduled to take place at least thirty days before the transfer — however, if the perimeter and the actual assignment of employees are completed earlier, there is no reason to wait until the last month. The sooner employees have specific information about the date, reasons, and consequences of the transfer, the less room remains for speculation and the departure of key people before the transaction is completed. In parallel, the documentation required to ensure the transfer takes place without disputes over who belongs to the business unit is prepared.

How many of these steps can be shortened in a specific company and how many cannot depends on how interconnected the four business units currently are operationally and financially — which is why the Czech legal team at ARROWS law firm leads the preparation of the perimeter from the first month, not only from the signing of the memorandum of understanding, and continuously adjusts it according to how the due diligence schedule and negotiations with suppliers develop in practice. The legal pitfalls of the transfer itself, i.e., what is addressed only at the moment of signing the contract, are discussed in a separate text on the transfer of a part of a business establishment.

If you are selling a business unit as part of a broader corporate transaction, we integrate the preparation with tax planning, as the tax implications of selling a business unit, including income tax and value-added tax, affect the outcome of the transaction just as much as its legal structure. At the same time, we connect the preparation with clients interested in similar acquisitions; the book knihaoprodejifirem.cz is also related to how sellers and buyers are matched. The sooner the perimeter, accounting, and HR agenda of the business unit are prepared, the wider the range of interested parties can be approached and the shorter the negotiation round itself will be, as both parties base their discussions on the same, verifiable numbers.

Mistakes that make the sale of one out of four business units the most expensive

The most common mistake is starting preparation only when a specific buyer appears. Defining the perimeter, separating accounting, and preparing the employee agenda are tasks for months, not weeks, and the buyer or their bank will recognize this immediately during due diligence. Furthermore, hastily compiled documentation usually contains discrepancies that in themselves trigger further rounds of questions and prolong negotiations by months that you could have saved by preparing in advance.

The second mistake is shared accounting without a clear division of costs by business units. If today the costs of energy, maintenance, or administration are shared by all four business units together, you must create an allocation methodology before the sale that both the buyer and their auditor will accept as reasonable. A makeshift division prepared at the last minute is usually the first thing the counterparty challenges, and without it, there is a risk that the sold unit will not be recognized as an independent organizational unit at all.

The third mistake is the administrative assignment of employees to a business unit regardless of their actual work. Companies divide employees based on what is organizationally convenient for them, only to find out in a post-transaction dispute that the court assesses factual job assignment, not company records. A similarly underestimated risk is the assumption that contracts with suppliers must be assigned individually — in the case of a truly defined organizational unit, they transfer automatically, but only if the specific contract itself does not contain restrictions that need to be identified in time.

The fourth mistake is postponing the acquisition of permits to the last minute. Administrative proceedings for issuing environmental or trade permits have their own deadlines that cannot be accelerated by the transaction, and a late application commonly delays the entire closing of the deal by months. Moreover, the buyer typically does not want to take over a business unit that they cannot legally operate from day one, and thus postpones the signing until the permits are issued.

The fifth, less obvious mistake is omitting licensing restrictions on intellectual property tied to the business unit. Although trademarks and the know-how of a specific line generally transfer automatically with the sale of the business unit, licenses granted to the seller by a third party may have a contractual ban on further transfer, which is forgotten during preparation because it is not visible in the accounting or the land registry. The buyer finds out about it only during due diligence or after taking over the business unit, and the seller then conducts the dispute over whether the license belongs to them from a weaker position.

The sixth mistake, this time on the financial side, is underestimating the tax implications of the entire transaction. The structure of the sale, the method of asset valuation, and the timing of payments all affect how much of the purchase price actually remains with the seller, which is why they are addressed in parallel with the legal preparation, not after it; how the sale of a business unit is assessed in terms of income tax and VAT is discussed in the text on the tax aspects of transactions.

Where the preparation of a business unit sale breaks down

Final summary

The article has shown that selling one of four business units is not a matter of a single contract signed on the day of closing, but the result of preparation that begins long before. The perimeter of the business unit, separate accounting, employees assigned according to their actual job assignment, and reviewed contracts and permits are a prerequisite, not a formality that can be added later.

Three deadlines are crucial for company management. The first is the moment when the perimeter of the business unit is clearly defined and agreed upon across the company, as all subsequent work on accounting, contracts, and the HR agenda depends on it. The second is the year-end closing in which the accounting first reports the business unit separately, which is typically the earliest possible date when the transaction can be credibly offered to interested parties and when the business unit stands as an independent organizational unit. The third is the latest thirty-day deadline before the transfer of employees, which the law requires as a minimum, not as a window in which the notification must take place.

Delaying preparation becomes costly on all fronts simultaneously. An undefined perimeter challenges the value of the transaction and whether it is even a valid sale of an organizational unit, disorganized contracts delay closing by months, and delayed permits push back the date when the buyer can start operating the business unit at all. Companies that started preparation a year in advance passed due diligence without major comments; those that started late resolved the same issues under pressure from a specific interested party.

The Czech legal team at ARROWS law firm will help define the perimeter of the sold business unit, set up the separation of accounting and HR agendas, review contracts tied to the business unit and their limitations, prepare documentation for the buyer's new permits, and guide you through the entire transaction from preparation to signing. Write to us at consultation@arws.cz or explore our service sale of companies and transaction advisory.