Selling one of four business units

Why the perimeter is the first and most important step

Before you start negotiating the price, you must be able to state in one sentence and one list exactly what you are selling. This is called defining the perimeter: an inventory of assets, contracts, employees, permits, and liabilities that belong to the business unit being sold, and a clear boundary against the remaining three 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 being reviewed.

A business establishment is an organized body of assets created by an entrepreneur which, by the entrepreneur's will, serves the operation of their business; it is presumed that the establishment comprises everything that generally serves its operation (Section 502 of the Czech 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 registered in the Commercial Register, it is a registered branch. Formal registration in the Commercial Register does not in itself make the sale easier or harder, but registering a branch is often a practical by-product of a well-defined perimeter, as it forces the company to clarify the independence of the operation 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 Czech Supreme Court has repeatedly confirmed that a part of a business establishment can be considered an independent organizational unit if separate accounts are kept for it, showing which assets, rights, and values serve its operation — although legal commentaries admit that with otherwise obvious factual independence of the operation, separate accounting may not be strictly necessary, in practice, it remains the most reliable evidence to rely on in any potential dispute.

An operation 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 timeframe for the accounting, contracts, and HR agenda of the operation 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 the definition of the perimeter will actually take for a specific company depends on how interconnected the operations are today through shared systems and people — which is why this estimate is made by the Czech legal team at ARROWS law firm after an initial audit, rather than as a flat rate. For companies with separate accounting for operations, 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 Czech Civil Code). In other words, the more clearly the operation is defined as an independent organizational unit today, the simpler and more predictable the subsequent course of the entire transaction will be.

Employees: who transfers and what you must announce 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 Czech 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 an actual statutory title for the transfer already exists.

The five supplementary conditions under the Czech 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 statutory title is missing and the transfer relies solely on these factual characteristics.

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 operation their work actually and factually belongs. The Czech Supreme Court has explicitly confirmed that for employees, their factual assignment to perform work in the transferred part of the business establishment is decisive, not the method of their recording in the entrepreneur's accounting system (judgment of the Czech Supreme Court, Case No. 21 Cdo 670/2024 of August 26, 2025, available at rozhodnuti.nsoud.cz).

If employees currently alternate between multiple operations 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 an operation 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 information. The current 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 there is no trade union organization or works council, the directly affected employees must be informed directly (Section 339 of the Czech Labor Code).

Thirty days is the latest deadline, not a window in which the information must be dispatched — 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 division of employees according to their actual assignment are complete and the information is concrete, the obligation can easily be fulfilled well in advance. You must have the content of the information — the exact list of transferring employees and the 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 operation 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 assumed, 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 Czech Civil Code). Pursuant to Section 2183, the same applies analogously to the sale of an independent organizational unit, i.e., precisely to the situation of selling one of four operations.

The risk here does not lie on the side one would expect. In practice, this means that unclearly kept accounts of the operation harm 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 accounts of the operation being sold. Conversely, clearly kept accounts with a separate cost and balance sheet structure for the operation give both parties a clear idea of what is actually being sold and shorten negotiations on price and warranties, as both sides argue with the same, verifiable figures instead of estimates.

The same logic applies to contracts with suppliers and customers of the operation. 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 body of assets, without the need to assign each contract individually under the general rules on 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 by their nature be non-transferable, such as performance linked to personal trust in the contracting partner, and for licensing and similar relationships, it is necessary to separately assess what the license agreement itself says. A review of key contracts for these restrictions therefore remains a necessary part of the preparation, even if it does not involve the blanket assignment of every single contract.

How strictly the boundary of the buyer's liability for debts is set in the contract and how deeply the contractual relationships tied to the operation are reviewed depends on how well the status is documented — which is why the wording of warranties for hidden liabilities and the scope of the contract review are proposed by the Prague-based ARROWS law firm only after reviewing the accounts and contracts, rather than using a template clause. The better the status 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 operations usually requires at least one full financial year-end closing in which the figures are already kept in the new structure — this is typically the strongest evidence of the operation's independence that a court and the buyer's due diligence look for first. Trying to reconstruct these figures retroactively 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 hall are typically issued to a specific legal entity, not to the operation as such, and for each of them, the operator change regime must be verified independently: in some cases, a completely new permit will be required, in others, its modification 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 operation.

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

Intellectual property tied to the operation, such as trademarks, patents, or 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 a right (Section 2178 of the Czech 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 — in that case, without separate negotiation with the licensor, the buyer will not acquire the right to use the licensed object, even if they otherwise purchase the operation 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 operation appeared 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 operation: leased machinery, fleet leasing, or the lease of a part of land from a third party. Although these relationships may belong to the organizational unit being sold just like other contracts, in practice they often require the cooperation of the lessor or leasing company with the change of lessee, especially if the contract contains its own change of control clause or transfer restriction — and without resolving this, the buyer will formally remain without certainty regarding the right to use the equipment they physically bought with the operation.

If the operation being sold consists of real estate with its own industrial site, the perimeter also includes issues addressed in the text on how to sell an industrial site: the condition of the land, environmental liabilities, and permits tied to the building are a separate layer of preparation alongside defining the operation 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 operation, and its separation from the remaining three operations. This is also where decisions are made on 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 operation 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 the basis for a quick submission is prepared as soon as the buyer is selected. This phase also typically includes communication with the relevant administrative authorities regarding what documents will be needed for the new proceedings so that the application is not returned for completion, which would restart the deadline. 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 Czech 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 for the last month. The sooner employees have concrete 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 necessary for the transfer to take place without disputes over who belongs to the operation is prepared.

How many of these steps can be shortened in a specific company and how many cannot depends on how operationally and financially interconnected the four operations are today — which is why the preparation of the perimeter is led by the Czech legal team at ARROWS law firm from the first month, not just from the signing of the memorandum of understanding, and is continuously adjusted 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 an operation as part of a broader corporate transaction, we integrate the preparation with tax planning, as the tax implications of selling an operation, including income tax and value-added tax, affect the outcome of the transaction 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 are matched with buyers. The sooner the perimeter, accounting, and HR agenda of the operation are prepared, the wider the range of interested parties can be approached and the shorter the negotiation round itself, as both parties base their arguments on the same, verifiable figures.

Mistakes that make the sale of one of four operations 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 immediately recognize this 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 operations. If today the costs of energy, maintenance, or administration are shared by all four operations together, you must create an allocation methodology before the sale that the buyer and their auditor will accept as reasonable. A provisional division prepared at the last minute is usually the first thing the counterparty will challenge, and without it, there is a risk that the component being sold will not be recognized as an independent organizational unit at all.

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

The fourth mistake is postponing the acquisition of permits to the last minute. Administrative proceedings for the issuance of environmental or trade permits have their own deadlines that cannot be accelerated by the transaction, and late submission of an application commonly delays the entire closing of the deal by months. Moreover, the buyer usually does not want to take over an operation that they could not 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 operation. Although trademarks and know-how of a specific line generally transfer automatically with the sale of the operation, 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 learns about it only during due diligence or after taking over the operation, 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 the seller actually keeps, which is why they are addressed in parallel with the legal preparation, not after it; how the sale of an operation is assessed from the perspective of income tax and VAT is discussed in the text on the tax aspects of transactions.

Where the preparation of the sale of an operation breaks down

Final Summary

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

Three deadlines are decisive for the company's management. The first is the moment when the perimeter of the operation 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 closing in which the accounting shows the operation separately for the first time, which is typically the earliest possible date when the transaction can be credibly offered to interested parties at all and when the operation will stand 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 information must take place.

Postponing preparation becomes expensive on all fronts simultaneously. An undefined perimeter calls into question the value of the transaction and whether it is a valid sale of an organizational unit at all, disorganized contracts delay closing by months, and delayed permits push back the date when the buyer can start operating the business 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 operation being sold, set up the separation of accounting and HR agendas, review contracts tied to the operation and their restrictions, prepare documents 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 sale of companies and transaction advisory service.