Vendor Due Diligence: Preparing Your Malta Business for Sale

When you decide to sell your business, the process can be all-consuming. The last thing you need is to be scrambling for documents while trying to run the company and negotiate a deal. A buyer’s due diligence will be invasive and exhaustive. The best way to prepare is to conduct your own review first. This process, known as vendor due diligence (VDD), involves a critical look at your own company from a buyer’s perspective. Starting this clean-up at least 12 months before a sale puts you in control, maximises value, and significantly reduces the chance of unwelcome discoveries derailing the transaction.

Corporate Governance & Statutory Health

A potential buyer will start with the basics: is the company in good standing? The Malta Business Registry (MBR) is the source of truth for your company’s corporate identity. Any inconsistencies between your internal records and the public file are immediate red flags. Your goal is a perfectly maintained and complete statutory file.

• Ensure the register of members is accurate, reflecting all historical share transfers correctly.
• Check that minutes for all board and shareholder meetings exist, are signed, and properly filed.
• Verify that all annual returns and required forms have been filed with the MBR on time.
• Review the company’s Memorandum & Articles of Association for any clauses that could complicate a sale, such as rights of first refusal or restrictions on share transfers.
• Confirm that all director and shareholder details are current on the MBR portal.

Financial & Accounting Records

This is the heart of any due diligence exercise. A buyer needs to trust your numbers. Beyond having your audited financial statements (prepared under GAPSME or IFRS) for the last three to five years, you must ensure your management accounts are robust, accurate, and readily available. Buyers will scrutinise your accounts for underlying performance, so it’s wise to identify ‘normalisation adjustments’ yourself.

These are adjustments for any non-recurring or non-commercial items that a new owner would not incur. Examples include above or below market salaries paid to owner-managers, one-off legal fees, or rent paid for a property owned by a related party at a non-market rate. The trade-off is that presenting a ‘cleaner’, more profitable picture might mean crystallising a higher tax liability for the company in the short term. However, it provides a clearer basis for valuation and builds significant credibility.

Tax & VAT Compliance

No buyer wants to inherit a tax liability. A thorough review of your tax compliance status is non-negotiable. This goes beyond just income tax and covers all dealings with the Malta Tax and Customs Administration (MTCA). Any uncertainty here will almost certainly lead to a specific indemnity or a price reduction.

• Confirm all corporate income tax returns have been filed and all tax assessments are settled.
• Reconcile your VAT declarations with your accounting records to ensure there are no discrepancies.
• Ensure all payroll-related submissions, including Final Settlement System (FSS) forms, are complete and correct.
• Document any ongoing tax investigations or disputes clearly.
• Analyse the balance sheet for any potential tax exposures in your provisions and accruals.

Key Contracts, Employment & Operations

A business’s value is often tied up in its contracts and its people. A buyer will analyse these to gauge the stability of your revenue and operations post-acquisition. A key risk area is ‘change of control’ clauses in major agreements. If triggered by the sale, these clauses could allow a key customer or supplier to terminate their contract.

It’s vital to catalogue all key contracts with customers, suppliers, and landlords. On the employment front, ensure all staff have written contracts compliant with Maltese law and that all obligations are clearly documented. Verbal agreements or undocumented bonus schemes create uncertainty and potential liabilities. Finally, ensure all intellectual property, from trademarks to software licenses, is properly registered in the company’s name and is transferable.

The Pay-Off: A Smoother, More Valuable Transaction

Undertaking this clean-up exercise is an investment. It takes time and can involve professional fees. However, the return on this investment is substantial. By identifying and fixing issues yourself, you take control of the narrative. You present a clean, well-managed asset, which gives buyers the confidence to pay a higher price. It dramatically speeds up the buyer's own due diligence process, reduces deal fatigue, and allows your management team to continue focusing on what they do best: running the business.