The key deal structures used for private M&A transactions are asset purchases and share purchases.

Asset purchases

The buyer will typically consider an asset transaction to be more advantageous. This is because the buyer may obtain a stepped-up tax cost basis for depreciable or amortizable assets, including goodwill, equal to the purchase price and through the proper use of bulk sales rules, as well as avoid exposure to certain liabilities not otherwise expressly assumed in the purchase agreement.

To the extent that the asset transaction has been taxed, there is no tax on dividends distributed by the seller. This means that the shareholders of the seller will not have an additional tax burden when ultimately receiving the proceeds of an asset transaction. In the case of an asset transaction, however, the selling company's tax loss carryforwards are not available to the buyer.

The sale of assets must be in writing and if the sale involves real estate, it must be incorporated into a public deed, which must be registered before the public registry. If the sale does not involve real estate, it may be carried out by a public deed or private document. Certain assets may be subject to VAT.

Share purchases

A share purchase usually provides more latitude for tax minimization. From the buyer's perspective, a share purchase may be attractive if the target company has significant tax loss carryforwards. Such losses continue to be available to offset the income of the target company after the acquisition. The absence of VAT in the case of a share transaction may also be regarded as an advantage by the buyer.

There is no legal requirement for an agreement for the sale of the legal and beneficial title to shares to be made in writing. No cumbersome formalities need be observed in connection with the purchase of shares, except for the execution of simple corporate documentation. Nevertheless, market practice in the majority of cases is for a share transfer to be documented between the seller and the buyer through a written share purchase agreement. In practice, additional post-transfer formalities may be required (e.g., before the Commercial Registry Office).

For private M&A deals in Venezuela, auction processes are not often seen and bid process letters are not used. Scheme of arrangement procedures are not available under Venezuelan law. The only mergers available in Venezuela are statutory mergers, but those are rarely used, due to the inadequacy and ambiguity of the statutory rules. In a merger, the surviving company assumes all assets, obligations and liabilities of the absorbed company or companies.

In summary, share acquisitions and asset acquisitions are the most common types of transactions in Venezuela, mostly because statutory mergers, though provided for by the Venezuelan Commercial Code have, in practice, been used rarely, if at all. Besides the parties' specific commercial considerations, the choice between a share transaction and an asset transaction is influenced mainly by tax considerations and the need, if any, to avoid assuming hidden liabilities by operation of law.

A corporation is the legal entity preferred by investors. The main types of corporate entities include:

• Stock corporations (Sociedad Anónima)
• Limited liability companies (Sociedad de Responsabilidad Limitada)
• General partnerships (Sociedad en Nombre Colectivo)
• Simple limited partnerships (Sociedad en Comandita Simple)
• Stock limited partnerships (Sociedad en Comandita por Acciones)

Another way to carry out business in Venezuela is via a branch of a foreign company, which is deemed a commercial establishment of the foreign entity in Venezuela.

The seller normally prefers a share purchase since it usually provides more latitude for tax minimization. From the buyer's perspective, a share purchase may be attractive if the target company has significant tax loss carryforwards. Such losses continue to be available to offset the income of the target company after the acquisition.

The absence of VAT in the case of a share transaction may also be regarded as an advantage by the buyer.

The regulations concerning public offerings for the acquisition of shares define "significant equity participation" as the number of shares representing 10% or more of the listed company's stock. These regulations cover tender offers made in cash or kind in the context of both hostile and non-hostile takeovers.

The buyer will typically consider an asset transaction to be more advantageous. This is because the buyer may obtain a stepped-up tax cost basis for depreciable or amortizable assets, including goodwill, equal to the purchase price and through the proper use of bulk sales rules, as well as avoiding exposure to certain liabilities not otherwise expressly assumed in the purchase agreement.

To the extent that the asset transaction has been taxed, there is no tax on dividends distributed by the seller. This means that the shareholders of the seller will not have an additional tax burden when ultimately receiving the proceeds of an asset transaction. In the case of an asset transaction, however, the selling company's tax loss carryforwards are not available to the buyer.