In brief
A company abroad is acquired through a share deal, in which the buyer takes the company with all its liabilities, or an asset deal, in which the parties choose what transfers. In both cases, before signing, the buyer reviews corporate matters, accounts and debts, tax, employees, contracts, real estate, litigation, licences and data protection, and turns the findings into warranties, indemnities and escrow in the purchase agreement. In the EU, deals in sensitive sectors may require approval from the foreign investment screening mechanism before completion, and in Romania, as of November 2026, the filing obligation applies above EUR 5 million in sensitive sectors.
Key takeaways
- 1In a share deal the company's entire history passes to the buyer; in an asset deal assets and liabilities are chosen. Employees transfer to the buyer only when an operating business, or part of one, is acquired as a unit that continues to operate, not when individual assets are bought.
- 2Every due diligence finding should become one of four things: a price adjustment, a condition precedent, a specific indemnity or a decision not to buy.
- 3Warranties and indemnities are worth only what can be collected: escrow, a holdback of part of the price or warranty insurance secure collection.
- 4Regulation 2019/452 continues to apply until the new regulation applies on January 17, 2028; the actual decision belongs to the national mechanism.
- 5In Romania, under GEO 17/2026, an investment requiring approval may not be completed before it is obtained, and the fine is up to 10% of the investor group's worldwide turnover.
An Israeli company acquiring an existing company abroad buys, in one go, customers, employees, licences and a market presence. It also buys everything the company has done until now: tax debts, claims, problematic contracts and regulatory breaches. Due diligence is the tool that distinguishes between the two, and the purchase agreement is where you decide who bears each risk. This guide describes the structure, the review checklist and the clauses in the agreement, and also addresses foreign investment screening in the EU and reporting in Israel. For due diligence on a single real estate asset see Due diligence for a property abroad.
Share deal or asset deal: what is the difference?
In a share deal you buy the company as it is, including its liabilities; in an asset deal you buy only what you choose. In a share deal the company continues to exist, the contracts and licences remain with it (subject to change-of-control clauses), and the buyer replaces only the shareholders. In an asset deal the buyer, or a subsidiary it has set up, buys assets, contracts and goodwill, and must transfer each of them separately.
| Issue | Share deal | Asset deal |
|---|---|---|
| Past liabilities | Pass with the company | Remain with the seller, except what was agreed or what the law transfers |
| Contracts | Remain, unless there is a change-of-control clause | Require assignment, and sometimes the counterparty's consent |
| Licences and permits | Usually remain, sometimes notice is required | Sometimes not transferable, and new ones must be applied for |
| Employees | Continue with the same employer | Usually do not transfer. In the EU they transfer to the buyer only when an operating business or part of one is transferred as a unit that continues to operate (Directive 2001/23) |
| Transaction taxes | Under local law; sometimes stamp duty or transfer tax on shares | Sometimes VAT and transfer taxes on real estate, unless a going-concern exemption applies |
| Complexity | One document, broad review | Many transfers, focused review |
Under Article 3(1) of Directive 2001/23/EC, when a business, or part of one, is transferred as an economic entity that retains its identity and continues to operate with the buyer, the rights and obligations under the employment contracts existing on the date of transfer pass to the buyer by reason of the transfer itself. This is the case, for example, when a plant, a shop or an entire line of activity is acquired together with its customers, equipment and staff, and continues to be run. When only individual assets are bought, such as equipment, inventory, a property or a customer list, without the activity itself, the employees do not transfer and stay with the seller. The line between the two is judged on the facts of the deal and the law of the country, so it is checked before signing. For the seller's considerations, including tax, see sell the property or the company's shares.
What is reviewed in due diligence before acquiring a company abroad?
The main areas are reviewed: corporate, accounts and debts, tax, employees, contracts, real estate, litigation, licences, data protection and intellectual property. The review starts with a detailed questionnaire for the seller and a data room, and continues with an independent check of the registers and conversations with management.
| Area | What is reviewed | Red flags |
|---|---|---|
| Corporate | Articles of association, share register, capital, pledges over shares, resolutions, authorized signatories, beneficial owners | A gap between the register and the documents, pledged shares, unreported options |
| Accounts and debts | Audited financial statements and a current trial balance, loans and balances between the company and its shareholders in both directions, debts to suppliers and service providers, unpaid customers and debt ageing, bank loans, guarantees given by the company, off-balance-sheet liabilities, working capital | Undocumented shareholder loans or withdrawals, suppliers in arrears, old customer debts not collected, a guarantee for a related party's debt, gaps between the statements and the books |
| Tax | Tax and VAT returns, open audits, transfer pricing, accumulated losses, incentives subject to conditions | Open assessments, undocumented related-party arrangements, an incentive that will be cancelled on change of control |
| Employees | Employment contracts, collective agreements, independent contractors, pensions, claims, employee options | Employees classified as freelancers, unpaid contributions, enhanced severance clauses |
| Contracts | Main customers and suppliers, change-of-control and exclusivity clauses, loans and guarantees | Dependence on one customer, a termination right on change of control, financial covenants |
| Real estate | Ownership or lease, registration, encumbrances, permits and permitted use | A lease that ends on change of control, construction without a permit |
| Litigation | Pending and threatened claims, administrative proceedings, insolvency | Consumer or environmental claims, attachments |
| Licences | Operating licences, standards, environmental permits, export control and sanctions | A licence personal to a departing manager, an expired permit |
| Data protection (GDPR) | Databases, legal basis for processing, processing agreements, transfers outside the EU, security incidents | An unreported data breach, marketing without consent, unregulated transfers |
| Intellectual property and systems | Registration of trademarks and patents, ownership of code, software licences | Development carried out by a contractor without an assignment of rights |
The data room is also subject to the GDPR. Personal data on employees and customers is passed to the buyer only to the extent necessary, in aggregated or redacted form as far as possible, and under a confidentiality agreement. An Israeli buyer receives data outside the EU, so the seller must make sure the transfer is regulated.
Which registers are used to check a foreign company?
The country's companies register, beneficial ownership register, insolvency register, pledges register and land register. Most registers in the EU are online, and some are also accessible through the EU e-Justice portal. Access to beneficial ownership registers was restricted after the European Court of Justice judgment of November 22, 2022, so sometimes an application must be filed or a local lawyer engaged. In addition, check the court portals, the tax authority (debts and a certificate of no debts where available) and the sanctions lists. A practical example of a review in Romania: Due diligence in Romania and The Romanian land register extract.
How are due diligence findings translated into the purchase agreement?
Through warranties, specific indemnities, a price mechanism and security for collection. Each finding receives one of four treatments: a price reduction, a condition precedent that the seller remedies before completion, a specific indemnity, or a decision to walk away from the deal.
- Warranties: statements by the seller on the company's condition (financial statements, taxes, employees, contracts, litigation, compliance). A breach gives a right to compensation, subject to the limitations in the agreement.
- Disclosure letter: the seller discloses exceptions to the warranties; what has been disclosed usually does not give rise to compensation, so read it carefully.
- Specific indemnity: for an identified risk, such as an open tax audit or a pending claim; the seller pays the full loss arising from it, with no de minimis threshold.
- Tax covenant: the seller bears taxes relating to the period before completion.
- Limitations: a minimum claim threshold, an overall cap, and different contractual limitation periods for general warranties, tax and fundamental warranties (title to shares, authority).
- Security: escrow over part of the price for a defined period, a holdback, an earn-out, a guarantee from the controlling shareholder, or warranty and indemnity (W&I) insurance.
- Price mechanism: completion accounts or a fixed price based on a past balance sheet (locked box) with a prohibition on "leakage" of value to the seller.
- Conditions precedent: regulatory approvals, foreign investment screening approval, consents of counterparties to material contracts, merger control approval.
Warranties from a seller who receives the money and leaves are weak protection. When the seller is a private individual or a company about to be wound up, escrow or warranty insurance is the only practical protection.
Does acquiring a company in the European Union require foreign investment screening approval?
Sometimes yes: if the company operates in a sensitive sector and the transaction exceeds the national thresholds, approval is needed before completion. Regulation (EU) 2019/452 created a framework for cooperation between Member States and for screening foreign direct investment, but the decision itself belongs to the national mechanism. In 2026 a new regulation replacing it was adopted; it was published in the Official Journal on June 26, 2026 and will mostly apply from January 17, 2028. It requires every Member State to operate a screening mechanism with a minimum sectoral scope, and extends coverage to EU subsidiaries of investors from outside the EU. An Israeli buyer is an investor from outside the EU, so the law of the target country is checked already at the letter of intent stage.
Example: Romania
In Romania the mechanism is set out in Emergency Ordinance 46/2022, and was amended by Emergency Ordinance 17/2026, which entered into force on March 13, 2026. As of November 2026, according to a CMS summary:
- Threshold: an investment in a sensitive sector worth more than EUR 5 million (until March 2026 the threshold was EUR 2 million). Interdependent investments within 12 months are counted together.
- Who is covered: investors from the EU, including Romanians, and also investors from outside it.
- Standstill: the investment may not be carried out before approval is received.
- Timetables: 45 days for the screening committee's opinion from a complete filing, followed by another 10 days for the Prime Minister's decision; in an in-depth review up to 90 days, with one extension of up to 45 days.
- Sanctions: a fine of up to 10% of the investor group's worldwide turnover, and the possibility of annulling an investment carried out in breach of the rules.
- Asset deal: caught only in defined sectors, such as critical technologies, critical infrastructure, pharmaceuticals, the defence industry and food and agriculture.
Beyond foreign investment screening, also check the obligation to notify the competition authority under national or European turnover thresholds, and sector-specific approvals (banking, insurance, telecommunications, energy). On an Israeli company doing business in Romania generally: An Israeli company doing business in Romania.
What is the sequence of steps in acquiring a company abroad?
- Confidentiality agreement and letter of intent: estimated price, structure, exclusivity in negotiations and timetable.
- Feasibility check: foreign investment screening, merger control, tax structure in Israel and the target country.
- Due diligence: legal, financial, tax, and sometimes technical and environmental.
- Findings report: ranked by severity, with a recommendation for each finding.
- Negotiating the purchase agreement: warranties, indemnities, price and security.
- Signing and completion: sometimes on one day, and sometimes with a gap during which the conditions precedent are satisfied.
- After completion: updating registers and authorized signatories, integrating systems, reporting in Israel and tracking the claim periods under the agreement.
What must be reported in Israel about acquiring a company abroad?
An Israeli-resident company or individual holding a foreign company attaches Form 150 to the annual return, and transactions with the acquired company as a related party are reported on Form 1385. The holding structure (directly, through an Israeli subsidiary or through a holding company in a third country) affects the tax on dividends and on gain from a future sale, the foreign tax credit and whether the acquired company may be treated as a controlled foreign company. The financing (equity or a shareholder loan) and the pricing of services between the companies must be on market terms. Coordinate the structure with the tax adviser in Israel before signing, not after. See Tax for an Israeli investor in a foreign project company and Israel's tax treaties by country.
What to check before signing and how we accompany it
Before signing, choose between a share deal and an asset deal according to the risks the review revealed, make sure every material finding is reflected in the price, a condition precedent or an indemnity, check in advance whether foreign investment screening or merger control approval is required, and secure collection through escrow or insurance. We accompany Israeli buyers in planning the transaction, managing due diligence together with local lawyers and accountants, and negotiating the purchase agreement, and coordinate the holding and reporting structure with the tax adviser in Israel.
This guide is general information as of November 2026 and is not legal or tax advice. Screening thresholds, employment law and transaction taxation differ between countries and change, and every transaction is examined on its own merits.
More on doing business abroad: A joint venture with a local partner abroad · Opening a company abroad: comparison between countries · All guides for companies and businesses
Frequently asked questions
What is the difference between buying the shares and buying the assets of a company abroad?
In a share purchase you buy the company with all its liabilities, and the contracts and licences remain with it. In an asset purchase you choose which assets and contracts transfer, and each is transferred separately. When individual assets are bought, employees do not transfer; only when an operating business is transferred as a unit that continues to operate do its employees pass to the buyer under EU law.
What does due diligence for acquiring a company include?
A review of corporate matters, accounts and debts (including balances between the company and its shareholders and debts to suppliers), tax, employees, contracts, real estate, litigation, licences, data protection and intellectual property. The review relies on a data room, a questionnaire for the seller, an independent check of the registers and meetings with management.
What is escrow in a company acquisition?
Part of the price is deposited with an escrow agent for a defined period and is used to pay the buyer's claims for breach of warranties or indemnities. That way the buyer does not depend on the seller's ability to pay after receiving the money.
What is the difference between a warranty and an indemnity in a purchase agreement?
A warranty is a statement by the seller on the company's condition, and its breach gives a right to compensation subject to proof of loss and the agreement's limitations. An indemnity is an undertaking to pay for a specific risk identified in advance, such as an open tax audit, regardless of whether it was disclosed.
Is approval needed to buy a company in Europe as an Israeli investor?
Only if the company operates in a sensitive sector and the transaction exceeds the country's thresholds. Then approval from the national foreign investment screening mechanism is required before completion, and sometimes also competition authority approval.
What is the threshold for foreign investment screening in Romania?
As of November 2026, under Emergency Ordinance 17/2026, the filing threshold is an investment of more than EUR 5 million in a sensitive sector, instead of EUR 2 million before March 2026. The transaction may not be completed before approval, and the fine for a breach can reach 10% of worldwide turnover.
Do the company's employees transfer to the buyer in an asset deal?
Not always. When individual assets such as equipment, inventory or a property are bought, the employees stay with the seller. In the EU, when an operating business or part of one is transferred as a unit that continues to operate with the buyer, the rights and obligations under the employment contracts pass to the buyer under Directive 2001/23.
What is reported to the Israel Tax Authority after acquiring a company abroad?
An Israeli resident holding a foreign company attaches Form 150 to the annual return, and transactions with the company as a related party are reported on Form 1385. The holding and financing structure affects the tax on dividends and capital gains, so it is planned before signing.
Read next · 10 min readPermanent Establishment and a Remote Employee Abroad: When an Israeli Company Is Taxable in the Employee's Country, and What About Payroll and Social SecurityAn employee working from home abroad may create a permanent establishment for an Israeli company. Fixed place, dependent agent, building site, OECD 2025 home office update, payroll.Read the guideSources
- Council Directive 2001/23/EC (transfer of undertakings) - Article 3 (legislation.gov.uk)
- CMS Expert Guide to Foreign Investment Screening Laws - Romania
- Baker McKenzie - The revised EU FDI Screening Regulation (July 2026)
- e-Justice Portal - Beneficial Ownership Registers Interconnection System (BORIS)
- Israel Tax Authority - Form 150: Declaration of holding in a non-resident body of persons
- Israel Tax Authority - Form 1385: Declaration of international transactions
