The purchaser of an enterprise must obtain comprehensive knowledge about the object of the acquisition in order to be able to assess the appropriateness of the purchase price as well as to control the acquired enterprise and integrate it into its own business. When making corporate acquisitions in Finland, the language barrier alone often makes it difficult for the foreign investor to get acquainted with the legal framework. It is, however, of crucial importance for the investor to have at his or her disposal sufficient expertise on the legal conditions in Finland.

Most of the legal and economic conditions prevalent in Finland do not need to be explained to the parties to a local transaction amongst Finnish business people; for the international investor these conditions may very well come as a surprise. Insufficient knowledge of the legal framework may lead to the misinterpretation of information of decisive importance either for the acquisition itself or for assessment of the price. In order to avoid such misunderstandings when laying the groundwork for international corporate acquisitions in Finland, it is necessary for the investing company to cooperate closely with its Finnish advisors, in order that such advisors may take into account their client’s individual expectations and strategies. In Finland, where international mergers and acquisitions are concerned, it is usually not sufficient to perform a standard due diligence in connection with occasional advice during the contractual negotiations.

The conclusion of a confidentiality agreement is the starting-point for any serious discussions with regard to an acquisition. Without such an agreement, the seller will not be willing to disclose any sensitive information on the enterprise to be sold. The buyer, on the other hand, usually demands the conclusion of a preliminary agreement with the purpose of ensuring that the seller will not negotiate with any other interested parties for a certain period of time. It is common to outline the principal structure and conditions of the planned acquisition in the preliminary agreement. However, it is not advisable to go into detail at this stage. At the beginning of the negotiation process it is impossible to make any reliable statements regarding the appropriate price or the desirable structure of the acquisition. If the agreements in this phase are more detailed than necessary, it is highly likely that matters revealed during the due diligence exercise will later render it necessary to reopen negotiations on points that were previously regarded as settled.

For the purchaser, the first item on the agenda when preparing a corporate acquisition is to determine whether, following closer scrutiny, the enterprise to be acquired still matches up to first impressions. The term economic, tax and legal due diligence is now in general use to refer to the performance of the necessary tax, legal, and economic analysis.

A properly performed legal due diligence will not only ascertain the legal risks and chances, but may also provide direct assistance in arriving at the appropriate structure for the purchase operation. Its findings may reveal, for example, that it is better not to directly acquire company shares but rather a part of the company’s business in the form of an asset deal. This makes it possible for the purchaser to exclude such parts of the enterprise from the transaction that may prove unnecessary or even disadvantageous for the purchaser; for example, because it is encumbered with liability risks that cannot be controlled by the purchaser, such as risks related to environmental hazards or product liability.

For example, the following matters are subject to the legal scrutiny:

Carrying out legal due diligence is valuable even where nothing surprising is discovered in the process. The due diligence analysis provides a good basis for integration work in the months following the acquisition.

The due diligence is usually carried out on behalf of the purchaser on the basis of the information and documentation submitted by the seller. In many cases, the enterprise is also scrutinised by the seller itself, as the contractual warranties and representations provided by the seller usually include the condition that all information is given on the basis of careful scrutiny and appropriate expertise. The seller’s own enquiries and the disclosure of their results can also help the seller to reduce the liability to be accepted in the contract. It is a common strategy amongst sellers to seek release from liability on the grounds that the relevant information had been given to the purchaser.

A text provided by the purchaser usually forms the basis of the negotiation process. This is in both parties’ interest because the main focus of the contract is usually on provisions securing the purchaser’s interest. Conversely, provisions mainly affecting the seller’s rights – principally the details of the payment of the contract price – are not as complex in terms of contract drafting technique as the valuation of the enterprise.

The warranties and representations given by the seller are the core of each enterprise acquisition contract. In addition to a number of standard warranties, the purchaser usually demands additional warranties that have been identified as necessary in the course of the due diligence.

The purchaser will be prepared to pay the agreed purchase price only for an enterprise that corresponds with his or her expectations. Therefore, the warranties and representations contained in the contract should be drafted with great care. In many contracts the general provisions of the contract frequently render any special warranties given by the seller largely ineffective. The seller’s liability may be excluded if the purchaser is aware of the facts giving rise to the potential liability, or even where the purchaser could have known such facts. The seller may also be able to avoid liability by claiming to be unaware of certain circumstances, and further claiming that this lack of awareness was not due to gross negligence. If the seller is not personally active in the enterprise, it may very well be the case that he or she is not personally aware of all relevant information. It is also scarcely possible to determine objectively what the seller should have known.

The tug-of-war with regard to the formulation of warranties and representations usually occurs in the principal part of the contractual negotiations.

It can certainly be regarded as an advantage for a party if the contract is drafted in that party’s mother tongue. In international transactions, negotiating and drafting the contract in English is usually a practical approach. Insofar as translations are required in the course of the negotiations, these translations should be made or checked by a lawyer. Without legal training, even the best translator will often find it impossible to correctly understand technical legal terms, and this almost inevitably leads to the production of incorrect translations.

No particular legal considerations weigh against the use of English as the contract language in Finnish corporate acquisitions. However, one unfortunate side-effect of the popularity of English as the contract language in international acquisitions is the tendency to use Anglo-American contractual practice as a guide when formulating the contents of the contract. There are reasons to advise strongly against the replication of Anglo-American contractual forms in transactions taking place outside the Anglo-American legal culture.

It is both common and reasonable to agree that the purchase contract will be governed by the law of the country in which either the enterprise to be acquired or the purchasing investor have their places of business. The use of Anglo-American model texts in the context of the law of a different country leads to unnecessary inconsistencies. If the contractual negotiations are conducted on the basis of such texts, they may easily result in contracts that are hard for both the Anglo-American and the Continental European lawyer to interpret. More often than not, this leads to a failure to achieve an unambiguous and practicable agreement.

The objects of most corporate acquisitions in Finland will be a private limited company (Oy), which is overwhelmingly the most common Finnish corporate form. In the course of the acquisition, the purchaser appoints new persons for the organs of the company. In this process, it should be kept in mind that Finnish business practice makes a distinction between the company’s daily management and overall responsibility for the company.

A managing director is usually appointed to take care of the daily management of the company. The competences of the managing director are restricted to the running of the day-to-day business of the company.

The overall executive responsibility and liability for the proper administration of the company lies with the board (hallitus). In many companies, the board is not practically involved in the running of day-to-day business and convenes only a few times a year; it is therefore comparable with a supervisory board in terms of office conduct. However, the members of board cannot afford to restrict their activity to the control, exercised on an occasional basis, of the activities of the managing director. The members of the board are liable to the shareholders for the appropriate management of the company in general, and to the company’s creditors for compliance with the rules of the Limited Companies Act. This liability makes it necessary for the board to keep itself actively up to date about the affairs of the company.

It cannot be recommended to foreign managers of international company groups who neither work in Finland nor know the Finnish language to accept personal liability for circumstances over which they have no personal control. In cases where the foreign parent company wishes to exert direct personal control in the board, it is common to make use of Finnish auditors or attorneys to represent the parent company in the board of the subsidiary.