M&A – Main differences between Share Deals and Asset Deals in Germany

Practical Guide

Germany

What are the main features of a share transfer agreement in Germany?

Principle of free transferability of shares.
Any prior shareholder or board approvals to be obtained for share transfer by seller
A right of first refusal may be conferred in favour of others shareholders of the company
Articles of association or shareholders’ agreement may set restrictions to the free movement of quotas/shares

Usually transfer of all assets of the business as an ongoing concern (in particular clients, commercial lease rights, insurance policies) + all employees.
Any prior shareholder or board approvals to be obtained for management of transferring company to negotiate and execute an asset deal;
Some public licences and governmental permits may not be transferred along with the business but a new one must be applied for by the buyer.

No mandatory legal requirements as to the content of the SPA
The SPA needs to be carefully tailored in order to include appropriate representations, warranties and indemnities (in particular regarding labour, tax, social security and environmental matters, among others) and collateral
In addition to a SPA, there is also a legal requirement to transfer the shares (transfer agreement). This is usually done in one contractual document.
Formalities depend on the type of company

GmbH (llc): Notarization is required (for both, SPA and share transfer agreement), the new share owner is entered into the shareholders´ list, which is entered in the commercial register
AG (jsc): Formalities depend on the type of shares, usually written form + hand over of shares issued to the bearer or re-registration in the share register

No mandatory legal requirements as to the content of the asset deal; however, it is important to take into account the principle of certainty and to describe the assets transferred in a precise and concrete manner
The transfer does not entail the debts/liabilities. Therefore, each creditor has to agree to the transfer of a particular debt/liability.
In case of transfer of the entire business, the Seller and the Buyer are liable on joint and several basis for all past debts related to it. The Buyer is liable with all its assets (not only the business acquired).
The business transfer agreement needs to be executed before a Notary
Permits and authorisations necessary to carry on the business have to be transferred to the buyer
The employee notification procedure must be activated by the Seller or the Buyer (statutory rights and obligations at transfer of business).

Seller: Taxation of the sale proceed at the personal tax rate, depends on the legal form of the seller
Buyer: (possibly) Real estate transfer tax between 3,5% and 6,5%, if 95% or more shares are acquired in a company which is the owner of the real estate property.
No VAT.

Seller: Taxation of the sale proceed at the personal tax rate, depends on the legal form of the seller
Buyer: (possibly) Real estate transfer tax between 3,5% and 6,5%, if real property is part of the assets
VAT: no VAT for the transfer of entire business or of an organised business unit

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