Acquisition of companies, acquisition of shareholdings in Germany
Company takeover under german law - purchase process from the buyer's point of view
As a law firm for german business law, we advise and represent you as a buyer (buy side) in the purchase of a company or a share in a company. At the beginning of a company takeover there is the planning, which includes the determination of the transaction goals and the transaction structure. In every company and participation purchase, a risk assessment is carried out, which is accompanied by the negotiation and drafting of the contract.
Information on the sale of a company or investment from the seller's perspective can be found here: Company Sale/Seller's View.
Detailed information on the purchase of various types of companies as well as on the taxation of company purchases in Germany can be found here:
- Purchase GmbH
- Purchase GmbH & Co. KG
- Taxation purchase GmbH
- Taxation of purchase GmbH & Co. KG
For a non-binding inquiry, please contact one of our experts directly by phone or e-mail or use the contact form at the bottom of this page.
Our legal expertise in german company acquisitions at a glance
At ROSE & PARTNER, a team of certified specialists for german corporate law and tax advisors will assist you in all stages of the purchase of a company or an interest in a company. Our advice covers strategic as well as all german legal and tax issues.
- Review of the offer and company exposé, letter of intent
- Transaction planning and definition of transaction objectives
- Setting the course for asset deal or share deal
- Execution of legal and tax due diligence (analysis of the company to be acquired)
- Company valuations for buyer and seller
- Reduction of liability risks of the buyer
- Support during negotiations
- Drafting of the company purchase agreement with individual purchase price clauses and purchase price adjustments
- Tax audit of the purchase
- Post-contractual support of the company purchaser, management of disputes after completion of the company purchase (so-called post-M&A disputes), in particular in cases of fraudulent misrepresentation and fraud by the seller
Information and background on the acquisition of a company in Germany
In german business practice, a fundamental distinction is made between two different cases when acquiring a company from the buyer's point of view: the acquisition of a financial interest (actor: financial investor) or an entrepreneurial interest (actor: strategic investor). Frequently, the legal form of the target company plays only a subordinate role for the company acquirer (GmbH, AG, GbR, KG or GmbH & Co. KG) in the first step.
1. interests of the buyer
The goal of financial investors is basically the realization of as high as possible, risk-adequate profits on the subsequent divestment. To this end, financial investors in Germany develop an exit strategy, at the end of which there is a profitable IPO of the acquired company or a lucrative sale, for example to an industrial partner.
The strategic investor usually aims to achieve synergy effects and diversification, i.e. horizontal or vertical product expansion of a group, with his entrepreneurial investment. However, the goals can also be the reduction of dependencies or the acquisition of new technologies, patents or research results. As a rule in german practice, the intention is to purchase brands, special know-how or technical expertise at favorable prices. Often, access to untapped markets or the acquisition of highly qualified management is also intended.
For all acquirers, the transaction objectives must be defined early on in the acquisition process. Aspects such as the amount of the subsequent purchase price, guarantees and liability, continued employment of managers, executives and personnel, non-competition clauses on the part of the seller, etc. must already be taken into account at this stage. In connection with the development of the transaction objectives, german tax law issues in particular must also be taken into account. The buyer regularly intends not only to pay a purchase price as low as possible, but also to claim tax relief on the purchase price as quickly as possible.
(Especially on the sale of a company from the seller's point of view).
2. typification of the company purchase in Germany
The purchase of a company is generally based on a detailed purchase agreement. Depending on the interests of the company purchaser, the company purchase in german practice is carried out by way of a so-called share deal (purchase of the company shares) or an asset deal (purchase of the individual assets of the company). An asset deal is mainly considered if only a part or a division of a company is to be acquired and no or only certain liabilities are to be assumed. Finally, an asset deal may also be preferred by the purchaser for tax considerations, as the acquisition of a business by way of taking over individual assets can generate depreciation volume.
For background information on german tax law, click here: Taxation of the acquisition of a business in Germany
Depending on whether the company is acquired by way of an asset deal or a share deal, the provisions of the purchase agreement must be structured differently in Germany: From a contractual point of view, for example, there are differences in the design of the warranty clauses or guarantee provisions. In the case of an asset deal, separate provisions are made in the purchase agreement for liabilities and legal relationships with third parties who do not expressly agree to the purchase of the company and an assumption of the contract by the purchaser. Irrespective of this, it is necessary, both in the case of the acquisition of shares and the acquisition of individual assets, to review the individual contractual relationships and assets of the german company to be transferred.
3. Due diligence in the acquisition of a company in Germany
In the case of a company sale, usually only the seller has important information concerning the value and future earnings situation of the company. The buyer is usually much less well informed. In addition, the seller is inclined to provide only positive information that can increase the purchase price and to conceal negative information. German business practice shows that sellers are rarely confronted with claims for damages due to the disclosure of false information afterwards, since cause and damage are often difficult to prove.
The so-called due diligence process is intended to eliminate the information deficiency that typically exists on the part of the buyer. In the course of a due diligence process, the buyer is provided with a detailed and systematic analysis of the company's data. On the other hand, the seller can reduce his liability risk by disclosing value-forming factors and legally relevant data. From the buyer's perspective, due diligence thus enables a risk and value assessment as well as the preservation of evidence.
The buyer can only form a coherent picture of the value and risks of the company to be purchased if he examines and correctly interprets the business, market-relevant, tax and legal framework conditions. In the course of the legal examination (legal due diligence), questions from the following areas often have to be answered and regulated by the german purchase agreement:
- Appropriate warranty and guarantee rules, assurances and liability rules;
- Purchase price, purchase price adjustment;
- Liability for old liabilities;
- Liability risks for share purchasers due to open deposits;
- German Labor law problems, safeguarding the transfer of business;
- German antitrust law requirements;
- Tax and social security regulations;
- Statutes of limitation;
- Restrictions on competition for the seller;
- Arbitration clauses.
Detailed on business valuation and share valuation and reconciliation from enterprise value to equity value.
Evaluation from our expert!
In our team, tax advisor Martin Stürmer takes care of the company valuation for the determination of the purchase price. As a specialized expert, he works together with our lawyers in german corporate law. You can also engage him independently of a legal mandate.
Ask for a quote for a business valuation or a cost-effective indicative business valuation:
4. Reduction of liability when acquiring shares in a german limited liability company (GmbH)
Purchasers of GmbH shares generally assume that they will only bear legal and economic risks of the acquired company from the time of acquisition. However, Section 16 (2) GmbHG provides that the purchaser of the shares is jointly and severally liable with the seller of the shares vis-à-vis the GmbH also for such contribution obligations that were established prior to the acquisition of the shares and are still in arrears at the time of acquisition. It is irrelevant for this liability whether the purchaser had knowledge or no knowledge of the seller's own contribution obligations in arrears. According to the prevailing opinion, the own contribution obligations in arrears are to be defined very broadly. The share purchaser in Germany may be liable in the following cases, for example:
- Outstanding, unpaid capital contributions;
- Existence of differential liability claims against the seller pursuant to § 9 GmbHG;
- Existence of an underbalance liability of the seller resulting from additional contribution regulations pursuant to §§ 26 et seq. GmbHG (payment obligations and ancillary performance obligations);
- Default liability pursuant to §§ 22, 24, 28 and 31 (3) GmbHG;
- Liability for breach of capital raising and capital maintenance regulations, e.g. as a result of prohibited repayments contrary to Sections 30, 31 (1) GmbHG.
There is no absolute protection against these risks to be assumed by the buyer. However, german legal due diligence makes it possible to analyze the risks more closely and to examine potential problems and liability risks in detail. In order to protect the buyer's own assets, it may be opportune to acquire the GmbH shareholding, including the liability risks that may exist, only indirectly via an intermediary holding company with limited liability. If there is a suspicion of liability with high financial risks, preventive measures by means of contractual, factual and economic hedging instruments are advisable.
5. advising the buyer on the acquisition of a company or an equity interest in a company
A company acquisition requires careful preparation in german practice. Only after the necessary information has been made available a buyer can even enter into contractual negotiations.
Lawyers support the buyer of a company by looking after his interests in the preparation of the company transaction, for example in the examination of the company exposé handed over by the buyer, in the examination of the letter of intent or in the performance of the due diligence in German and English.
Professional advice by lawyers and tax advisors already in the preparatory phase often saves the buyer of a company high costs. Already in the preparatory phase, it is important to reduce the liability risks of the buyer (for example, in the drafting of confidentiality agreements or by breaking off the contract negotiations) as well as to push the information gathering in a professional manner.
Of course, the drafting and negotiation of the purchase agreement also belongs in the hands of a specialized german commercial law firm. The adjustment of the various legal parameters is just as important as the tax-optimized acquisition process to be developed by the tax lawyer or tax advisor.
Law firms accompanying the transaction should also represent the interests of the buyer in the post-contractual phase (M&A litigation), for example if contractual guarantees and assurances prove to be false after the transaction and claims against the seller have to be enforced on this basis. Finally, the conclusion of an M&A insurance policy to secure the purchase of the investment can also be a topic of advice. For more details, please click here: M&A insurance in Germany
If you intend to purchase a company in Germany and have questions regarding the purchase process, our lawyers in our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne are at your disposal at any time.
Disputes during the sale of a company in Germany (post-M&A dispute)
Disputes in german practice often arise when the seller of a company remains with the company as an executive or managing director after the transaction has been completed. When a dispute arises in Germany, it quickly leads to dismissals, terminations and even bans from the company. Typical areas of conflict are also so-called purchase price adjustment clauses and contractual guarantees. Post M&A disputes in connection with downstream purchase price payments (so-called "earn-outs") are also almost classic.
Finally, the stakes are particularly high when the seller is accused of fraudulent misrepresentation or even fraud. In addition to high claims for damages, the seller may even face criminal prosecution. A good legal defense is essential here.
Further information on disputes after the purchase of a company can be found here: Dispute after company purchase