Sale GmbH & Co. KG under german law
What must the seller consider when selling a GmbH & Co. KG in Germany?
When selling a GmbH & Co. KG in Germany many legal and tax issues have to be considered. The company sale should be prepared with the necessary care. The well-prepared company sale enhances the position of the seller in the contract negotiations with the buyer. The seller must know that, as a rule in german practice, the company buyer will only accept a high purchase price if the seller accepts far-reaching contractual guarantees and thus liability risks. Appropriate preparation of the sale with the help of specialized lawyers will enable the seller to better assess and manage the risks.
Background information on related topics can be found here:
- Purchase of a GmbH & Co. KG in Germany from the perspective of the buyer
- Purchase or sale of a limited partnership interest in Germany
- Sale of a GmbH in Germany
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Legal expertise in the sale of a company in Germany
Our team of lawyers and certified specialists for german corporate law will support you in the sale of a GmbH & Co. KG and other M&A transactions. From our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne, we advise our clients nationwide:
- Structuring the sale of the company
- Design of the company exposé,
- Documentation and preparation of the sale of the GmbH & Co. KG by drafting confidentiality agreements and letters of intent
- Support of the company valuation
- Drafting of the company sale contract, support of the contract negotiations
- Tax structuring of the company sale
Knowing the motives and view of the buyer
The seller of a GmbH & Co. KG in Germany can improve his negotiating position if he has as much background information as possible about his negotiating partner and his objectives.
If the buyer is a company with a balance sheet, the seller should use all publicly available sources to obtain information. These include the german commercial register and company register, from which a lot of important company information, such as the composition of the management and the group of shareholders, as well as the latest annual financial statements can be taken.
In german practice, it is not uncommon for the buyer to be a financial investor or a strategic investor. Each buyer pursues individual interests in the company takeover. The financial investor will often already have the profitable resale in mind. His "investment horizon" is usually limited in time. The strategic investor, on the other hand, often strives for a permanent commitment, as he intends to use synergy effects and patents, licensing rights and other important assets that are useful for him in the long term.
Planning and procedure of the sale of the GmbH & Co. KG in Germany
Since the sale of a company is usually a complex procedure, timely preparation by specialized lawyers and tax advisors is an important success factor. German M&A practice shows that many risks on the seller's side can be reduced with company sales that have been planned well in advance. During the preparation phase, company-specific risks must be identified, evaluated and, if necessary, eliminated. If it is not possible to eliminate the risks, they must be appropriately captured during negotiations and when drafting the contract. Well in advance of a sale, it may be necessary to improve personnel policies and take balance sheet measures. If the group of shareholders consists of a group that is difficult to control, early coordination should take place in the shareholders' circle in the run-up to the sale of the GmbH & Co. KG, an early vote among the shareholders should ensure the sale of the company. Clarifying shareholder resolutions, shareholder agreements and corresponding powers of attorney for the negotiators create the necessary legal certainty in german practice. Prior to negotiations with the buyer, the seller must subject the GmbH & Co. KG a company valuation in order to define his negotiation goals. It must be taken into account that there are various valuation procedures.
The company review by the buyer in Germany (due diligence)
Since the buyer side does not know the target company, it subjects the GmbH & Co. KG to an examination and risk assessment. The buyer's due diligence can cover all areas and legal aspects of the GmbH & Co. KG. As a rule in german practice, the target company is examined from a legal, tax and financial perspective. In Germany, the due diligence is carried out by lawyers, certified specialists, auditors and tax advisors.
For the risk review, the seller provides the buyer's lawyers with a data room (dataroom) containing all important documents. From a legal point of view, the german company law and contractual relationships in the GmbH & Co. KG are checked (e.g. do the limited partner participations exist, have contributions been repaid, have important lease and license agreements been effectively concluded?). The result of the due diligence is summarized by the buyer's lawyers in a report. After evaluating the company, the buyer can form a picture of the opportunities and weaknesses of the planned acquisition.
The due diligence is followed by contract negotiations. The negotiations in turn lead to the agreement of a company purchase contract. With the so-called closing (occurrence of all agreed conditions precedent), the company or the shareholding is legally transferred to the buyer in Germany. After the closing, the purchaser becomes the person entitled to dispose of the company.
GmbH & Co. KG purchase agreement under german law
During the contract negotiations, the buyer and seller agree on the wording of the purchase agreement. In the german practice of lawyers, special standards for the company purchase agreement have emerged. The general framework of the company purchase agreement can be outlined as follows:
- Warranty and liability provisions as well as limitations of liability
- Purchase price regulations and, if applicable, purchase price adjustments
- Provisions on the transfer of business
- Tax clauses;
- Antitrust regulations and conditions precedent;
- Statute of limitations
- Restrictions on competition to the detriment of the seller, if applicable
- Jurisdiction and arbitration clauses
Taxation of the seller of a GmbH & Co. KG in Germany
Insofar as the sold GmbH & Co. KG is a commercial partnership (conceivable would also be an asset-managing GmbH & Co. KG with a managing limited partner), the starting point for the taxation of the sale of shares in Germany is the provision of Sec. 16 (1) No. 2 EStG. The seller's capital gain may be tax-privileged. A far-reaching tax privilege is the tariff reduction under Section 34 (2) No. 1 EStG. According to this, the capital gain can be taxed at only 56% of the average tax rate (limited to gains of up to EUR 5.0 million if the taxpayer has reached the age of 55). In addition, tax relief by claiming the tax allowance of 45,000.00 EUR is also conceivable. Further information on the taxation of the seller of a GmbH & Co. KG can be found here: Taxation Sale GmbH & Co. KG in Germany
Disputes during the sale of a company in Germany (post-M&A disputes)
If a company sale in Germany is not accompanied sufficiently professionally, also on the legal side, disputes often arise during or at the latest after the sale. A classic area of conflict in german practice are the so-called purchase price adjustment clauses or downstream purchase price payments (so-called "earn-outs"). However, contractual guarantees are also a frequent cause for dispute.
The situation becomes particularly serious 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 in german law.
Finally, conflicts also frequently arise if the seller of the company remains in the company as an executive or even as a managing director even after the sale.
You can find more information on disputes after the sale of a company here: Dispute after company sale in Germany
The ROSE & PARTNER team of english-speaking german lawyers and tax advisors
Our lawyers, certified specialists for german corporate law and tax advisors have many years of experience in corporate transactions. We accompany your company sale from the planning to the conclusion of the company purchase agreement. If you have any questions regarding the sale of your GmbH & Co. KG in Germany, you can contact us at any time without obligation. A contact person is available to you at all times in our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne.