Purchase a GmbH & Co. KG in Germany
Purchase agreement, taxes and strategy in the purchase of a company under german law
The GmbH & Co. KG still enjoys great popularity, especially among german medium-sized and family businesses. Therefore, the GmbH & Co. KG is also at the center of company successions. If an internal succession or a takeover by family members is not possible, it often comes to a company takeover by third parties through the acquisition of a GmbH & Co. KG.
Information on the acquisition of a GmbH in Germany can be found here: Purchase of a GmbH
If you are looking for information on the sale of a GmbH & Co. KG in german practice, please click here: Sale of a GmbH & Co. KG (following soon)
From the point of view of the buyer of a GmbH & Co. KG the following questions arise:
- How should the purchase of the GmbH & Co. KG be structured?
- What needs to be considered when financing the GmbH & Co. KG?
- Which tax aspects should be considered by the buyer?
- Which risks have to be considered when buying a company?
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Legal services for the purchase of a GmbH & Co. KG in Germany
The acquisition of a company places high demands on advisors, because each company has a variety of legal relationships and the purchase of a company follows its own rules. Our certified specialists for german corporate law and tax advisors will accompany you in the purchase of a GmbH & Co. KG in Germany. We support you in the preparation and planning as well as in the drafting and negotiation of contracts within the scope of the respective transaction. We also ensure that all tax pitfalls are identified. For the buyer, german tax law plays a particularly important role in the acquisition of a GmbH & Co. KG as a partnership.
- Typically, our consulting services for company acquisitions cover the following aspects: Support in approaching the target company
- Review of the GmbH & Co. KG from a legal and tax point of view (legal and tax due diligence)
- Coordination of other advisors (for example, management consultants in the area of financial due diligence)
- Support in the valuation of the GmbH & Co. KG
- Drafting of the purchase agreement
- Conducting and supporting the contract negotiations
- Tax support for the acquisition of the GmbH & Co. KG
Important cornerstones in the purchase of a company in german practice
At the beginning of the intended acquisition of a GmbH & Co. KG, it is necessary to clarify which essential steps are to be carried out. What should be taken into account when planning such a company purchase and what mistakes should be avoided? Before concrete contractual negotiations can take place between the seller and the buyer, a non-disclosure agreement (also known as a non-disclosure agreement or NDA in german legal practice) is usually concluded. The conclusion of a non-disclosure agreement is intended to enable the management of the GmbH & Co. KG to grant the potential corporate purchaser access to sensitive information concerning the company. In the case of larger company transfers, a letter of intent is also regularly concluded between the two parties, in which the structure of the company purchase and the purchase price criteria, as well as any further details, are already documented. Lawyers call this letter of intent, or LoI for short.
In the vast majority of german cases, the GmbH & Co. KG to be taken over is subjected to a so-called due diligence. With the help of due diligence, the buyer gains insight into certain areas of the company, usually specified by the buyer, in order to be able to form a picture of the legal, tax and financial circumstances of the target company. For this purpose, the buyer usually uses the services of specialized lawyers, tax advisors and management consultants. After completion of the due diligence, the buyer receives a summary report. On the basis of this due diligence report, the purchaser will then enter into contract negotiations with the seller and its advisors. During the contract negotiations, the buyer and seller, again supported by the respective law firms and other advisors, negotiate all details of the purchase agreement.
Assuming a corresponding agreement, the conclusion of the purchase contract, also called signing, takes place. In any case, the acquisition of the shares of the general partner GmbH requires notarization. In german practice, for reasons of legal certainty, the purchase of the limited partner's shares, which in themselves can be transferred without any formalities, is usually also notarized. In the case of a so-called asset deal, notarization also promises greater legal certainty. The company purchase agreement often contains various conditions (including the approval of shareholders, banks and authorities). After the conditions have been met, the transfer of the company to the buyer takes place under german property law, which is often recorded between the buyer and seller in a so-called closing memorandum.
The company purchase agreement in Germany
At the heart of the purchase of a GmbH & Co. KG is the company purchase agreement. Buyer and seller negotiate a multitude of legal, tax and economic aspects, all of which are regulated in the company purchase agreement. A rough overview of the individual subjects of regulation can be found below:
- Concrete description of the object of purchase (company shares or individual assets). In the case of an asset deal, there is no automatic transfer of all legal relationships of the GmbH & Co. KG to the purchaser. This transfer of rights must therefore be regulated in detail
- Legal protection of the buyer with regard to identified risks by agreeing on a catalogue of guarantees
- Purchase price payment and payment modalities, whereby a purchase price adjustment can also be agreed upon
- Agreement of a tax clause for the distribution of tax risks, which are regularly accrued on a reporting date basis
- Regulation on employment relationships to ensure that the transfer of business is secured
- Agreement regarding official approvals, such as antitrust requirements
- Statute of limitations regulations
- Customer protection regulations, employee non-solicitation clauses and restrictions on competition
- Requirements for the closing (for example, resignation by the managing directors and termination of management contracts)
- Arbitration clauses
Specific risks for the buyer side when purchasing a GmbH & Co. KG in Germany
The purchase of a GmbH & Co. KG in Germany usually involves the acquisition of two companies. The buyer regularly acquires both the operating limited partnership and the managing general partner GmbH. If it is a so-called unitary company (GmbH shares are in the assets of the KG), the general partner GmbH is also "automatically" taken over by the buyer with the takeover of the KG shareholding. In all other cases, the general partner GmbH must be transferred separately.
As a rule, the acquisition of the general partner GmbH does not involve any particular risks and does not require any extensive due diligence. This applies in any case if, as is usually the case, the general partner does not maintain its own business operations but merely conducts the business of the limited partnership. The takeover of the general partner GmbH should therefore be reconsidered if the general partner GmbH itself was operationally active and may therefore contain hidden risks. In this case, it may make more sense for the purchaser to install a newly established GmbH in Germany without economic and legal risks as general partner.
Moreover, when purchasing a GmbH & Co. KG, the strict german capital maintenance law from the sphere of the GmbH must also be taken into account. In the GmbH, payments to shareholders from the assets required for the maintenance of the share capital lead, in accordance with the provisions in §§ 30 et seq. GmbHG to liability. According to the german supreme court rulings of the BGH, these strict liability provisions of §§ 31, 30 GmbHG can also be applied by analogy to the GmbH & Co. KG can be applied analogously. Thus, if the seller has made high excess withdrawals in the past, it cannot be ruled out that the statutory capital maintenance liability will also affect the buyer after the purchase of the GmbH & Co. KG. Therefore, the buyer should also review withdrawal practices in the KG in recent years in order to prevent a personal claim after a possible later corporate insolvency. The aforementioned particularities should be taken into account in the intended acquisition of a GmbH & Co. KG and reviewed as part of the due diligence process in Germany.
A detailed description of disputes following the purchase of a shareholding in a company and the entry into the company (post M&A dispute) under german law can be found here: Dispute after company acquisition (following soon)
Tax implications of the acquisition of a GmbH & Co. KG?
The GmbH & Co. KG, as a partnership, is not subject to income and corporation taxes. In this respect, it is "transparent" for tax purposes. Taxation with income tax takes place at the level of the partners with the respective personal tax rate. The GmbH & Co. KG is only liable for trade tax. This structure leads to the fact that when acquiring a GmbH & Co. KG, in german practice, in contrast to the purchase of a GmbH, no profits are also sold, because these have already been taxed by the sellers. These profits should therefore be withdrawn before the sale.
In Germany the purchase of a GmbH & Co. KG is recorded in the balance sheet of the purchaser. The GmbH & Co. KG is a partnership. When acquiring a partnership, from a tax perspective the acquisition of the business of the GmbH & Co. KG by way of an asset deal is equivalent to the purchase of shares (share deal). The assets taken over by the purchaser are capitalized in the purchaser's balance sheet irrespective of whether a share purchase or an asset deal is involved and depreciated over time in accordance with the standard depreciation methods. Thus, when acquiring a GmbH & Co. KG, in german practice the buyer can depreciate the purchase price paid in the future to reduce profits for tax purposes.
More information on the tax effects of business transfers in Germany can be found here: Taxation Purchase/Sale of GmbH & Co. KG (following soon)
It should only be mentioned in passing that the purchase of a GmbH & Co. KG can also result in high transaction taxes under german law. However, there is an exemption from turnover tax if there is a sale of the business as a whole. If, however, real estate assets are moved within the scope of the acquisition of the GmbH & Co. KG, they may be subject to real estate transfer tax.
If you have any questions regarding the purchase of a company, our lawyers in our offices in Hamburg, Berlin, Munich, Frankfurt and Cologne will be happy to discuss the matter with you.