What is a sha­re deal?

Pros and cons of the sha­re deal

Sha­re deal means sale of the sha­res of a com­pa­ny wit­hin the mea­ning of sec­tion 453 BGB, so a legal purcha­se of pre­ven­ti­ve natu­re and a trans­fer of sha­res by way of assign­ment. The sha­re deal means for the buy­er a uni­ver­sal suc­ces­si­on, i.e. a com­ple­te tran­si­ti­on of exis­ting rights and obli­ga­ti­ons in par­ti­cu­lar fis­cal natu­re.

Bene­fits of sha­re deals

  • A rela­tively simp­le deter­mi­na­ti­on of the object of purcha­se
  • All con­trac­ts shall remain unaf­fec­ted
  • The sel­ler is left with no cor­po­ra­te coat
  • In regards to the Labour Code no indi­vi­du­al – or group-legal regu­la­ti­ons are affec­ted, howe­ver the­re is duty to inform the Eco­no­mic Com­mit­tee accord­ing to § 106 para 2 BetrVG, as far as such a com­mit­tee exists
  • Sha­res are gene­ral­ly free for sale (§ 151 GmbHG), unless the­re are restric­tions impo­sed by the com­pa­ny con­tract
  • AG: basi­cal­ly free dis­po­sal of sha­res (excep­ti­on regis­te­red sha­res with restric­ted trans­fer, see § 68 para 2 AktG). Appro­val of the com­pa­ny by sta­tu­te. In cer­tain cases stock­hol­ders mee­ting con­sent requi­red (chan­ge of cor­po­ra­te pur­po­se, sec­tions 23 para) 3 No. 2, 179 para 1 Ger­man Stock Cor­po­ra­ti­on Act as well as when sel­ling essen­ti­al parts of the com­pa­ny, see Holz­mül­ler doc­tri­ne.

Can be detri­men­tal to the sha­re deal:

  • Taking over all and the­re­fo­re also unknown lia­bi­li­ties
  • Bin­ding to ear­lier decisi­ons of the organ
  • Pos­si­ble impact of sec­tion 37 GWB appro­val requi­re­ment of natio­nal and European anti­trust aut­ho­ri­ties
  • Form requi­re­ment: Nota­ri­za­ti­on of assign­ment of the sha­res of GmbH
  • Listed AG:mandatory public offer to remai­ning share­hol­ders in a sha­re purcha­se of min. 30%  (§§ 33f WpÜG)
  • Be purcha­sed cer­tain packa­ges of sha­res, the acqui­rer is sub­ject to cer­tain repor­ting and infor­ma­ti­on obli­ga­ti­ons
  • The lia­bi­li­ty risks of sha­re deals are deter­mi­ned by the legal form of the com­pa­ny being sold:
    • GBR, OHG per­so­nal lia­bi­li­ty for all old lia­bi­li­ties (§ 130 HGB).
    • GmbH & Co. KG, KG: the gene­rall part­ner is liable for all old debts with his ent­i­re assets, limi­ted part­ners are liable to the out­si­de up to the amount of their lia­bi­li­ty amount regis­te­red in the com­mer­ci­al regis­ter
    • GmbH, no per­so­nal lia­bi­li­ty accord­ing § 13 Abs. 2 GmbHG
    • AG, lia­bi­li­ty based on the company’s assets only, see § 1 Abs. 1 Ger­man Stock Cor­po­ra­ti­on Act

Still, the effec­ts of the Insol­vency Act to note for com­pa­nies in cri­sis.

Effec­ts of sha­re deals on the tran­sac­tion

The uni­ver­sal suc­ces­si­on and the asso­cia­ted risks lead to a detail­ed and cost-inten­si­ve Due Dili­gence, as well as to exten­si­ve lia­bi­li­ty and war­ran­ty requi­re­ments. The­se lia­bi­li­ties and war­ran­ties have usual­ly limi­ta­ti­on peri­ods of 6 mon­ths to 2 years and are backed through purcha­se pri­ce­re­ten­ti­ons, gua­ran­tees or escrow accounts, or  by so-cal­led war­ran­ty and indem­ni­ty insuran­ces. This lia­bi­li­ty and gua­ran­tee claims can some­ti­mes be rela­ti­vi­zed by de mini­mis-, bas­ket­ball – and CAP clau­ses. But the effect remains, that signi­fi­cant sha­res of the purcha­se pri­ce – this can go up to 100%  – are avail­ab­le to the sel­ler in a restric­ted or time off­set way. Claims of the buy­er, which may lead to a reduc­tion in purcha­se pri­ce often resultt from tho­se gran­ted gua­ran­tees and lia­bi­li­ties.

Tax impli­ca­ti­ons of the sha­re deal

The­re are two major draw­backs of a sha­re deal, espe­ci­al­ly in com­pa­nies with los­ses, the­se los­ses perish accord­ing to § 8 c KStG whol­ly or part­ly. In addi­ti­on, the acqui­rer has asset costs under the sha­re purcha­se agree­ment, but tho­se are initi­al­ly not tax-deduc­tible or deduc­tible – at least in the Ger­man tax law. The only way would be “to lift” the hid­den reser­ves of the sel­ling com­pa­ny befo­re the actu­al purcha­se, so that the purcha­ser has in the acqui­red com­pa­ny a hig­her poten­ti­al of depre­cia­ti­on. This “lif­ting” of hid­den reser­ves is howe­ver as well as impos­si­ble accord­ing Ger­man balan­ce sheet and tax law wit­hout an upstream sales and con­ver­si­on pro­cess.

On the sel­lers side, the capi­tal gain is sub­ject to dif­fe­rent taxa­ti­on,  depen­ding on the sel­lers cor­po­ra­te form. If the sel­ler is a cor­po­ra­ti­on the capi­tal gain is gene­ral­ly tax-free. Sin­ce 2004 this tax exemp­ti­on has been redu­ced again, i.e 5% of the tax-free capi­tal gains are con­si­de­red non-deduc­tible ope­ra­ting expen­ses. For for­eign share­hol­ders, the taxa­ti­on is regu­la­ted through the dou­ble tax trea­ties with the respec­tive coun­try.

For natu­ral per­sons, the capi­tal gain will be taxed after the par­ti­al inco­me pro­ce­du­re, sin­ce 2009. I.e., with invest­ments of more than 1% of the capi­tal of the com­pa­ny wit­hin the last 5 years, 60% of the capi­tal gains with the per­so­nal tax rate are tax­able, 40% are exempt from tax. Ana­log, the expen­ses that are rela­ted to the sale are taken into account at 60%. The soli­da­ri­ty surch­ar­ge is added respec­tively.

Wrap up….

From our point of view and expe­ri­ence, depen­ding on of the cour­se the indi­vi­du­al situa­ti­on of a com­pa­ny, the net value achie­ved in a sha­re deal may be lower than in an asset deal, due to the tax tre­at­ment of sha­re deals as well as the lia­bi­li­ties and gua­ran­tees to sub­mit. This state­ment is limi­ted howe­ver to SME’s. In addi­ti­on, for­eign medi­um-sized buy­ers feel some­ti­mes uncom­for­ta­ble in regards to the poten­ti­al pit­falls of the Ger­man tax and cor­po­ra­te law.. For lar­ger com­pa­nies, a sha­re deal is recom­men­ded for rea­sons of cer­tain­ty.

At the level of the share­hol­ders, a sha­re deal may lead to a hig­her tax bur­den. This among other things due to the absence of loss car­ry for­wards and the no lon­ger exis­ting pos­si­bil­ty to rai­se hid­den reser­ves.

This con­tri­bu­ti­on can descri­be only basic effec­ts of a sha­re deals. Depen­ding on the con­stel­la­ti­on, the­re are through an intel­li­gen­te tran­sac­tion con­cept pos­si­bi­li­ties to opti­mi­ze and to com­bi­ne the bene­fits of sha­re and asset deal.