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.
- 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.
- 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.
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.
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.