Company purchases and sales

There are many reasons for a company purchase or company sale. But the interaction between the parties involved is a key determiner of success for any corporate transaction – whether as a share deal or an asset deal. In addition, there are a range of other factors which influence a transaction’s outcome and which buyers and sellers need to take into account. The reality is that there are not just legal issues to consider in M&A (mergers & acquisitions); strategic, tax and business aspects also play an essential role. A successful company purchase or sale requires an interdisciplinary approach and individual planning and implementation.



Asset deal and share deal: the two types of transaction

A transaction can take the form of an asset deal, in which all the main assets needed for the company to continue to operate are transferred to a new owner. Alternatively, the shares in the company can be transferred to a new owner. This is known as a share deal.

In an asset deal, the company purchase agreement lists all of the assets and legal relationships which the buyer wishes to acquire. These include existing contracts with employees, business partners, customers or suppliers, raw materials or primary products in the warehouse, semi-finished products, manufacturing equipment, and lots more. The company purchase agreement should define these assets in as much detail as possible. The advantage for the buyer is that the company purchase agreement outlines precisely which assets the buyer is acquiring and which it is not. There is no obligation to assume liabilities, for example. This can be particularly important in situations in which the target company is in financial distress and the buyer may not be aware of all of its liabilities at the time of the transaction. The buyer in an asset deal has less choice with regard to employment contracts, which pass to the new company. This situation is governed by the rules on transfer of business laid down in section 613a of the German Civil Code (Bürgerliches Gesetzbuch, BGB).

In a share deal, the existing legal entity – a limited liability company (GmbH) or limited partnership with a limited company as general partner (GmbH & Co. KG), for example – is preserved unchanged. As buyer, you acquire some or all of the shares in that company. A share deal is particularly useful where important licences or permits are tied to the company and the buyer would otherwise need to reapply for them. A share deal also leaves all existing contractual relationships in place, as well as any liabilities, including tax liabilities, and liability risks, although these can be identified through careful due diligence.

What buyers need to be aware of in a transaction

The basic principle is that a company purchase, or a company sale, should be carefully planned and prepared in advance. In a company takeover, it is important that, as far as possible, the various legal, strategic, tax and business-related questions raised by the transaction are examined and answered beforehand.

You should carry out thorough due diligence on your target company. This covers numerous legal, tax-related and financial aspects, such as: How is the company positioned in the market? What are the future prospects for the company’s business model? What opportunities, but also what risks, are associated with the acquisition – both during and after the transaction (post-merger integration)? Are there any specific tax-related features to consider? Because the seller provides you as the buyer with sensitive business data for the purposes of the due diligence, you usually need to sign a non-disclosure agreement or NDA to access it.

Often, a preliminary agreement is signed before the due diligence is carried out. In this agreement you signal your interest – initially without obligation – as a potential buyer. This preliminary agreement is usually called a letter of intent. The actual contract negotiations can begin in parallel with the due diligence.

How a company purchase might be implemented

If the outcome of the due diligence is positive and you and the seller of the company agree on the content of the company purchase agreement, the company purchase can then be concluded. As a buyer, you should pay particular attention in the company purchase agreement to the precise description of the subject matter of the contract, including the receivables, employment contracts, legal relationships and liability and warranty issues that you are assuming, the purchase price, the date of acquisition and other assurances and guarantees. If all outstanding questions have been clarified, the agreement is signed and, if needed, recorded by a notary. Once all of the preconditions in the purchase agreement are satisfied and you have paid the purchase price, the transfer is complete. This phase of signature and performance of the agreement is called signing and closing.


What sellers need to be aware of in a transaction

The first rule for the seller is the same as for the buyer: the sale needs to be carefully planned and prepared in advance and, as far as possible, the various legal, strategic, tax and business-related questions raised by the transaction should be examined and answered beforehand.

As a seller, it is a good idea to look at your company from the potential buyer’s perspective, and to analyse its strengths and weaknesses and possible liability risks in advance of any transaction. This can be done in a vendor due diligence review. It is also advisable to obtain a business valuation with a view to achieving as high a sale price as possible. This gives you a realistic assessment of your asking price and offers from potential buyers and enables you to focus your negotiations.

The seller often has to disclose sensitive business data to the buyer for the purpose of its due diligence review. Two key considerations for the seller here are, firstly, what data to select and, secondly, how to ensure it remains confidential. It is standard practice here for potential buyers to sign a non-disclosure agreement, which should be carefully formulated. If you use a digital data room, in which documents are placed for the purposes of the due diligence and are updated as necessary, IT security also has an important role to play as far as confidentiality is concerned.

The same applies to the letter of intent, a preliminary agreement between you as seller and the potential buyers that is often signed before due diligence is carried out. The letter of intent is a signal of a potential buyer’s interest – initially without obligation – in acquiring your company. Because a key factor for you as seller is the ability to plan the transaction with certainty, the letter of intent should be reviewed by a lawyer and you should seek legal advice during parallel or subsequent contract negotiations. This helps ensure that the transaction has the desired outcome for you as seller.


Implement your transaction with expert advice

Company sales and purchases are among the most legally complex of all corporate transactions. They require careful preparation and planning beforehand and expert support during implementation. Schultze & Braun provides exactly that: Our experts have decades of experience in assisting with corporate transactions on both buy- and sell-side, as well as outstanding expertise in legal, strategic, tax and business advice and the avoidance of liability risks.

As well as advising potential buyers, we similarly represent the interests of the previous owners during the sale of their company – which, if the company is an SME, is often a life’s work – so that their departure goes as desired.

The teams that work on transactions comprise specialists in company and commercial law, insolvency and reorganisation, and tax law. They have the skills and knowledge needed to ensure that your company purchase or sale can be successfully completed.

What can we do for you?


Dr. Ludwig J. Weber, LL.M.
Rechtsanwalt (Attorney at Law), Fachanwalt für Steuerrecht (Certified Specialist in Tax Law), Fachanwalt für Handels- und Gesellschaftsrecht (Certified Specialist in Commercial Law and in Company Law)


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