Share Deal
A share deal is a specific type of corporate acquisition in which shares—such as stocks or ownership interests—are sold. A share deal differs significantly from an asset deal, as it involves the transfer of the entire company as a legal entity. In a share deal, the buyer assumes not only all assets but also all liabilities and existing contractual relationships of the company. This method of acquiring a company is particularly popular for larger or complexly structured companies, as it enables a comprehensive acquisition.
Advantages of a Share Deal
A share deal offers numerous advantages for both buyers and sellers:
Simple execution: Since the buyer acquires company shares through a share deal, existing contractual relationships—such as lease, supply, and employment contracts—remain unaffected. There is no need to transfer assets or contracts individually, which significantly simplifies the share deal process.
Tax advantages for buyers and sellers:
- Under certain conditions, buyers can benefit from tax advantages, such as the use of tax loss carryforwards (Section 8c of the German Corporate Income Tax Act (KStG)). However, this depends on the company’s tax structure and the number of shares transferred.
- For sellers, the share deal offers tax advantages, as gains from the sale of company shares are often taxed under the partial income method (Section 17 of the German Income Tax Act (EStG)), which results in a reduced tax burden.Business Continuity: Under a share deal, the buyer acquires the company in its existing form, including intangible assets such as trademark rights, patents, or customer relationships. This enables a seamless continuation of business operations.
Comprehensive Acquisition: The buyer acquires not only the assets but also the entire legal and operational foundation of the company. A share deal thus offers a comprehensive and efficient way to take control of a company.
Risks and Disadvantages of a Share Deal
Despite its advantages, a share deal entails specific risks:
Assumption of Liabilities: When acquiring company shares as part of a share deal, the buyer also assumes all of the company’s liabilities, including hidden or unknown legacy liabilities. These include financial obligations, pending legal disputes, or environmental risks.
Liability Risks for the Seller: The seller remains liable for certain legacy liabilities even after the sale, unless these were explicitly excluded as part of the transaction. In practice, warranty and indemnification clauses are used to minimize the liability risk in a share deal. A balance sheet warranty is a commonly used tool that ensures the company’s financial situation is accurately represented at the time of sale
Due diligence obligations: Comprehensive due diligence is essential in a share deal to identify potential risks early on. This review should cover areas such as finance, taxes, the legal framework, and existing contracts. The following deserve special attention:
- Tax liabilities (e.g., hidden reserves).
- Long-term obligations, such as pension commitments.
- Any contractual clauses that could be triggered by a change in ownership structure (so-called “change-of-control” clauses).
Key Differences Compared to an Asset Deal
In a direct comparison, the share deal differs from the asset deal in terms of the transfer structure:
In an asset deal, assets, rights, and liabilities are transferred individually. This often requires the consent of third parties, such as contractual partners. In a share deal, on the other hand, existing contracts automatically remain in effect, which simplifies the process.
From a tax perspective, the share deal often offers advantages for the seller, while the asset deal may be advantageous for buyers who wish to acquire only specific assets or take advantage of tax depreciation opportunities.
Legally, the company remains a single entity in a share deal. In an asset deal, however, only a portion of the business (e.g., machinery, real estate, or customer contracts) is transferred, which can be advantageous for acquiring insolvent companies or for tax optimization.
Conclusion
A share deal is the preferred method of acquiring a business when the goal is to take over an entire company or acquire a majority stake. Buyers benefit from acquiring all assets and existing business relationships, while sellers can realize tax advantages through the sale of shares. At the same time, a share deal carries risks that can be minimized through thorough due diligence. Whether a share deal or an asset deal is the optimal choice ultimately depends on the individual objectives and the structure of the transaction.
Disclaimer
This article is provided for informational purposes only and does not constitute legal or tax advice. Since every transaction is unique and numerous legal and tax considerations must be taken into account, it is recommended to consult a specialized attorney, tax advisor, or M&A advisor.