The sale of a company is a complex process that cannot be completed simply by reaching an agreement and—practically simultaneously—handing over the property, as is the case, for example, with the sale of a vehicle. In practice, after the purchase agreement is signed—which must be notarized for corporations—the agreed-upon conditions for closing must first be fulfilled before the transfer of ownership can take place. Only after these conditions are met does economic ownership transfer to the buyer (closing). At the signing, therefore, an agreement is first reached regarding the sale of shares as well as the contractual obligation to transfer ownership. The closing then marks the point in time of the economic transfer.
Conditions precedent—that is, possible or necessary prerequisites for completion—may include, for example:
• Approvals (Trade Licensing Office, building permits, antitrust authorities)
• Consent from third parties (spouse pursuant to Section 1365 of the German Civil Code (BGB), co-shareholders, contractual partners/creditors if a “change of control” clause exists)
• Registration in the Commercial Register
• Waiting for the balance sheet date
• Payment of the purchase price
If extraordinary measures or decisions are to be coordinated with—or at least communicated to—the prospective buyer(s) even during the negotiation phase of a business sale, this applies all the more to the period between signing and closing. Formally, the seller remains responsible and has decision-making authority during this phase. However, to avoid jeopardizing the transaction at the very last minute (note the buyer’s right of withdrawal), the parties should in any case coordinate closely and work together. The seller should be aware of their special duty of care in this regard. An important recommendation at this point is to document in writing the communication between the seller and the buyer, as well as any consents received. It is already clear from these remarks that the time between signing and closing should be kept as short as possible.
This period also raises the question of when the company’s employees should be informed about the change in ownership. There is no one-size-fits-all solution here. The most common approach is for the seller and buyer to jointly inform the employees, for example, at a staff meeting immediately following closing. A major concern for all buyers is the retention of key employees in particular following the acquisition. Here, the buyer certainly needs to exercise tact when introducing themselves and presenting their plans. The seller, who is often still connected to the company through an agreed-upon transition period or a consulting agreement, can also make a valuable contribution in this regard.
If the sale of the company is not carried out through the sale of shares—a so-called “share deal”—but rather through the sale of business assets (an “asset deal”), the conditions for closing must first be fulfilled after the purchase agreement is signed. It should also be noted here that, in the resulting transfer of operations, existing employment relationships are (intended to be) transferred as well, and any objections from individual employees must be awaited, if applicable.
A critical issue is the payment of the purchase price, particularly if it is to be funded primarily through bank financing. Existing conditions imposed by the financial institutions should be given due consideration when determining the closing conditions. In general, special attention should be paid to financing. The seller is therefore well advised to have a prospective buyer demonstrate their financing capacity early on and to obtain a reliable financing confirmation before the signing date. Nothing is more frustrating than running into restrictions on actions or even having to rescind the transaction.
