The question of which form of transaction is “better” arises initially only in the case of a GmbH, AG, KG, and OHG; for sole proprietorships and GbRs, the form of transaction is always an asset deal. An asset deal means that the business owner sells their company to a buyer who, in addition to the assets—that is, fixed and current assets—also assumes responsibility for the employees of the company being sold. The remaining assets, such as receivables and bank balances, as well as liabilities, remain with the seller. The guiding principle is that only those items explicitly agreed upon as the subject of the sale in the purchase agreement are actually sold. This is one reason why purchase agreements containing a correspondingly long list of assets to be sold are often very long and comprehensive, though not necessarily more complex.
In addition to liability issues, an asset deal offers the buyer primarily tax advantages, since under commercial and tax law, the acquired fixed assets can be depreciated, whereas in a share deal, there is no immediate option to depreciate the purchase price. With regard to risks, valuation issues for the buyer are also relatively easier to narrow down or less complex within the scope of the due diligence that always precedes a company acquisition. The standard due diligence review questions—such as the recoverability of the company’s receivables, contingent liabilities, legal disputes, and other issues associated with the acquisition of the company’s legal entity—do not apply. These, and the associated risks, are not assumed by the buyer and remain the responsibility of the seller. This makes an asset deal attractive to a buyer on the one hand, but less attractive to the seller on the other, since the corporate shell remains with the seller. Risks in this context arise, for example, from warranty obligations that the seller may be required to fulfill toward former customers but is unable to do so, since its employees and production assets were transferred as part of the corporate transaction. In this context, the seller(s) must therefore ensure, when drafting the purchase agreement, that the buyer agrees to assume such warranties on behalf of the seller, typically for a fee. The buyer, on the other hand, must assess the extent to which existing contracts—particularly those with customers—can be transferred to the buyer’s company. Since this must be done on a contract-by-contract basis, and it is generally not to be expected that, in business transactions involving a large number of customers, all of them will agree in individual contracts to the transfer of their contracts to the buyer, the buyer must anticipate a corresponding loss of customers, which often reduces the value of the business.
With regard to the transfer of existing employment relationships, an asset deal also constitutes a legal succession under Section 613a of the German Civil Code (BGB). The buyer assumes all rights and obligations arising from the existing employment relationships as of the date of the transfer of operations. An asset deal can be advantageous for the acquirer—in addition to the aforementioned tax benefits—even if, for example, risks arising from pension obligations or other liabilities—such as past product liability claims or an emerging distressed situation—are to be isolated (though it should be noted that even an asset deal may be subject to challenge by an insolvency administrator). Another difference between a share deal and an asset deal is that an asset deal does not require notarization, thereby eliminating notary fees for the contracting parties.
Notwithstanding these special cases, however, most corporate transactions in Germany are still structured as share deals. This form of transaction—the transfer of shares, including all rights and obligations, receivables, assets, and liabilities, as well as the company’s contracts (and thus customer and supplier relationships), constitutes a universal succession, making it less complex; furthermore, the transaction is generally not subject to value-added tax. In addition, a sale via a share deal is generally more tax-advantageous for the seller; pursuant to Section 3 No. 40 of the German Income Tax Act (EStG), 40% of the capital gain is tax-exempt, provided that the seller of the shares has been a shareholder of the company for the five years prior to the sale.
