For virtually every business owner, the time eventually comes when they must—or wish to—step back from their business. But handing over the business to a successor is a complex process that involves many legal and organizational challenges. We’ve compiled some of the questions our readers and DUB.de users ask most frequently. To answer them, we’re turning to the experts:
Daniel Mundhenke and Andreas Grandt from BRL Boege Rohde Luebbehuesen, a specialized firm of attorneys, public accountants, and tax advisors, explain what matters most.
Purchase Agreement
Some confidentiality agreements entered into prior to the signing of a contract require a contractual penalty. Why?
Proving that a specific breach of confidentiality resulted in financial loss is very difficult—for example, proving that the disclosure of internal company information led to a loss that can be quantified in concrete terms. In the case of a contractual penalty clause, in principle, “only” proof of the breach of confidentiality is required. This enhances the protection of the party disclosing its internal information.
Is there a standardized purchase agreement for a GmbH?
There is no standard contract that can be readily adopted. Of course, there are standard contractual clauses that are regularly included in purchase agreements for GmbH shares. However, these must always be adapted to the specific case. It is always necessary to assess which provisions are required in the specific situation.
This depends largely on the economic agreement between the parties. In addition to the standard provisions, purchase agreements typically include supplementary agreements that depend, for example, on the situation of the target company, the entrepreneur’s personal circumstances, and financing issues. Every acquisition of a GmbH therefore requires a thorough legal and tax review in advance.
Valuation
When is the seller liable for information included in the business valuation and purchase price determination?
Statutory warranties are almost always excluded in the business purchase agreement, and instead, a separate list of warranties specified in the contract is agreed upon. In principle, liability then applies only to the circumstances that are specifically named in the contract. For example, the accuracy of the annual financial statements from previous years is often guaranteed, and these statements frequently serve as the basis for determining the purchase price.
In addition, the company’s projected future performance is regularly taken into account when determining the purchase price. The seller is generally not liable for such projections or assumptions. However, it is possible that portions of the purchase price will not be paid until the company achieves certain targets in the future. This is known as an “earn-out.”
Family-Owned Businesses
Do I have to sell my business instead of transferring it within the family during my lifetime if I continue to rely on its income?
Many business owners wish to transfer their business to the next generation within the family. This is often done through anticipated succession or a gift. This transfer can also be carried out, in whole or in part, for consideration. In addition, there are various structuring options available to ensure that the entrepreneur continues to receive income from the company, such as by reserving a right to income. This ensures that the entrepreneur continues to share in the company’s profits. It is also conceivable to transfer only part of the business to the next generation and retain some shares
What are the advantages of selling the business to a third party rather than transferring it within the family?
First and foremost, a transfer within the family requires that there be suitable and interested successors. Problems can arise if several children who are potential successors express interest, but not all of them are chosen to take over the business.
In this case, issues such as recognition, economic fairness, and inheritance law matters arise in connection with the entrepreneur’s eventual death. In such a situation, an in-depth discussion within the family is advisable, possibly with the assistance of a mediator. If the internal family succession plan remains unresolved, a sale is a viable option. Economic considerations, such as an obvious need for capital or favorable sale opportunities, may also argue in favor of a sale.
Planning Timeline
When is the right time to start thinking about how to structure succession within the company?
Properly structuring succession within the family requires careful planning, as there are many factors to consider. A timeframe of more than one year is not unrealistic for this. In fact, however, succession should be considered even earlier in order to establish appropriate structures in a timely manner. Not least, illness or death can derail plans.
Coordination with co-owners, which is sometimes necessary, can also complicate the desired arrangement. When selling the company to a third party, a timeframe of six to nine months—from the start of the search for a buyer to the signing of the purchase agreement—is realistic.
Legal Advice
Should you hire a specialized attorney when selling a business?
Absolutely. Selling a business is a complex legal process. It requires not only knowledge of the relevant laws but also experience. In any case, the attorney should have in-depth knowledge of corporate and contract law. It also makes sense to involve the attorney and tax advisor who have been advising the company to date, in order to take their knowledge of the company into account.
